Nearly 80% of banks worldwide are still in the early stages of hybrid cloud adoption
Results of the first study of a new multi-year research collaboration, IBM and BIAN identify challenges and best practices impacting the financial performance of banks
In the years following the 2008 financial crisis, banks struggled with performance and profitability. The average return on equity (ROE) remains well below banking sector measures, and the cost-income ratio (CIR) has improved on average but remains high.
Fintechs and Big Tech continue to take share from traditional banks as customer preferences shift and Millennials and Gen Z make up an increasingly large portion of the workforce. Improving metrics like ROE and CIR requires not only a new mindset, but also a willingness and willingness to embrace the changing global digital landscape. Banks need to innovate and embrace new, much more consumer-centric digital platforms with rich personalization, new AI-powered digital tools and services that help them stay relevant.
To help financial institutions in this digital transformation, IBM and the Banking Industry Architecture Network (GOOD) have embarked on a multi-year research collaboration to identify and examine best practices in technology infrastructure. To kick off this collaboration, today we are unveiling the results of a new study aimed at better understanding what separates top performing banks from those that are lagging behind and how technology plays a role in bank profitability, described in our detailed report, Foundations of Banking Excellence.
Among the results, the analysis revealed that 79% of banks are still in the fundamental stages of their hybrid cloud transition and that institutions that have achieved superior financial performance have prioritized IT architectural patterns, e.g. data fabrics and AI factories.
Specifically, banks with healthier financial performance are characterized by six key practices they follow:
- Engage in partner ecosystems to accelerate innovation and efficiency
- Implement end-to-end digitization to streamline and automate complex operational workflows and drive innovation
- Implementation of data fabrics to allow data to flow through a large network “on tap”
- Deploy AI factories and transform data environments that put data into action
- Build small, operations-focused teams who are responsible for the end-to-end identified tasks
- Integrate monitoring of the early development process to provide data, obtain user feedback, and prepare for deployment and maintenance activities
These six themes underscore that banks that view business operations holistically are most successful not only in their digital transformation, but also in their financial performance. This includes using modern technologies such as hybrid cloud as a transformational lever to unlock business value and artificial intelligence to get more out of their data. The hybrid cloud strategy is particularly important. Indeed, according to a recent IBM Transformation Index: State of the Cloud study, 71% of financial services organizations surveyed believed it was difficult to realize the full potential of a digital transformation without having a strong hybrid cloud strategy in place.
The impact of cloud on business value, when integrated with transformation levers, is 20 times greater than the potential economic realization of cloud as a standalone strategy. Successful banks often prioritize collaboration and innovation both within and beyond their corporate boundaries.
Best Practices: An Action Guide to Embracing Exponential Technology as a Business Opportunity
Exponential technologies have become fundamental to achieving operational efficiency, gaining competitive advantage, managing risk and achieving financial results. To fully achieve these results, we see banks implementing these six practices in three main areas:
- Open to external participation and innovation through engagement with the bank’s customer and partner ecosystems.
- The banks must digitize their business processesbusiness practices and applications to run the business more efficiently.
- Beyond the initial hybrid cloud exploration, there is a need for banks modernize the technical infrastructure. This is where a coreless banking approach comes into its own. Banks can future-proof their systems while overcoming many barriers to adopting new technologies.