IBM: UK incumbents fear falling behind digital banks

Traditional banks and financial services institutions are concerned about falling behind the latest digital banks, new research from IBM and Yobota shows

Legacy system banks and financial services institutions have voiced concern over their ability to keep up with the thriving and agile digital banks and fintech companies, new research shows.

The combined data, collected in separate surveys by IBM and Yobota has revealed that UK banks and financial servises institutions are experiencing roadblocks where innovation is concerned. Yobota is a  London-based technology company – and it commissioned an independent survey among 261 senior decision-makers within UK-based banks and financial services companies.

Yobota’s research indicates that 73% of UK-based banks and financial services companies predict that financial institutions must begin operating more like technology companies if they are to deliver innovative products and services to customers

According to figures gleaned, 55% of incumbents blamed a lack of formal guidance from regulators as a reason for them being held back, and 50% blamed legacy technology, while 60% said neo banks will overtake them in the future, with 59% attributing this to their ability to meet customer needs more effectively.

Better Banking technology needed

The vast majority of respondents pinpointed a lack of innovative technology as the main cause for incumbents and legacy system finserv companies falling behind the curve. However, it also revealed that the majority remain bullish on tech investment for 2022,  with 75% of them saying more sophisticated use of technology is a critical part of their business’ plan for improving its products and services for the coming year. 

Incumbents have been slow to adopt the latest agile approaches used by digital banks because the implementation of new tech has been slow over the past year due to their organisation’s reliance on legacy systems.  

An industry survey by IBM also found a lack of agile technology to be a considerable barrier for incumbents maintaining their leadership in the banking and finserve marketplace.

However, IBM’s study, which was conducted by Censuswide on behalf of IBM and questioned more than 600 UK IT decision-makers, professionals working across financial services, telecommunications, and the public sector, also found that 45% of the UK IT professionals it questioned said regulation and compliance was their biggest barrier to digital transformation, followed closely by data security concerns (43%). 

According to the IBM report, IT leaders place compliance and security as their key motivators for modernising, as businesses and government agencies face increased cyber threats and policy changes. 

The results show that as organisations attempt to balance innovation with security and compliance, 87% have already adopted – or plan to adopt, hybrid multi-cloud IT architecture. A similar figure (88%) have already adopted or plan to adopt industry-specific cloud platforms to accelerate the digital transformation process.  

Security, cloud platforms, and rapid transformation in Banking

Key findings in the IBM study include the following points; 

Security and Compliance in Banking

  • Increased risk from security threats is a big factor in organisations’ modernisation strategies with 33% agreeing it is one of the top drivers of IT transformation. 
  • And with cybersecurity attacks on the rise, 87% say they have invested, or plan to invest, in the latest enterprise-grade cloud security and encryption technology, such as confidential computing. 
  • To navigate stringent compliance protocols, 40% agree that new regulations or policies are a catalyst for innovation - creating opportunity to offer differentiated products or services.  

Prevention of Rapid Transformation in Banking

  • Yet, although security and compliance are key motivators for modernisation, IT leaders also view them as their biggest obstacles.  
  • In fact, regulation and compliance are the top barriers to digital transformation (45%) followed by data security concerns (43%).  
  • Compliance challenges can also stifle innovation, with nearly one-quarter (22%) of respondents saying compliance concerns hold their organisations back from working with third-party vendors.  

The role of cloud platforms in security stability   

  • As regulations and policies are increasingly put into place, many organisations are looking to industry-specific cloud platforms to help them adhere to these changes while still driving innovation.  
  • According to the study, 88% of overall respondents have migrated or plan to migrate to an industry-specific cloud platform. 
  • Nearly half of respondents (49%) say using a platform with built-in, automated regulatory compliance controls would make the biggest impact on accelerating innovation. 

A multi-channel approach to legacy banking innovation

Speaking about Yobota’s findings, Ion Fratiloiu, Head of Commercial at Yobota, said the COVID-19 pandemic had enforced irreversible change onto the traditional banking systems globally, and that innovation is now the only way to maintain a competitive position. He explained, “The pandemic has catalysed changes across the banking sector. Technology is now playing a far greater role in allowing finance companies to deliver exceptional products, services, and experiences to customers. 

“Clearly, the pace of change is a cause for concern among many banks and financial services firms. That 40% feel they are falling behind is telling – we should expect to see significant investment in fintech trends like Banking-as-a-Service and embedded finance in 2022, with banks keen to remain ahead of competitors. 

“Many of the more progressive strategies will likely involve cloud-native banking platforms. These will allow finance companies to deliver new and enhanced products more quickly, while also better supporting partnerships between banks, fintechs, and brands.” 

Howard Boville, Head of IBM Cloud Platform, believes the fintech industry is expanding at such speed that industries are under tremendous pressure to expedite their transformation to digital services. He said, “Highly regulated industries are feeling pressure to transform with an ever-increasing rate and pace. But they must not move security, resiliency, and compliance to the backburner on their mission to modernise. This is especially critical for financial services, telecommunications and government, where regulations are changing rapidly as exposure to cyberthreats have escalated to unprecedented levels.”

Boville added; “As regulations continue to advance, it is critical for companies to avoid vendor lock-in and adopt hybrid, multi-cloud strategies to achieve stability, keeping compliance and data privacy at the forefront.”

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