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Banking 2030: What can we expect?

This text takes a look at the next couple of years regarding the banking industry and its repercussions on the underlying IT, makes assumptions and then some theories how it might develop. So up front a disclaimer: I do not have a glass orb and therefore my guess is probably as good as anyone’s.

Executive summary

Looking at the next eight years, there are many parameters and developments that have a wide range of possible outcomes. Given the assumptions I see the following main objectives onto which financial institutions and their IT departments need to focus on:

  • Trust is the main currency of the future
    • For people to share their valuable information they need to trust someone and see a value in providing that information. This is why I do not believe that data is the new gold but trust is.
  • Automation is essential
    • Automation (see all “AUTO” tagged options as basis for this assumption) will be needed in all possible relevant areas in the IT environments of financial institutions. To provide a company wide standardized way to automate a central department should be established to
  • organize education
  • define basic steps to automate
  • provide a central directory of automation scripts
  • drive frameworks for easier automation.

The departments will still be responsible for the automation itself and for specialized scripts. But when it comes to deployment of a complex application/infrastructures, all of the departments need to interact and use the same automation framework and security framework to avoid interaction problems. Also a centralized department reduces the initial investment needed to create a framework thereby lowering the barrier to start with automation. Only a centralized department and a centralized service can provide a cost efficient automation service.

  • The drive to digitalization will continue and broaden.
    • When looking at today’s situation and the coming requirements it is further needed to add digitalization to all services (see all “DIGI” tagged options for the basis of this assumption). This will enhance the need for a secure environment with the latest security patches and focus on streamlined processes.
  • AI will become a standardized service.
    • Artificial Intelligence and Machine Learning (see all “AI” tagged options as basis for the assumption) will be essential to free up time for creative work of your employees and to provide a better service to customers. To provide AI in an enterprise environment a standardized model and a standardized platform is necessary. Custom solutions, which can not be explained or transferred/migrated, will eventually die out.

The basis of this projection

The reason for the projected outcome lies in the following assumptions.

  • General
    • The next business model of financial institutions will have trust at its core. With the trust of the customers comes the ability to access an all including picture of information about the customer. A long term relationship helps here. But at its core the customer has to trust that a good portion of the decision making has been done with the success of the customer as the main target. No customer will discuss that also the financial institution should participate in the success. Resulting in better options to again “earn” that trust with almost independent financial decisions for a long lasting, all including financial strategy. With those core information it will be possible to compile a meta picture of what the customer wants for their overall financial decisions and better advise on where to invest money.
    • Through the trusting handling of this information the financial institution can get a better overall view of the situation of the customer and create a customized service for them. And with the information of all their targeted customers they can create generic services to target and acquire new customers.
    • Gaining from the understanding of the overall financial situation of the customer and their preferences comes the option to create added value with cross- and upsell opportunities. But only when customers trust the bank they will be open to accept financial advice. But this trust has to be earned by providing an open and transparent communication and defined decision process and with that an unbiased selection of options including those coming from a competitor if they return a better ROI. But as the bank has a fine grained set of the customers requirements they can use this advantage to define customized services which fit those requirements perfectly.
    • The paid add-on services a bank will supply will also include services like taxation documents for all included investment options, management of rental property etc. With all of that information a long term strategy can be prepared for the customer and his/her retirement situation. But again this requires the trust of the customer together with an open and transparent communication.
    • To reduce the impact on the bank advisors for the majority of customers an AI (AI) enhanced Financial Decision Framework is integrated. Again to gain the trust of the customer the decision framework needs to be transparent and open. To answer questions like “Why am I investing in this particular stock or why do I use this particular option? For this to work an AI Framework has to be created which can be explained and the resulting rules can be easily transferred from one infrastructure component/bank to another.
    • Due to inflation a rise in interest rates (3 – 4 %) will commence in the next several years. This will not yield a dramatically higher income in banking fees as it is easier for customers to find a competitive offering with the availability of websites which compare interest rates. Finding new streams of revenue will be the central focus point in the coming years up to 2030. On the other side, this will still drive the need to cut costs resulting in the need to reduce the number of branch offices andlocal services. With this an increase of the need for further digitalization on the customer side providing online services (DIGI) will happen. This will include an all-online service portion. Especially consultation meetings with one way video sharing from bank personnel to the customer are used to add trust to this communication channel.
    • Banks will prioritize Online First as their main strategy adding considerable add on fees for branch office based services. Together with the reduced number of available branches this will move customers to online services resulting in an increased need for Digitalization (DIGI).
    • Electronic Currency has been established. The need for ATM infrastructure will be reduced. With this also the need for branch offices will be reduced. Freeing up employees to deliver customized services for customers (AUTO).
    • With the main priority to reduce cost the need to use standardized IT-services will rise. To keep the competitive advantage this will primarily target add-on services which are easily outsourced, have a given well defined interface and the customer centric information can be easily transferred in both directions using an API driven communication (AUTO). This will lead to an increased need to manage a multi cloud environment especially when it comes to security of data and the traffic between the clouds.
    • In the coming years the focus on sustainability will rise. With the increased repercussions of climate change the question will be asked “What have you done to avoid climate change?” As financial institutions have the market power to prioritize their invest through pension fonds etc. towards sustainable targets, and to supply credits together with governments, they will be asked to take over responsibility, because for the general public it is often easier to delegate responsibility to organizations than to act upon it themselves. For that reason, sustainability will become an important parameter in investment decisions. Through explainable AI (AI) during the decision making they can proactively prove that this was a factor in the decision making.
  • The workforce
    • The habits of working remotely have settled in the workforce. This will result in reduced need to work at an office. But this will also drive the move of employees to the border of the bigger cities with considerable lower housing costs. Thereby reducing the prices of flats in the center of the cities and increasing demand for houses etc. in the suburbs. The increased demand for high performance internet connectivity in the suburbs will lead to increased demand for high performance or satellite based internet. This will also lead to an even better support for remote work and a drive for digitalization (DIGI).
    • In the next coming years bigger portions of the workforce will enter the retirement phase resulting in the need to hire/develop new employees to take over the tasks of the retirees. But even currently the demand for IT oriented employees is bigger than the supply of new talent. This will result in a rise in the pay of those new employees. This will result in a new demand for outsourcing but as they target the same market for employees those services will also get more expensive. To reduce the need for employees and to free up resources for creative work, the demand for automation will increase (AUTO).
  • Regulatory and Security requirements
    • In the coming years the regulatory requirements will increase. This process is currently very workforce demanding. To reduce the needed effort, Compliance as Code (AUTO) will be available in all major software components.
    • Security concerns will still burden financial and governmental institutions. External risks will be answered by an expanded global interaction. DDNS attacks will be handled in the far edge network like networking backbones. Here the financial institutions can report through a secured interaction what IPs etc they have been attacked from and in the far edge those attacks are then handled. For vulnerabilities of installed software a faster identification and remediation of vulnerabilities has been implemented. The update cycle of software has been reduced to single digit hours for security relevant patches and fixes. To find out what components are impacted by a vulnerability a Software Bill of Material has been available for all installed software-packages.
    • To better react to incidents and have a proven way to remediate problems the concept of a self healing infrastructure is implemented. With the use of AI components the problem is evaluated and then using automated procedures provide remediation to situations or send an alarm to specialized employees (AI)(AUTO).

    • The ownership of information about a customer is strictly at the customer. This will result in the need to explain decisions for example through psdX. This will make it easier for companies to deliver services to the end customer. A reduced advantage of established institutions will result. Trust becomes the main currency in the bank for customer interaction.

  • The cloud
    • The drive to reduce the cost and the increase in regulatory requirements will increase the burden upon using cloud services. On the other hand, to cut cost the demand for using standardized services will increase. This will lead to an increased need to manage a multi cloud environment especially when it comes to security of data and the traffic between the clouds. To abide by the regulatory requirement an independant usage and an exit strategy becomes essential to the usage of cloud services. The implementation of automated cloud spanning deployment processes is essential to provide an easier move from one cloud environment to another (AUTO).
    • To easier move loads between clouds a standardized environment is necessary. Provider specific cloud services need to be avoided. Also to avoid being bound to  provider specific security problems a trusted execution environment (TEE) service has been established. This environment enables only the administrators of a bank to access this environment and its data. This will also include BYOK services but extends upon this. This includes a secured set of cluster servers. As the whole cluster is secured, there is no need to secure each interaction of services within that cluster. Only when information is sent outside, it needs to be secured. This will be established with a secure network connecting secured environments for example on premise and the TEE.
    • To handle the interaction of this diverse space of clouds, a leading cloud needs to be defined. This cloud organizes the interaction between the different clouds/services where the data is located and how to interact with that data. Most of the time the leading cloud will be where the majority of data is located, as it is then easier to transfer necessary sub portions to the specific SaaS. Given the current financial model of Cloud Service Providers (data centric) and the advancement of on premise cloud services and with it the reduction of regulatory complexity, it is easier to have that leading cloud on premise. And only when using non competitive SaaS and in cloud bursting situations external providers need to be used.
    • The increased need for digitalization and the move to Online First will add risk to calculate the appropriate compute power. With the use of a Container Based Platform this can be remediated. Also a container based platform will enforce through its concept of immutable containers versioning of applications. A container based platform will be the standard with some legacy based VM based applications integrated.

Epilog

Thanks for your time. And as said before I do not have a glass orb and therefore can only assume this will come to pass. Please feel free to comment directly or contact me personally to have a “heated” discussion about this 😉

By Axel Saß

Finished my university degree of business administration in Kiel, Germany. Then moved on to working as Consultant for mainframe development strategy and Tools, on to IBM in Presales for 16 years. Different roles there at the end IT Architect mainly working with Financial Institutions. Then moved on to my current Jobrole at Red Hat as Enterprise Architect, Chief Architect for FSI Germany.

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