Financial Institutions must innovate to survive

Banks and financial service companies are facing a very real challenge. Technology is evolving at breakneck speed, while becoming ever more critical to their businesses. However, many have been slow to adapt to this new and complex digital world, as it doesn’t play to their key competencies. What’s more, add to this the threat from dynamic tech start-ups infiltrating the market and you have an environment within financial services of real uncertainty.

The stakes couldn’t be higher.

The banking and financial services sector is now firmly in the sights of both established tech players and disruptive start-ups. Whether it’s payments, lending, foreign exchange, or other financial services, new entrants are threatening to move in and sweep away customers from the market stalwarts.

Sound familiar? We have been here before with big retailers who have already skimmed away a small number of price-sensitive consumers in areas like lending and travel insurance. But in the background, supporting the retailer in these services, there was often a partnership with an established financial services brand.

This isn’t the case anymore.

Tech start-ups are changing the game

Ambitious, fast-moving tech companies are taking on the big players in the financial services industry, but they’re not looking for friendly partnerships with established companies: quite simply, they’re looking to replace them.

Mobile apps, peer to peer lending and other services are now allowing customers to bypass traditional intermediaries such as banks and get a digital service and fast.

Tech companies of all sizes are already moving in, from titans like Apple and PayPal, to newcomers like Square, and CurrencyFair these less traditional financial services providers are now posing similar threats.

What should financial institutions do to compete?

To compete with innovative tech companies, financial institutions need to act like innovative tech companies. It requires a change in attitudes towards technology.

The first step for firms is to look at their existing technology infrastructure. Is it giving the company the agility it needs to innovate? In many financial companies today, the opposite is true. In June 2015, the Financial Times asserted that “banks’ IT systems are buckling under the strain”.

The effort of maintaining legacy IT systems is now consuming three quarters of banks’ IT spending. The FT says “that leaves only a quarter to spend on innovations to keep up with the rapidly emerging threat from the many tech companies and start-ups trying to steal market share.”

Vodafone’s own research illustrated that although financial services companies are adopting cloud services, this adoption is driven primarily by software as a service (SaaS). The fundamental adoption of IT infrastructure as a service (IaaS) is not yet taking hold.

Moving their entire infrastructure to the cloud is a smart first step

That’s because the right cloud platform is not only cost effective but also frees up IT resources to focus on innovation rather than day-to-day maintenance. However, attention still needs to be paid to ensure that the cloud is agile, scalable and compliant. A secure, private cloud that supports mission critical workloads is one solution that provides all of the above. Benefits also include higher security and privacy, more control, cost and energy efficiency and improved reliability.

A range of professional services are also available to help right from the start. Vodafone’s Cloud and Hosting Services team can provide the IT infrastructure that allows banks and financial firms to compete on a level playing field with the agile tech innovators.