Dealing with Digital Debt Head-On
According to recent research from Deloitte, while banks are spending more on new technologies (up to 50 percent of total IT budgets in the U.S. and one-third of total tech spending in Europe), these deployments aren’t delivering as expected. Deloitte calls it “technical debt,” which is a lack of legacy system modernization that acts as an impediment to effective transformation.
Dealing with this digital debt is critical for banks to realize the ROI potential of new fintech offerings. It starts with examining past processes to determine where they don’t measure up, such as data siloing. While many predictive analytics and AI solutions depend on access to multiple data sources simultaneously, most legacy financial tools weren’t designed to communicate with other departments or providers. This can hinder an organization’s ability to get the most out of those cutting-edge data analytics solutions.
Why Banks Should Prioritize Parallel Performance
Once financial firms find legacy solution strongholds, they need to identify functional next steps.
While the temptation here is to layer on new technology in hopes of making up the difference, the Deloitte paper advises against this approach, noting that digital debt “is typically caused by past underspending and layering new technologies on top of aging infrastructure.”
Instead, banks should consider the potential of parallel performance: building new, future-proof IT stacks capable of connecting critical services, then migrating legacy tools where possible and one at a time. Cloud solutions are a logical strategy here. Forbes found that just 3 percent of financial firms surveyed said they didn’t have a cloud strategy.
And while just 25 percent have developed a mature cloud strategy, this isn’t the best metric for past problem prevention. Here, a metered approach to cloud services that focuses on effective integration of legacy apps and emerging technologies permits a ground-up strategy that both builds capacity and migrates what matters.
The Importance of Investing in Financial Futures
With a solid cloud structure in place and a parallel pipeline to shift legacy tools that make the grade, it’s possible for banks to realize ROI from cutting-edge IT approaches, including:
- Blockchain: As noted by The Financial Brand, blockchain’s ability to track, secure and streamline transactions is helping it gain traction worldwide. But deploying blockchain at scale demands IT infrastructure capable of on-demand communication and data categorization.
- Artificial intelligence: AI has been riding a wave of industry hype for the past several years, but is finally making actionable inroads. While many banks have already adopted verbal AI tools that help clients navigate self-service systems, there’s now a push to implement more adaptable AI solutions that provide digital advice on demand that’s comprehensive without being critical. Implemented well, AI offers the potential to improve customer relationships and enhance long-term loyalty.
- Decentralized applications: A recent PWC white paper points to the growing impact of decentralized applications and assets necessary to underpin the “sharing economy.” Much like taxi services and hotel rooms, consumers want choice when it comes to financial functions — banks need distributed IT infrastructure capable of keeping pace.
The rapidly changing fintech environment coupled with increasing client expectation means that banks can’t afford to stand still. Delivering on the promise of future-proof functionality such as blockchain, AI and decentralized apps means firms must look back to move forward by eliminating digital debt and prioritizing parallel performance to make the most of modernization mandates.