A need to change the mindset
Abhishek Bhattacharya, group vice president of technology, financial services international at Publicis Sapient in London, said larger, older banks have archaic engineering processes and committee-based approval processes that slow them considerably.
“It takes them easily a year to a year-and-a-half to launch something. Whereas the new guys launch in days – not even weeks, ready to erode their market share,” Bhattacharya said.
Legacy banks were willing to pay for cloud because they thought it would bring them that level of agility – launching new products quickly and refining as needed.
“What started to happen is these guys are replicating their exact earlier processes into cloud,” Bhattacharya said. “Instead of enabling everyone, they have taken a centralizing approach because this is what they used to do.”
Banks that used to have centrally established IT infrastructure teams have set up large central teams to manually execute cloud requests. This takes far too much time and creates bottlenecks. Instead, they could have a small central team that enforces automated guardrails and empower other staff to make changes within previously approved parameters which can be built into their cloud platform and managed remotely.
“That would really lead to agility because each team could do their stuff but that’s not how they’re doing it,” Bhattacharya said. “They’re just replicating the same operating model in the cloud. Hence, migration is only solving small parts of the problem.”
Companies may be reluctant to leave behind the infrastructure for sleeker, more efficient systems. But if they don’t, the competition will race ahead. No one can determine the pace of technological change. But it is not as simple as setting a goal to put your workloads on the cloud.
Kirby said the time it takes for someone to produce superb work with any given technology decreases as that platform advances. For example, virtually everyone in the U.S. has a smartphone with a camera that surpasses the most expensive digital cameras available to consumers at the turn of the Millennium. Similarly, modern media services stream higher-quality movies than top-of-the-line DVD players from that same time. It would save significant time and resources to adopt newer technologies rather than tinker with outdated ones.
“Enterprise clients are in a tricky spot because they already have all of their rockets built. They’re the old adage of trying to rebuild while it’s flying,” Kirby said. “You are going to be left behind but that’s not because you’re doing anything wrong. You might be doing great for 2010, but someone else to your left or right is going to take advantage of cloud or machine learning or serverless computing to hurdle the challenges that took you a decade, in a year.”
In the world of finance, options traders know this intrinsically thanks to the concept of theta: the rate of decline for an option as time passes.
Role of technology in change
A major problem for the banking sector is that it might not be immediately clear just how profoundly emerging technologies affect them. For instance, a mobile device manufacturer understands that it will fall behind if they do not have the most recent cameras.
However, a bank may not quite understand why it will fall behind without updating procedures. To put it simply: every company must become a tech company to be successful. Tech cannot be siloed to IT.
Kirby described the transition toward the cloud as a paradigm shift similar to the advent of electricity. He said the cloud is like the electrical grid and any business can plug into it for computing power that’s easily expanded – paying only for what they need. It’s the standardization of computing power. Technologies like kubernetes, microservices and APIs are essentially the virtual components of standardized parts like insulated wiring and soldering kits. It’s widely understood among technologists that we’re in the midst of the Fourth Industrial Revolution.
“If you look at the Third Industrial Revolution, it didn’t matter whether you were in farming, manufacturing, transportation or anything else, whatever you were in changed. If you didn’t adapt and adopt electric motors, it’s not that you fell behind, it's that others leapt ahead,” Kirby said.
“As technology goes further, your acceleration and velocity matter a lot more than your position. The electric motor will speed everything up. If you’re going even slightly faster and everyone gets a speed boost, then you win. But if you’re going even slightly slower and everyone speeds up, you fall behind faster and faster over time.”