By Soneel Raj, General Manager, US Financial Services, Kyndryl
We are in the middle of an era-defining shift in how banks deliver better experiences for customers by investing in technology. While banks have over-indexed on front-office initiatives in the past decade, our recent survey-based research conducted with American Banker shows that bank leaders are shifting how and where they invest.
Commoditized product and service experience cannot meet the heightened expectations of today's banking customers. Thus, banks significantly trail behind ecommerce retailers like Amazon on customer satisfaction. Unsurprisingly, improving customer experience remains the primary rationale for technology initiatives, with 62% of respondents, in the abovementioned survey, placing it in their top 3 (32% at #1). In addition, we know that technology modernization also supports additional business drivers such as faster speed-to-market for new offerings, cost-takeout to support operational efficiency, and better management of risks across the enterprise. The stark finding is that IT modernization in banking is still sluggish yet addressing some of the top barriers to achieving modernization initiatives are well within the purview of enterprise IT and back-office teams – 57% of respondents listed integration challenges as their top hurdle, followed by 43% of respondents citing migration risk and regulatory concerns.
Since the launch of the iPhone in 2007, the banking industry has been investing to make financial services more personalized, convenient, secure, and accessible. While front-office investment should be prioritized and sustained, the velocity of technology spending needs to be redirected to support the next-gen back-office – one that is modular, resilient, unlocks the value of data residing in legacy systems, and drives customer satisfaction and profitable growth.
A winning approach
In leading transformation for some of the world's largest banks, and through Kyndryl's own experience simplifying our IT systems to support a new company, we have learned that every back-office modernization effort must start with clarity of purpose – organizing around the specific value you want to deliver to satisfy customer needs. With that question answered, three critical pieces of the puzzle need to be established to ensure success – an actionable roadmap that brings business and technology together, internal alignment ensuring the right people are doing the right things at the right time and in the right sequence, and an ecosystem of curated partners that bring domain specificity, best of breed thinking, and speed to market. These three elements are critical ingredients in the recipe for target state technology solutions and operating model transformations that can drive better risk-weighted business outcomes.
Going through a modernization of their own, Comerica Bank is applying these tenets on their journey to becoming a cloud-first bank. Like many others, Comerica's on-prem, mainframe-hosted core banking system needed modernizing. Shrinking talent pools, increasing costs, limited resiliency at the platform level, and delays imposed by legacy systems on digital innovation could all soon start constraining Comerica's ability to deliver new, intelligent banking experiences.
Under the leadership of Chief Technology Officer, John Wei, the Comerica team developed a compelling vision for change and quantified, qualified, and prioritized their problems in the context of the bank's strategy and desired customer outcomes. They developed a detailed roadmap and engaged proven and safe partners to develop their target state solution. Aligning IT and product leadership around a shared modernization approach from the outset allowed John, his partners, and his extended team to migrate Comerica's mainframe to the cloud in half the time a typical mainframe migration takes. John likes to say that "modernizing the banking mainframe backend is not for the faint-hearted and unskilled." But it was necessary to bring the bank out of the legacy era, and a tight linkage between plans, people, and partners facilitated success.
Achieving business outcomes through back-office modernization
Modernizing the back-office involves modernizing the mission-critical applications, infrastructure, and business processes that support back-office operations. Such efforts lead to positive business outcomes as mentioned below.
Exceptional Employee and Customer Experience
Employees and consumers now have similar expectations when it comes to wanting seamless, personalized, and effective digital experiences. Additionally, employee and customer experiences are innately linked. An
Improving employee and customer experiences comes from being able to fully utilize back-office data to drive insights for contextual personalization of services and products. Mainframes handle 90 percent of all credit card transactions, host critical core IT for 92 of the world's top 100 banks and top 10 insurers, and are counted on for
To modernize back-office technology, the first order of business should be to develop a thoughtful strategy and solution blueprint that's fit-for-purpose and not one that follows cookie-cutter approaches. Mainframes have remained sticky in many banks for a good reason – they provide unparalleled reliability, speed, and performance for high volume transactions. It will not be an easy task to move-off them. As there are many viable pathways to modernize mainframe-based back-office applications, architecting the target state that can meet business needs requires a high degree of skill, experience, determination, and persistence.
Efficient Operations
The back-office is often comprised of fragmented, aging systems and millions of lines of convoluted code with embedded logic, which can be intimidating to those looking to modernize. Additionally, the shift to cloud has complicated back-office migration efforts as TCOs are not trending in right direction. Central to back-office modernization is organizing around a set of architectural standards and guiding principles. Standardization allows banks to get to a level of industrialization with different markets, segments, and product sets. Standardization is the key ingredient for future success and achieving the business outcomes that make the risk worth it.
Kyndryl's own transformation journey, led by CIO Michael Bradshaw with tight linkage to our business teams and alignment on outcomes, is like the reality faced by many banks. Many of the disparate systems that Kyndryl inherited were developed over the course of a 40+ year period. Bradshaw said, "The journey we're on today is grounded in transforming the business application and data landscape into a streamlined portfolio of standardized processes underpinned by a data infrastructure that enables end-to-end process execution and business insight. The result enables the business agility and innovation required to efficiently operate in an environment replete with unforeseen market dynamics."
Secure & Resilient Enterprise
In a time when legacy modernization is key to unlocking the agility needed to pursue growth areas, such as connected banking and digital payments, why is there still inertia in this area? A large portion of the answer is certainly the continuously evolving regulatory environment and rising cyber threats. A significant focus for banks continues to be placed on demonstrating compliance, along with enhancing data privacy, combating fraud, and deploying cybersecurity capabilities.
For organizations today, security and resiliency are just as much about preparing for recovery as they are about prevention. We've all heard that a cyber-attack is not a matter of if, but when. Increased resiliency is a strategic entry point for back-office modernization. What technologies and processes are necessary to ensure that banks can manage and recover from a cyber-attack or any eventuality? Is there a governed and agreed way back to a minimum viable company and then, gradually, to business as usual? For many banks, there is still significant work to do to embed security and resiliency into architectural standards and not repeat the mistakes of the past.
Modernizing to become future proof
At the center of back-office modernization are tailored architectural approaches, new ways of working applied across complex IT environments, end-to-end processes re-designed, developed, and deployed, and embedded security and resiliency. Data accessibility drives insights that lead to enhanced employee and customer experiences, governance helps manage technology demand and supply within your spend, and partners bring diverse customer experience and domain expertise that can de-risk and accelerate your modernization efforts. For successful transformation, technology modernization needs to be well supported by operating model changes. Change management that includes process changes and workforce transformation is very important to sustain the benefits of modernization.
When you unlock the value that exists in your back-office and use it to drive business outcomes, your organization will differentiate itself from competitors and you'll be winning from the back-office. In a time where the economic future is uncertain, back-office modernization is going to be the competitive differentiator that drives revenue in the future.
