By Duncan Alexander, Product Director – Core Banking, DXC Luxoft

You can hardly fire up a device these days without some self-appointed influencer telling you that, along with rising interest rates and a balanced vegan diet, digital transformation could be an essential factor in your future success.

It’s digital transformation this and digital transformation that, while the core argument is tightly focused on keeping up with new or emerging technologies. However, by concentrating on technology, we miss the real purpose and benefits of transformation.

Digital transformation is a means to an end, not an end. It’s a series of stops along the road to business transformation. Look at massively transformed businesses like Virgin (from vinyl to WiFi and space exploration) and Amazon (simple bookseller to streaming content and cloud services provider). Spectacular economic successes whose visions were (and are still) being enabled by things like tech modernization and cloud migration.

The same is true for all organizations — global or local — to differing degrees. 

Digital transformation is also a major challenge for all firms, one that is magnified even more in the financial services space given concerns over business continuity, operational resilience and data security. 

However, there is growing evidence of the benefits of key technologies outweighing the negatives, as firms swap technical debt for operational superiority. For example, the adoption of a mainframe hybrid cloud model allows firms to embrace market agility, business flexibility, and data security they can trust. That’s the real transformation story that’s taking place in businesses across the world.

Best of both worlds

The financial services industry relies on operational resilience and can’t afford to lose a single piece of the terabytes of sensitive data they hold. Data is the meat in the business/technology sandwich, and data privacy is a major concern for customers as well as the lifeblood of GDPR and compliance. Of course, there are tools available — homomorphic encryption, secure multiparty computation, trusted execution environment (TEE), etc. — for securing personal data while using it for business purposes.

However, to comprehensively safeguard their data, building societies must transform outmoded legacy systems in line with market changes, world events and emerging technology. It’s not cheap. However, neither is maintaining an inefficient legacy core banking platform — a significant business handicap with inherent skill gaps (COBOL, MATLAB, etc.), limited scalability and cyber vulnerability — or regulatory sanctions.

Mainframe hybrid cloud enablement

Mainframe hybrid cloud enablement is becoming a great favorite of building societies and banks keen to boost speed, scalability, and revenue growth. On-premise data centers can store very sensitive, encrypted data. Then, by shifting mission-critical applications and data and analytics activities to a careful mix of private and public clouds, building societies are able to enjoy mainframe hybrid cloud benefits.

That’s not to say that it’s all plain sailing. There can be hitches and blockers to negotiate before financial services companies, including building societies access the full range of innovative and cost-saving hybrid cloud advantages. In fact, organizational maneuvering is one of the least understood (yet most significant) obstacles to adopting a cloud-driven business model.

Challenges

The thought of unraveling convoluted legacy core banking systems is bound to cause even the most determined reformer sleepless nights.

Zero failures and completion on time and within budget when internal teams have adapted the vintage systems several times in an impromptu manner (especially if nobody can recall precisely what was changed) is a tough ask. Particularly when sensitive data is kept in silos right across the organization. The risk and knock-on effects of data loss during migration can be daunting. Here are some more transformational challenges:

Compliance: Constant regulatory changes hinder workload migration in some areas. For example, North America leads Europe thanks to the slowing effect of the EU’s stringent data privacy rules.

Core migration: Building society leaders share little appetite for risk and often view core migration as high risk. So, transitioning old and new systems and applications has the potential to be problematic. The threat of downtime, a loss of business continuity and the inability to secure external core banking system functions are also major considerations. Besides, most building societies find recruiting employees with the right cloud and core-function management experience difficult.

Competition: Neo-banks, fintech and other digitally mature financial organizations are providing intense competition. Any lost ground traditional banks or building societies can claw back (via hybrid cloud benefits) to stop branchless challengers cherry-picking lucrative sectors or offering the same services for a fraction of the price is crucial for their survival.

Team building: Fishing in the same shallow talent pool as financial services competitors and big hitters from other industries is rough. If you can’t offer desirable candidates significantly better incentives and working conditions, you’ll need to pay over the odds for their services.

Advantages

Value for money: Running legacy systems with low straight through processing (STP) rates, cumbersome manual upgrades etc., swallows most of the available IT resources. Nevertheless, applying further patches instead of a more comprehensive solution is a false economy. Sticking with ancient monoliths plus inherent code and manual delivery issues impedes the shipment of new products and services. Mainframe hybrid cloud enablement utilizes public, private and community clouds harmoniously to drive operational efficiency while reducing TCO.

Storage

Handling massive amounts of data is a prime headache for financial institutions. As well as on-prem, building societies can secure sensitive data in a fully customizable, firewall-protected, private cloud infrastructure and shift less-sensitive assets and workloads to one or more highly flexible, less involved, low-entry-cost public cloud resources. You can also spin up and spin down development and testing as rapidly as necessary.

Personalized experiences

Keeping customer data in product-associated silos curbs the elevation of customer experiences. Without modernizing and committing to ultra-personalization, even basic services like allowing customers a 360-degree view across their deposit, saving and investment accounts are out of scope. Mainframe hybrid cloud for banking provides the speed and agility required to enhance user engagement.

Collaboration

Transparent partnerships and best-of-breed solutions are at the heart of profitable innovation and development. In addition, meaningful third-party collaboration relies upon a modern core architecture, the latest technologies and cloud-enabled hyper-connectivity. A hybrid cloud approach encourages agility, experimentation and engaging collaboration.

Business agility

Fail fast, succeed faster. Financial institutions must establish a workforce mindset of agility, openness and staged change, valuing people and interactions over processes and tools. Those that prioritize the adoption of Agile methodology react quicker to obstacles and opportunities, market volatility and evolving customer preferences.

Get in touch

If you’d like to learn more about mainframe hybrid cloud benefits and what DXC Luxoft’s cloud innovation and unrivaled domain knowledge can do for your building society, visit Hogan hybrid cloud solution or contact us. 

Luxoft is the analytics and engineering arm of DXC Technology, providing bespoke, end-to-end technology solutions for mission critical systems. With a focus on technology and solutions for building societies and banks, we are a trusted provider of change, modernization and run services. 

The views, opinions and positions expressed within guest blogs are those of the authors and do not necessarily represent those of the BSA.