Hybrid cloud offers banks a way to modernize their legacy systems, allowing them to offer the real-time applications and services customers demand.
Digitalization is critical to the future success of many businesses. However, the common challenges found in most industries are compounded for banks and traditional financial services companies due to their long-term use of legacy systems and because they are highly regulated. RTInsights recently sat down with Ashish Sahu, Director of Product Marketing at Redis Labs, to discuss these and other industry trends and digitalization issues in banking. Here is a summary of our conversation.
RTInsights: What are the major factors impacting banking and traditional financial companies today?
Sahu: There are three big factors, or forces, reshaping the financial services industry. The first one is changing customer expectations. Consumers and clients are demanding highly interactive, personalized, and omnichannel experiences.
The second big force is the introduction of large digital or industry disruptors. These are folks predominantly moving into financial services using technology to improve activities in finance. They are forcing the heritage financial services firms to accelerate digital transformation.
And third, the top line has not grown as fast as the bottom line, so they’re being squeezed for margin. There’s been an ultra-low interest rate for most of the decade. Also, the cost of doing business has gone up quite significantly due to regulations – the cost of compliance is fairly high.
RTInsights: What are some missteps that you see organizations making in their transformations?
Sahu: Forrester did a survey in the latter half of 2019 and found that most of the respondents, Fortune 500 and Global 2000 companies, had already started executing transformation initiatives or were going to start them imminently. So, most companies are already on digital transformation. The problem is that as they have gone on this journey, about half of them feel that they don’t have the right tools and technology to support their efforts.
Compounding this issue with tools and technology is COVID. We believe COVID has accelerated digital transformation by ten years. It compressed the digital transformation of 10 years into one year. So, many tools and technologies have not been able to scale up to the needs and the demands of the hour.
One of the missteps we’ve seen is in a rush to provide digital experience to their customers, some banks and financial services companies focused on the front-end experience, making glossy mobile and web apps. Unfortunately, the back-end transformation has not been able to keep up. So, while the front-end is responsive, the back end is not able to support this responsiveness. Things like account creation, credit approvals, and eCommerce payments are slow, have problems, or crash. That’s the first thing that comes to mind in terms of missteps.
The second one is just the nature of the financial services industries. There are large legacy core systems, and these are slow. While the financial services companies have started digitizing and have done it aggressively, they have come up with singular digital solutions or applications across the board to overcome, in the short-term, the limitations of the core legacy system. However, because these digital solutions are specialized and separate, it has led to functional and architectural silos. They have a separate digital back-office and separate customer data. Since these are not integrated, they don’t talk to each other. The situation is especially aggravated when trying to offer an omnichannel experience.
Finally, most banks and financial services industry companies have been optimized for physical (person-to-person) interactions, whether on-phone or in a bank’s offices. Pre-COVID, most customers would visit a bank less than ten times a year (with COVID, that ten times a year is even less), but they’d use digital and mobile banking almost 300 times a year. So, they’ve been optimizing for the physical environment, and as they tried to digitize customer interactions, their IT systems are unable to scale, so they’re hit by fraud, outages, and downtime. This leads to IT headaches and erosion of customer trust.
RTInsights: Why prioritize the data layer over other projects, even if you have limited time and resources?
Sahu: What we need to keep in mind when we think of the digitization of all vertical industries, especially financial services, is that every consumer interaction starts with data. And we’re facing and experiencing a data explosion. They say the world’s most valuable resource is no longer oil. It’s data. The problem is that while customers are generating large amounts of data, 80% of the data is being stored, but only 3% of the data is being analyzed.
You can see a big chasm between data that is being stored, and that’s zettabytes of data, which is going to grow, and data analyzed. We produced more digital data in the last two years than in the entire history of the world. The data is growing significantly, but we’ve not been able to analyze it appropriately. Also, we’ve not been able to provide responses in a timely fashion.
That’s why a data layer is probably the most important initiative for a company. Their legacy systems cannot keep up with the demands of today’s applications and systems to be low latency, always-on, and end-to-end secure. Whatever data layer organizations need to invest in is a critical decision for the success or the failure of the digital transformation.
RTInsights: What’s needed to overcome these challenges?
Sahu: The answer is app modernization. Before we go into app modernization, let’s talk a little bit about legacy systems. The legacy systems, which are quite a large presence in financial services institutions, hinder agility while consuming the bulk of IT spend. You’re spending all the time and resources for keeping the lights on instead of spending those monies on building an IT environment that supports innovation.
Legacy systems obviously are not cost-efficient. They’re not agile, and they have security and compliance problems. In short, they lack flexibility and agility. This includes not just technology but even the talent. The people you need to support these mainframes and COBOL stacks are no longer available or are too expensive.
What we think is important to overcome the challenges, beyond just the data layer, is a more methodical approach to app modernization. App modernization is not a destination. It’s a journey. A lot of companies are framing it in different ways. You take a step-wise approach to it, depending on your organization’s maturity, core initiatives, and risk tolerance. Usually, you would start with something that’s the least risky. And probably because it’s the least risky, it also has the least impact. You validate and operationalize that approach, and you work up to a more impactful service. Then you finally gain confidence, and you move on to the riskiest services.
There are two ways to go about this step-wise approach to app modernization. You can look at legacy as a surround-and-extend proposition, or you replace it. The more aggressive firms, companies, financial service companies are replacing their existing legacy systems with a digital core.
RTInsights: What advantages does Redis Enterprise bring that other platforms can’t deliver?
Sahu: I spoke about the importance of a modern data layer, which is the backbone for your digital transformation. Redis Enterprise is an ideal platform because it is suited for the next generation of digital banking and financial services applications, depending on what we think are the four pillars of modern financial services applications.
The first pillar is providing sub-second responses for interactive customer or consumer experiences. Consumers are unwilling to wait more than a hundred milliseconds for a response for an application as they check their bank accounts or do something on their mobile phones related to their accounts. Redis Enterprise has a really high read and write throughput. We use an in-memory data layer to accelerate responses. We have a shared-nothing architecture. We linearly scale across multiple servers to support those loads. Our customers love that they can get their responses in sub-milliseconds, both on the front-end side and the back-end side.
The second one is that a lot of app modernization is dependent upon what is supported on the data layer itself. We support modern data models like Graph, JSON, time series, Bloom filters, and key-value stores. These are all pushing the intelligence to the data layer. This also provides flexibility and freedom to create next-generation applications.
The third one, which again is in line with what Redis Enterprise does, is supporting the mission-critical needs of the most demanding enterprises. We are deployed in production. We deploy in production thanks to many facets of high availability. We provide five-nines SLA guarantees. We have auto failovers. We have pure in-memory replications. We have SOC 2 Type II security and compliance. This means we provide resilience and business continuity in any scenario. The third pillar of financial services applications is all about making sure that you don’t lose money because of IT downtime and outages.
Lastly, as we talked about before, the IT, financial service institutions, and banks are not looking for the next shiny technology object or technology offering. They are looking for something that can keep the costs down to shift their resource energies towards business innovation. One of the big themes is taking advantage of cloud. Cloud infrastructure, cloud economics, and cloud as a managed service let you pass your IT headaches, moving them to the cloud provider.
Redis Enterprise Cloud is a fully managed cloud offering available across all the major cloud providers, including Google Cloud, Microsoft Azure, and AWS. We provide a 5x lower cost than all the managed service providers in that space. In addition to multicloud, we have on-premises and provide hybrid deployment scenarios. We have a very flexible deployment scenario with lower TCO. This is what Redis Enterprise is. We provide what we think are the four legs to a chair to help you in your app modernization journey.
To learn more about real-time banking, visit: https://redislabs.com/lp/real-time-digital-banking/.