Open Banking, Fintech Disruption, and Other Trends in Financial Services IT

by Ancy Dow June 11, 2019 | 6 min read

The accelerating pace of technological change is the most disruptive force affecting the financial services industry today, with fintech disruptors making significant headway across every segment across the sector—including banking, payments, lending, insurance, and trading. This is because financial services consumers are becoming far more exacting: They now expect and demand convenient and always-on services, rapid delivery of new features, and the ability to securely make instantaneous transfers, trades, and investments across digital, mobile, and physical channels.

This trend toward digitalization has seen the emergence of new business models and technologies that bring significant uncertainty in light of increasing competitive and cybersecurity threats, but also unprecedented opportunities. Here are some of the top trends we see shaping the current and future landscape of financial services tech.

Mobile-First, Customer-Centric Experiences

Today, radically different business models are disrupting branch banking as consumers now demand omni-channel access to financial services. For example, a report by McKinsey found that 13–25% of consumers across several Western countries prefer doing everything (transactions, purchases, getting financial advice, etc.) completely remotely. Up to an additional 55% prefer flexible digital banking or digital convenience, where they still seek face-to-face advice but otherwise prefer transacting over digital channels.

In light of this information, financial services IT executives are realizing they must shift from a systems-centric to a customer-centric approach. According to the 2018 North America Banking Operations survey by Accenture, three-fourths of bank operations leaders state that improving customer experience is their top strategic priority. Long-term survival now depends on financial services firms’ ability to innovate faster and harness digital data to deliver personalized customer experiences.

The Rise of Fintech and Open Banking

The struggle for survival is being exacerbated by the growth of fintech organizations that have exploded onto the market in recent years. They’re winning market share at a dizzying pace with cloud-native services that allow consumers to make payments and trades, access data, and much more—anytime, anywhere.

Companies like Venmo, Stripe, Plaid, Alipay, Mint, and Wealthfront are all borne out of consumers’ wants for convenience in making real-time payments and transfers, and taking control of their own finances. The growth in fintechs is also accelerated by the Open Banking initiative, which is the use of APIs to share banking data across platforms. Introduced via the Payment Services Directive (PSD II) in 2015, the initiative aims to improve competition, innovation, data transparency, and consumer experience within the financial sector.

With Mastercard and other multinational financial organizations recently releasing open banking products, it’s clear that the digital-first approach is now mainstream and that fintechs are giving traditional banking institutions a literal run for their money. Results from the 2017 PwC Global FinTech survey predict that a quarter of traditional financial services firms’ revenue could be at risk of being lost to standalone fintech companies within just the next 5 years.

Other research results paint an even starker view: A recent study revealed that 66% of financial services leaders believe that tech giants such as Amazon will offer retail banking within the next 5 years, and nearly half also believe that traditional retail banks are already more than three years behind fintech rivals.

Cloud Migration and Hybrid Operations

Clearly, new competitive threats are putting unprecedented pressure on traditional financial services organizations that are bogged down by complex, legacy infrastructure and processes. According to Accenture, two-thirds of bank operations leaders believe that data is under-leveraged due to legacy systems and dated back office processes, with complex legacy IT environments cited as the greatest barrier to driving digital transformation.

Financial services firms’ public cloud footprint is also increasing at a 24.4% compound annual growth rate (CAGR) from 2018 through 2021, as organizations seek to leverage advantages from the cloud to reduce total cost of operations, and improve agility and flexibility.

But modernization can’t happen overnight. Organizations can’t just rip out legacy technologies that support core systems and refactor them for the cloud, nor can they force a single operating model down the throats of distributed NOC, DevOps, and other teams. As such, many traditional financial organizations are adopting the Hybrid Operations approach to synchronize data visibility, best practices, and collaboration across teams in a way that facilitates continuous improvement regardless of operating model.

Compliance and Increasing Cybersecurity Risks in the Digital Age

The stakes of improving real-time visibility and orchestration across distributed teams are increasing exponentially as the fallout from cybersecurity breaches grow increasingly larger. The average cost of a cybercrime instance for financial services companies is the highest in the industry, and grew 40% from 2014 to 2017 ($12.97 million to $18.28 million, respectively). Additionally, reputational and legal risk exposure is especially severe given the sensitive nature of financial services data. Adhering to strict and constantly evolving compliance regulations such as GDPR, PSD2 and, MiFID II, as well as mitigating cybersecurity risks, remain key priorities that keep financial services executives up at night.

But firms are unprepared, especially as they often face more sophisticated threats and attack vectors across digital banking services, POS systems, ATMs, social engineering, and more. Financial firms fall victim to cybersecurity attacks a whopping 300x more frequently than businesses in other industries. They also suffer an average of 8 DNS attacks per year, and 72% of organizations took 3+ days to install a security patch in response to a breach.

Considering the fact that some financial services firms get attacked over a billion times a year, teams must identify ways to leverage automation to become more proactive and agile across all parts of the business. For instance, regulatory compliance remains a highly manual process in many traditional banks, with a huge back office devoted to reviewing every transaction and trying to identify fraudulent or suspicious activities. Additionally, some incident response processes often remain manual and fragmented across siloed security, IT, and other teams. In these cases, automation is a crucial solution in improving operational cost efficiency, speed, and accuracy.

Bank on Your Success with PagerDuty

Emerging trends such as open banking are reshaping the financial technology landscape. This creates significant new opportunities to establish measures such as process standardization for improved efficiency, automation to minimize fraud, and real-time resolution of issues across platforms. In order to lay a foundation that future-proofs their success, financial organizations must identify solutions that help them embrace digital transformation so they can deliver the flawless and increasingly mobile-first experiences that customers demand.

To learn more, check out PagerDuty’s solutions for Financial Services and get started with a free trial today.