Banks Need To Unlock Innovation Faster

Australian banks have fallen behind in the modern era of innovation and must look to industry-cloud solutions to balance security and compliance with modernisation.

By Jack Keddie, IBM Cloud Leader

The COVID-19 pandemic has shifted the digital transformation of Australia’s banking sector to a new level.

For many of the nation’s financial institutions, the pandemic sped up their journey towards more agile, digitised ways of operating, in-line with demands from tech-savvy, digital-first consumers, who are conducting more transactions online than ever before.

The digitisation of Australia’s financial sector is big business – spending on big data and analytics technology hit $5.5 billion in Australia and New Zealand in 2022, with the banking industry investing the most of any industry nationwide (17.8%) in technology services, software and hardware.[1]

But there’s a problem: matching innovation with regulation.

To become as agile as they would like (and as their customers expect), Australian banks need to partner with technology firms – from fintech start-ups to cloud providers – to adopt the required innovations, and implement new, exponential technologies.

There is an extensive ecosystem of Independent Software Vendors, SaaS providers and fintechs wishing to do business with Australia’s banks to accelerate their journey to the cloud, help innovate and bring new products to the market at speed.

However, for this to happen, the products and services from those providers must be compliant, and adhere to the same stringent regulations around security and privacy that banks must meet. 

Traditionally, this collaboration process has been drawn-out, often taking years to finalise, particularly in light of the rise in regulatory scrutiny of Australia’s financial sector since 2018.

As a result, banks have fallen behind, unable to take advantage of the booming innovation around them. Unsurprisingly, Australia’s financial institutions view finding ways to remove barriers to working with technology vendors as a priority, particularly as it continues to stymie innovation, and their ability to get new products and services into the market faster. 

Removing bottlenecks while maintaining compliance 

The innovation bottleneck is contributing towards the trend for custom-designed tech solutions that meet the complex security and compliance needs of the Australian financial services industry.

If technology providers have already been vetted and admitted to a platform that meets the relevant regulatory and security requirements, banks can then on-board these vendors in just days or weeks, compared to the historical months or years.

Industry solutions, such as the IBM Cloud for Financial Services, are already providing this capability to some of the world’s largest banks, connecting them with a growing ecosystem of more than 130 technology partners and fintechs to accelerate their digital transformation securely.

Staying ahead of cloud regulation in banking 

The main hurdle for banks in adopting cloud technology has been the concern about data security and compliance.

In fact, 52% of IT leaders in the financial services industry believe that ensuring compliance is too difficult in the cloud and one third cite regulatory compliance issues as a key barrier for integrating workloads across private and public IT environments, according to a recent IBM study[2].

To avoid vendor lock-in and to address regulators’ requirements, banks need to include a cloud platform in their hybrid, multi-cloud model that supports seamless interoperability across providers, as well as private and public cloud environments.

This is possible with open-source solutions such as Red Hat OpenShift, which uses container technology on the IBM Cloud, allowing each client to create a workload and then move it to another public or on-the-premises cloud. 

Cyber-resilience is also top-of-mind for regulators as the financial services sector modernises. In recent years, Australians have witnessed more large-scale cyberattacks, exploiting vulnerabilities in third and fourth parties, and impacting organisations along the supply chain.

Strengthening cyber security for banks lies in adhering to a common set of control standards, which can be evidenced against (and monitored) in real-time, delivering enterprise-grade security and protection.

This solution offers a singular view of security threats, mitigating any weak links in the chain and ultimately reducing risk for the entire ecosystem. It also allows all parties to innovate at-pace, while keeping regulators satisfied. 

Looking to the future 

Over the past 12 to 18 months, Australian banks have had to accelerate their digital migration strategies, due to the pandemic, lockdowns and social distancing measures.

These changes are here to stay. In the coming years, the financial services industry can expect to see the continued acceleration of digital transformation. The nation’s big banks have acknowledged that: they’ve accepted the value that technology providers bring, because they can help them innovate and maintain market share. 

With large sums being invested, the fintech revolution will continue, and banks are readily embracing the opportunities. At the same time, regulators are set to ramp up their oversight of modern technologies such as cloud and artificial intelligence. The result?

Banks will have to find solutions to navigate the increased complexities this level of surveillance will bring. 

For Australian banks to take full advantage of the array of new opportunities available, it will be essential for them to select cloud-service providers that can reassure all parties (including regulators) that interoperability, security and compliance sit front-and-centre of their offerings.

The technologies that can deliver these capabilities will become increasingly important, as the speed of change accelerates, and the hurdles it creates become more challenging to surmount. 

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