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Emerging technology trends for financial institutions

FINANCIAL INSTITUTIONS INSIGHTS  | 

Effective technology investments are a landmark of the most efficient and successful financial institutions. Regulatory, security and customer demands are constantly changing, and the right information technology (IT) solutions can help you achieve your business goals. However, before implementing potential solutions, you must first understand the complexities of the IT landscape to find an optimal balance of value, cost and efficiency.   

Every institution has unique demands and requirements, but each also has an opportunity to leverage technology to enhance operations. The following are tools that we have identified in our experience with institutions like yours that are gaining quick traction in the industry and that you may be able to leverage for greater effectiveness and productivity.

Cloud hosting, managed services and IT partnerships

Today’s institutions are increasingly utilizing outsourcing relationships to strengthen technology infrastructure and get more value out of IT investments. Outsourcing has gained momentum because of several factors, including limited budgets, staffing and internal knowledge, as well as increased security risks and higher customer expectations.

In addition, and perhaps most importantly, qualified internal IT resources are increasingly difficult to find and retain. Outsourcing helps your institution fill those talent gaps with consistent resources and increase internal employees’ focus on the customer experience.   

Outsourcing is particularly attractive to many financial institutions because it is a flexible solution. You do not have to fully outsource your entire IT infrastructure; instead, you can identify your specific challenges and adopt a range of solutions to address both your short- and long-term challenges, and adjust your strategy as necessary.   

Financial institutions typically leverage three outsourcing platforms to enhance their IT environments. These include:

  • IT outsourcing: Instead of keeping your technology functions in-house, IT outsourcing involves moving functions to a third-party provider. This platform can fit the needs of any institution, transitioning key functions to a company with IT as its core competency, and keeping banking functions as your key competency.
  • Managed services: This is the most definable form of outsourcing, with specific, detailed costs and expectations, as well as inherent flexibility. It provides scalability and defined expectations as a consistent month-to-month cost.
  • Staff augmentation: Augmentation provides an even higher level of flexibility, filling specific technology needs as they arise. This strategy is often utilized to meet seasonal demand or extended staff absences, or to alleviate difficulty finding specialized resources or full-time internal staff.

More specifically, the internal functions or roles that are typically outsourced include IT, core processing, chief information officer, information security officer (ISO), and IT committee and cybersecurity advisors, as well as security risk management and compliance. In fact, the newest trend in outsourcing is a bundled solution that encompasses a 24/7 help desk, managed services, private cloud storage, a managed backup framework and compliance services.    

However, due diligence is important when selecting an outsourcing solution and provider. The Federal Financial Institutions Examination Council (FFIEC) guidelines dictate that the use of third parties does not diminish the responsibility of bank boards and management to ensure that these key functions are conducted in a safe and compliant manner. Outsourcing can be extremely advantageous, providing cost reduction, flexibility, scalability, and improved balance and speed of innovation to your organization, but an outsourcing strategy must be consistent with your strategic plans and goals.

Information security and SIEM
Financial institutions must manage new expectations for protecting critical data amid a quickly evolving threat environment. A key process to protect your data environment is developing an annual testing program.

Vulnerability testing can show where your systems are most at risk and where patching may be necessary, while penetration testing can demonstrate how far an external party can get into your network before being stopped. Rotating vendors to perform these scans is a best practice to gain new perspectives on your network risks, and regulatory guidelines also require scans after infrastructure changes.

Unfortunately, external threats are only part of the problem. In many cases, your people are your most significant risk. Therefore, you should implement strategies to protect against social engineering, phishing and physical theft of key information. Controls around communication for vendors must also be analyzed to limit necessary access for third parties or criminals acting as legitimate vendors.

Governance controls are also critical for a successful security program. You must have effective change management procedures in place, as well as user access reviews and patching programs, and thorough, consistent and documented security policies. In addition, implementing a full-time ISO is an essential tool to develop and monitor policies, and effective ongoing employee training is necessary to understand threats and communicate proper procedures.

Several tools are available that can enhance your institution’s oversight, including security information and event management (SIEM) solutions. SIEM platforms are log collaboration tools that combine information into a central database that monitors events, and detects and communicates irregularities. In addition, intrusion prevention systems, malware control tools, cryptographic management, and content control and filtering platforms are also effective solutions to increase your security capabilities.

In the end, your institution must take a layered security approach, as a single solution cannot prevent all security issues. You must have multiple platforms working in concert to develop a truly effective and proactive security framework.

FINTECH and mobility
The financial technology (fintech) sector is composed of companies that use technology to make financial services more efficient. These organizations are typically startups that challenge traditional corporations that are less reliant on software. A recent fintech success story is Venmo, a peer-to-peer solution that provides efficient payment processing between users.

A new generation of users and mobility is driving this fintech revolution, as well as a desire to use superior tools. However, with the growing number of fintech solutions, it is difficult to tell what companies your institution should partner with, and who you are actually competing with.

The fintech market is driving traditional institutions to be more innovative. Your institution can leverage technologies such as social networking, mobility, emerging payment solutions, cloud computing, location-based services, radio-frequency identification (RFID), voice recognition, enterprise content management and customer relationship management (CRM) to develop a more engaging and effective banking solution for evolving consumer demands.

For example, some digital platforms that your institution can utilize include:

  • Consumer online and mobile banking: Bill pay, person-to-person payments, account aggregation and personal financial management
  • Mobile functionality and utilization of device features: Security, mobile wallets, alerts, mobile deposits, presence enabled marketing
  • Online and mobile service capability: Account opening and maintenance, chat functionality, data exchange and fraud marketing

The physical branch is merging with the virtual branch, and your institution should set a goal of offering similar services both in person, as well as in the cloud. Not only should virtual services become just as extensive as physical services, but in-branch solutions should strive to become as efficient as their virtual counterparts.     

Big data, corporate performance management and reporting
Several solutions are emerging that can provide more insight into your key operations. For example, big data is large sets of information that traditional data processing solutions typically cannot manage. Business intelligence (BI) platforms can take that data and transition it into actionable analysis for more informed business decisions.   

For example, corporate performance management (CPM) is a BI solution to help manage your institution’s performance through predefined key performance indicators, including revenue and operational costs. CPM allows you to monitor and measure your strategies in real time, collaborates available information to make better decisions and adds greater certainty in the execution of business strategy.

A BI platform integrates data from a variety of disparate databases. However, many institutions struggle with understanding where their data resides and how some databases are already integrated. A diagram showing where data resides and how data is integrated is a helpful tool to have available when implementing a BI solution. Additional details, including whether it is a one-way or two-way integration and who holds the master account for control reasons, are also important to note in the diagram.     

Conclusion
Your technology is the foundation of your institution, and understanding and harnessing its complexities can provide a competitive advantage through greater efficiency, security, compliance and customer satisfaction. Unfortunately, choosing the right investments can be a complex endeavor, due to a crowded landscape of solutions and several key regulatory and consumer considerations. However, identifying your unique challenges, opportunities and business goals, then understanding how emerging technology aligns with them, can help you develop an IT strategy that delivers more productivity and ultimately, profitability.