Banking IT Modernization and the Adoption of Hybrid Cloud

Transcription

1 Banking IT Modernization and the Adoption of Hybrid Cloud An IDC InfoBrief, Sponsored by VMware July 2018

2 Executive Summary The retail banking industry must continue to minimize costs even as regulatory pressures and customer engagement demands increase. Included among the drivers for cloud which is a foundation for digital transformation are the following trends: Demand for responsive customer engagement Rise of data/analytics (internally and externally sourced) as a critical component of digital transformation Drive to enable agility in the middle and back office Need to maintain secure and compliant infrastructure Enable faster innovation at the front office and as a way to improve efficiency, agility and security in the back office Sponsored by VMware Page 2

3 Banks Are Challenged to Respond to Preferred Customer Behavior and Demands for New Models of Engagement Customers Want Omni-Channel Experiences and Are Demanding Better Services Online/Website 62% Better security - including fraud monitoring 82% Branch 53% Improved service requests - balance inquiries, address changes, etc. 40% Mobile 18% Personal financial management tools - spending trackers 31% Call Center 7% Management of risk - credit scoring, product suitability 29% Source: IDC Financial Insights Banking Channel Preference Survey, 2017 and 2018 Contextual marketing - location based offers New channels - chat bots, voice banking 14% 11% Source: IDC Financial Insights 2017 Consumer Banking Preference Survey, n=2750. Note: Multiple responses allowed. Sponsored by VMware Page 3

4 IDC s MaturityScape Benchmark for Omni-Experience Shows Nearly 90% of Banks Are Stuck IDC s MaturityScape Benchmark for Omni- Experience DX in banking - measuring the ability to leverage digital technologies to deliver an optimized omniexperience - shows that only 11% of banks can deliver innovative or disruptive customer engagement. Ad Hoc 2% Opportunistic 45% Repeatable 43% Managed 8% Optimized 3% Growth is slow due to the inability to engage and keep up with technology changes. Digitally enabled customer experiences and products are inconsistent, unsustainable, and not repeatable. The bank provides consistent and repeatable products and experiences and is on par with peers, but there is no true innovation yet. The bank is an early adopter in its markets, providing competitive digital products, services, and experiences. The bank s business is able to grow sustainable business faster than its peers while disruptiing markets and creating new ones to its own advantage. Source: IDC Financial Insights Omni-Experience Digital Transformation in Retail Banking in the U.S. MaturityScape Benchmark Survey, 2017 Sponsored by VMware Page 4

5 At the Same Time, Data and Analytics Are Becoming Critical Resources to Protect the Enterprise and Better Engage with Customers Investment between operational and business analytics is split almost 50/50. And the need for advanced data and analytics capabilities is growing stronger every year. Top 5 Ways U.S. Banks Are Using Data/Analytics Bank Spend - Operational vs Business Analytics To avoid risk To improve security To support Internet of Things (IoT) initiatives To understand and target customers To allocate resources more effectively 33% 30% 26% 26% 25% Business Analytics 47% Operational Analytics 53% Source: 2017 Industry IT & Communications Survey, IDC Customer Insights and Analysis, April, 2017 Source: 2017 Industry IT & Communications Survey, IDC Customer Insights and Analysis, April, 2017 Sponsored by VMware Page 5

6 Overall Digital Transformation Progressing Only Slightly Better IDC defines digital transformation as the continuous process by which enterprises adapt to or drive disruptive changes in their customers and markets (external ecosystem) by leveraging digital competencies to innovate new business models, products, and services. Work on areas like security, fraud, and regulatory compliance has been the focus of transformation in the back office, slightly improving overall DX scores. Opportunistic Repeatable Managed Ad Hoc Optimized 9% 8% Growth is slow due to the inability to engage and keep up with technology changes. 31% 31% Digitally enabled customer experiences and products are inconsistent, unsustainable, and not repeatable. The bank provides consistent and repeatable products and experiences and is on par with peers, but there is no true innovation yet. 22% The bank is an early adopter in its markets, providing competitive digital products, services, and experiences. The bank s business is able to grow sustainable business faster than its peers while disruptiing markets and creating new ones to its own advantage. Source: IDC Financial Insights Omni-Experience Digital Transformation in Retail Banking in the U.S. MaturityScape Benchmark Survey, 2017 Sponsored by VMware Page 6

7 However, the Move to Digital Marketplaces Is Acknowledged by Banks as a Driving Force Behind Digital Transformation Banks realize that the future of the organization lies in its ability to create an open, agile and responsive infrastructure in order to connect to external sources of value. These digital marketplaces are ecosystems of third-party firms with which banks can extend the products and services to their own customers. For example, a bank could connect to a real estate company to provide a more holistic experience of home ownership by including geographic information on homes for sale, and combining that with the bank s own information about interest rates, credit worthiness, and the customer s available funds. The customer then sees the specific homes for which he/she may be pre-approved. KPIs Used to Measure Digital Transformation Success Participation in Digital Marketplaces Digital Revenue as a % of Total Revenue Market Share Growth Market Recognition Improved ROI Other 1% 35% 35% 43% 51% 58% Source: Digital Transformation (DX) Leader Sentiment Survey-2017, IDC, March, 2017 Sponsored by VMware Page 7

8 So Banks Are Moving to Connected Banking Architectures Using Open APIs to Consume and Provide Innovative Solutions through Cloud-Based Ecosystems To overcome the challenges of legacy modernization and leverage opportunities in the digital marketplace, banks will move to a Connected Banking architecture that can: Expand beyond traditional financial products Support participation in the growing payments/e-commerce space Provide multiple sources of collaborative platforms and dataas-a-service solutions to enrich the bank s own capabilities Enable faster response to market conditions by quickly adding to, or modifying, the partner ecosystem Non- Financial Partners Real Estate, Automotive, Education Enterprise Platforms Compliance, Credit Svcs, Data/ Analytics Open API Architecture Cloud Enabled As-A-Service Internal Product Development & Marketing CUSTOMERS Retail, SMB, Corporate/B2B, Affiliates ecommerce Platforms Amazon, ebay, Apple Pay Financial Partners Insurance, Wealth, Investment Source: IDC 2018 Sponsored by VMware Page 8

9 As a Deployment Model, Cloud Is Gaining Significant Traction Software Deployment Models: U.S. Banking On-Premise and Outsourced 40% Private Cloud 45% Public Cloud 15% Source: 2017 Industry IT & Communications Survey, IDC Customer Insights and Analysis, April, 2017 Sponsored by VMware Page 9

10 This Is Further Evidenced by Banks Moving to Public Cloud as a Deployment Model for Some Critical Workloads Deployment Models for CRM Solutions at U.S. Banks On-premise 36% Private cloud 35% Public cloud 19% Have not implemented 9% Note: Percentages do not add up exactly to 100% due to rounding. Source: 2017 Industry IT & Communications Survey, IDC Customer Insights and Analysis, April, 2017 Sponsored by VMware Page 10

11 Overall, There Is a Shift from Traditional Infrastructure Spending from On-Premise Models to Private and Public Cloud Change in IT spending on public cloud 2018 to 2020: Change in IT spending on private cloud 2018 to 2020: Change in IT spending for on-premise and traditional outsourcing 2018 to 2020: 26% 7% 26% Source: CloudView Survey, IDC, April, 2018 Sponsored by VMware Page 11

12 Some Concerns Remain in the Move to Public Cloud... Security remains a top concern for banks looking to move to a public cloud model for critical workloads. Top 5 Concerns of Public Cloud Security concerns IT governance issues, including challenges related to defining standard services and SLAs Regulatory or compliance issues 39% 41% 49% Downtime causing business interruption Difficulty centrally managing IT systems, IoT services and integration cloud services 32% 37% Source: CloudView Survey, IDC, April, 2018 Sponsored by VMware Page 12

13 ...But Improved IT Security Is Also Seen as the Biggest Benefit to Moving to Public Cloud Security is cited as the top benefit to the move to public cloud. This apparent paradox is attributable to a lack of knowledge around the depth of security capabilities at cloud providers in the industry. Top 5 Benefits from Public Cloud Improved IT security 47% Improve business agility 44% Get access to the newest functionality faster 43% Give LOB control over sourcing their own IT solutions 42% Simplify and standardize IT 41% Source: CloudView Survey, IDC, April, 2018 Sponsored by VMware Page 13

14 Key Takeaways Banks must deliver on better customer engagement strategies today, including an increasing importance of data and analytics. Legacy system modernization is holding back a bank s ability to execute improvements on data/analytics and customer engagement. Connected Banking the ability to source solutions in a digital cloud ecosystem promises to enable more agile responses to market pressures. Although security remains a concern around public cloud adoption, it is also recognized as a benefit to adoption. Sponsored by VMware Page 14

15 Essential Guidance Research the realities of public cloud capabilities and robustness. Continue to modernize systems using open APIs and with an eye toward right-sourcing workloads as they become untangled from legacy. Determine which workloads the organization can transform by connecting to and consuming cloud-based services as line of business opportunities. Treat cloud (private/public/hybrid) as an enterprise resource with appropriate governance, risk, compliance, and security policies and procedures. Sponsored by VMware Page 15

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