Are financial services companies ready for the rise of digital natives?

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Are financial services companies ready for the rise of digital natives?
These three tenets are the foundation for financial institutions to win over Digital Natives.
Photo by Jayden Staines on Unsplash

There is a saying that “money makes the world go round,” depicting the vital role of capital in businesses’ ability to operate, compete and thrive.

But the world is changing and tomorrow beholds a new, first-of-its-kind dominant consumer – the Digital Native – who will bring forward a new “currency” upon which businesses will be measured: digital trust.  And trust, once broken, is difficult to rebuild.

Digital Natives are expected to account for up to 50% of Asia’s consuming class by 2030, according to McKinsey & Co – their demand for instant gratification and a constant frictionless digital experience will set precedent for global consumers’ expectations from businesses in the coming years. Services like buy-now-pay-later are expected to witness over 30 percent per year rise over the next three years in Australia alone. The question at hand is, are businesses prepared for this newfound customer base?

The first industry to be put to the test will be financial services.  

Customer demand for digitally native transactions is hybridizing financial services with technology. From buy now, pay later options and robo-services to cryptocurrency transactions and blockchain, these institutions are inadvertently morphing into tech hubs, shifting the balance regarding the type of information they manage. Once primarily tenants of financial assets, these organizations are now massive data repositories, with all the risks and responsibilities that come with that. The more data an organization manages, the more it needs to safeguard. Similarly, the more frictionless experiences it offers to customers, the more trust needs to be guaranteed, in the absence of interpersonal connections.

To answer the call, financial services must be agile, resilient, and secure. And to do this, they must both embrace the power of cloud but also measure their approach to this journey. Mission-critical workloads, along with the massive troves of data moving through a financial institutions’ environment at any given time, require exceptional computing power and scale, and co-existence of compliance with innovation.

Many may be skeptical about compliance and innovation co-existing in a heavily regulated industry, but they can in fact propel each other when leaning into an open hybrid cloud strategy. Whether or not financial services get this right will determine if they’re able to earn and maintain Digital Natives’ trust and protect their competitive advantage over the next decade and beyond.

Here are key tenets the financial services industry must adopt to win over the Digital Native:

Keeping Your Data All in One Place Is Not Key to Success

The “Grand Migration” to cloud accelerated by the pandemic should not be perceived as carte blanche to move all workloads to the cloud. Not all data is created equal, and therefore not all data requires the same level of control and oversight. Determining what data should remain on-premises and which should migrate to the cloud – and why – is the first challenge. Otherwise, financial institutions risk their “grand migration” turning into a “grand isolation.”

But the opposite is also true. Currently, only 10% of banking institutions’ workloads have moved to the cloud, unnecessarily hampering their customer experience trajectory and overall business growth. When the right workloads reside in the right environment, businesses can see very powerful outcomes.

Financial services organizations need a strong foundation to propel them into the future, in the form of a modernized core architecture. One that is “liberated” from old heritages and reinvented through today’s mainframes built on real-time speed, security, and nimbleness. A foundation that will accommodate trillions of digital transactions without increased latency, critical for tasks like enterprise AI.

By coupling on-premises innovations with a hybrid cloud approach, financial services institutions can reap up to 5x more value than public cloud alone.

Vendor Diversity Breeds Secure Innovation

While a dwindling school of thought promotes a single vendor approach as one of ease and control, it is in fact costly, constricting, and complex, unable to meet the demands of a Digital Native customer. In fact, a recent IBM study found that 70% of financial services organizations saw vendor lock-in as a significant obstacle in improving their business performance.  

If an organization operates with proprietary shackles, in the form of silos and constraints imposed by technology providers, it cannot thrive. It cannot adapt and invent on its own terms, but instead is required to do so within the parameters set by its technology partners.

For a business to be agile it must rely on an interoperable foundation ­– it must be diverse. This environment cannot be found solely on premise or in clouds, but rather at the intersection of these two worlds. Where the melding of diverse infrastructures, technologies, and applications can meet an organization’s competitive objectives securely.

Security and Privacy Elicit Trust

Diversity is also the connective tissue between innovation, compliance, and security. An environment that is diverse and open is one where governance and regulatory compliance can be a central design element and businesses can manage customer data without needing to move it. One where security and compliance controls can be built-in at the core to seamlessly adhere to regulatory requirements. The ability for governance and compliance tools to run across multiple clouds is imperative to the success of financial institutions.

Furthermore, when siloes aren’t present to create walls, then security, too, can be wide-reaching, offering not only visibility into suspicious network activity but also a speedy response to threats through AI. Privacy also can be bolstered with confidential computing, a technology designed in a way that data cannot be tampered with and can only be accessed by the data owner – not even the cloud provider can access.

These three tenets are the foundation for financial institutions to win over Digital Natives. Should the industry maintain a monocular approach to its digital journey, it will largely stay anchored in place. It may be able to modernize to keep up, but it won’t innovate to thrive. Meeting the demands of tomorrow’s consumer requires financial institutions to adopt the best of both worlds – on premises and cloud. Neither can deliver the new currency of digital trust alone.

Likhit Wagle is GM, Global Banking, Global Markets, IBM

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