Financial services providers risking the benefits of rapid innovation during the pandemic

For more than a year now, the financial services industry has powered through digital transformation programs at a speed and scale that would have previously seemed reckless. To meet rapidly evolving customer and employee needs, banks, and other financial institutions (FIs) have implemented wide scale innovation across both front and back-office functions at lightning speed.

Deloitte has observed that COVID-19 “forced radical changes in customer behaviour, moving significant portions of the economy online and increasing customers’ comfort and willingness to engage digitally”. Indeed, consumers in Singapore too have been driven online. According to an S&P Global report – Tech Disruption In Retail Banking, record numbers of digital banking transactions in Singapore were seen during the COVID-19 outbreak. A Temasek, Google and Bain study reported a 17 percent rise in active banking app users in Singapore. Across the board, there was a demand from consumers shifting to digital methods for payments, remittance, and investment. 

The timeline from project phase to production has been dramatically cut as traditional barriers to digital transformation have been swept away. ‘Some day’ or ‘one day’ has become ‘today’, or even yesterday. A recent AppDynamics report, Agents of Transformation 2021: The Rise of Full-Stack Observability, found that digital transformation projects have been implemented three times faster than before COVID-19. 

Leaders across the financial services industry have suddenly become aware of what they can achieve and the immediate impact they can deliver when they prioritize and invest in digital transformation. They’ve been able to bring new digital services and applications to market, enable their workforce to operate effectively from home, and re-define their operating structures, all within a matter of weeks and months. A number of Singapore banks like DBS and UOB have even made flexible work arrangements permanent as they embrace these new ways of work even after COVID-19. 

Unsurprisingly, FIs are eager to maintain this speed of innovation throughout 2021 and beyond. EY highlights four areas that will continue to be the main focus for digital transformation in the sector, for both established players and fintechs: redefining customer experience, taking a mobile-first view, developing a data strategy for personalization, and migrating to the right technology platforms, particularly the public cloud. Large incumbents in Singapore like DBS and CIMB have already made significant investments into digital infrastructure and platforms by developing APIs and expanding their ecosystems, while others are in the midst of launching digital banking services. Alongside this, we will continue to see the big banks incorporate Open Banking to provide richer personalization for customers.

Is this level of accelerated innovation sustainable?

Business leaders in the financial services industry are certainly talking up their future plans, but the IT departments responsible for delivering digital transformation, have major concerns.

Our research revealed significant fears amongst technologists around the sustainability of rapid innovation. From the Agents of Transformation 2021 report, we found that IT teams working in financial services and the retail sector are the most concerned. More than three quarters (76%) reported that, while their organization accelerated digitalization in 2020, they worry that they don’t have the IT tools to maximize the full potential of this investment. 

This concern stems from the spiralling complexity overwhelming many IT departments over the past year, a direct result of accelerated digital transformation and a surge in new cloud computing initiatives. IT departments have to manage an increasingly dispersed, patchwork of legacy and cloud technologies and, unfortunately, most lack the tools and insights required to manage and monitor this sprawling IT estate. 

More than two thirds (70%) of technologists in financial services are still relying on multiple, disconnected monitoring solutions. Without a single, unified view of how the tech stack is performing, from customer-facing applications to core infrastructure like network and security, it is extremely difficult to identify and fix performance issues before they impact end users.

But it’s not just visibility that they need. Most technologists are unable to correlate IT performance data with business outcomes, so they have no way of knowing which issues have the greatest impact on customers and the business. They’re unable to prioritize actions and investment based on real-world commercial impact, having to rely on gut instinct instead of real-time insights.

Real-time business insights are vital to maintain momentum

Business leaders need to understand that this isn’t just an IT issue. 73% of technologists in financial services fear that the inability to connect full-stack observability with business performance will be detrimental to their business in 2021; and 80% reported that they need more comprehensive observability tools in order for their organization to achieve its goals. 

While increased reliance on digital services has raised consumer expectations exponentially, businesses cannot afford to offer less than optimal and unique experiences. The AppDynamics’ report, (App Attention Index 2019 : the era of the digital reflex) has revealed that consumers are now far more likely to take decisive actions when things do not meet their standards. This could be uninstalling an app, turning to the competition, or sharing negative reviews, all have the potential to cause irreparable damage not only to a brand, but to a business’ bottom line. 

This is a pivotal moment for financial services as they look to embed the right skills, structures and processes to compete in a turbulent marketplace. Business leaders know that to create a culture of innovation-as-usual within their workforces and operations, their IT departments will need to lead and support rapid digital transformation.

The fact is, however, that too many technologists simply don’t have the tools and insight they need to deliver faultless digital experiences and therefore have to constantly firefight, rather than focus on strategic initiatives. 

After a year in which so much has been achieved, leaders within the industry are now risking all that progress. If they allow this problem to worsen, they won’t reap the benefits of the investments they’ve made and, critically, may lose competitiveness in the race to innovate. The consequences of that, as we know, are severe.

With new digital banking players set to enter the fray in 2022 and established institutions rapidly shifting to meet customers’ new expectations and habits, competition within the financial services sector has never been more intense. But without a comprehensive view of the entire customer journey, it will be challenging for IT teams to anticipate and resolve technical issues to ensure optimal experiences and keep their customers happy. New digital features will no doubt change the face of banking and financial transactions, but businesses will only win if they can observe, connect, and optimize their tech stack accordingly.