There’s no shortage of innovation in the financial services industry. Financial institutions have always placed a high value on innovation, as demonstrated by their willingness to fund technology-led initiatives. According to Gartner® Research Inc., “Global enterprise IT spending in the banking and investment services market is forecast to increase by 7.7% in 2023 to $666.5 billion in constant US dollars. Spending is expected to see a five-year CAGR of 8.2% to reach an estimated $918.5 billion by 2027” [Source: Gartner Research Inc.; Forecast: Enterprise IT Spending for the Banking and Investment Services Market, Worldwide, 2021–2027, 1Q23 Update; April 17, 2023].
Yet, many banks and financial institutions are still struggling under the weight of an operating model and technology infrastructure designed for legacy business conditions. Banks and other financial institutions must implement new operating models, adopt modern app development processes, and foster new disciplines to support an app dev and delivery process that is fast, secure, and continuously innovating.
The financial services industry is constantly disrupting itself. As a recent example, look at the digital payments landscape, where digital wallets are all the rage. In 2021, JPMC published a comprehensive paper titled “Payments Are Eating the World” (a play on Marc Andreessen’s famous 2011 quote, “software is eating the world”), signaling to the rest of the industry that it would not cede this market to the growing number of more nimble fintech companies.
Critical to the digital payments revolution is the rise of digital wallets. Combined with the paradigm-shifting intro of the smartphone and a growing population of tech-savvy consumers comfortable with a cashless world, digital wallets are at the forefront of solving socioeconomic disparities. And with nearly one in five US adults 25 and younger saying they prefer digital payments (see image below), incumbents are ramping up their digital wallet initiatives. Beyond convenience, digital wallets and established digital transaction systems can foment financial equity by making it easier to access their money from anywhere. Take, for example, Telenor Microfinance Bank of Pakistan, where millions of people live below the poverty line. Its Easypaisa digital wallet empowers people to make financial transactions quickly, easily, and from anywhere.
The notion of a digital wallet platform underscores the need for standardization. In fact, I would say that the banking and financial services industry would not be where it is today without the willingness of financial institutions to come together and set standards that allow them to do business with each other and deliver a frictionless experience for their customers. Consider regulations and standards like ISO 2022, PCI-DSS, SWIFT, and the Gramm-Leach-Bliley Act in the United States, which banks agreed to and adopted to enable check processing and inter-ATM transactions.
The advent of cloud native architectures and operating models has greatly improved the ability of financial institutions to meet regulatory standards and security requirements quickly. Internal developer platforms like Azure Spring Apps and VMware Tanzu Application Platform allow platform engineering teams to build and manage internal development platforms that deliver a smooth and secure path to production that meet their enterprise standards, while enabling developer velocity and innovation.
Modern banking platforms must be API-centric and allow cloud native apps and microservices to run on any public cloud or on-premises. Respondents to Bank Director's 2022 Technology Survey point to cloud and APIs as the top technologies in helping them gain efficiencies.
Source: Bank Direct 2022 Technology Survey, August 2022
Facing constant disruption and a dizzying pace of technical innovation, today’s financial services CIOs have to shift their pursuits beyond operational efficiency. Understanding the application development and delivery process is more important than ever because the product at the end of that process is what will make or break their business.
For more about innovation in digital payments, check out our recent webinar Cashing in: Staying Competitive with Digital Payments.
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