Financial services enterprises are under greater pressure to digitally transform. According to new Telehouse research, more than four out of ten (42%) financial service enterprises need to transform their IT infrastructure or risk becoming less competitive – a figure significantly higher than the 34% average across other sectors.
Pressure is being driven by a combination of factors, including customer demands for more connected, relevant and personalised experiences (46%), the need to simplify business and operating models to increase efficiency (46%), cyber security (44%) and the necessity to deliver new applications and services to customers (44%). The emergence of nimbler challenger banks and ambitious FinTechs has set the challenge for businesses across the sector to step up a gear and reshape their operations.
For many, a shift from traditional on-premise infrastructure to a more modern mix of colocation, cloud and ultimately, edge computing is the answer.
Scoping the challenge
Today, financial services firms need to react quickly to regulatory demands and take advantage of market opportunities. However, they often don’t have the right systems in place to manage, or effectively use data to respond as quickly as their ‘digitally native’ peers.
The problem is many are still reliant on inflexible, legacy, on-premise infrastructure. The research revealed that financial services organisations outsource the lowest proportion of IT infrastructure to colocation and the cloud of the enterprise sectors polled. So, it’s not surprising the sector also has the lowest confidence in IT maturity, with just 30% of IT decision-makers describing their organisation’s IT maturity as ‘very advanced’.
Transformation is clearly needed but it is not always an easy task. Historically, financial services firms have struggled to adopt new technologies and meet increasingly high customer expectations quickly, often limited by strict compliance and regulatory requirements, which ratcheted up after the global financial crisis of 2008. Even with the appetite to change, many have struggled to make meaningful progress, held back by legacy IT systems. But with the time of the essence and providing personalised, connected and reliable experiences now business-critical, organisations can simply no longer afford to stand still.
Why connectivity is key
As customer demand and internet consumption grow, financial services organisations need to find ways to increase connectivity between offices and countries and improve the user interface on customer-focused technology like apps and websites.
5G will offer many benefits for financial services including reduced latency, which in turn will help decrease transaction and settlement times. It will also facilitate the adoption of AI to enable greater personalisation and improvements to customer experience.
However, as with any new wireless communications technology, the volume of data used will rise significantly, putting more stress on backbone networks. A fifth of financial service enterprises surveyed in the research already say that data volumes have become a serious problem. To succeed, organisations need the ability to quickly ingest and process data and this will be dependent on having a connected, secure, reliable, scalable, flexible, resilient and low-latency IT infrastructure.
Ultimately, more connections mean more risks. So, the challenge is how to take advantage of increased connectivity without compromising security or compliance.
The role of colocation
Many are turning to colocation as the answer; providing the extra capacity and bandwidth required, while also enabling fast, secure and direct connections to cloud service providers. According to the Telehouse research, financial services organisations are already outsourcing 38% of IT infrastructure in colocation with adoption set to increase further as the use of big data; 5G and the Internet of Things (IoT) rises.
By hosting their IT infrastructure in a colocation data centre, organisations can control the migration process, keep on top of regulatory demands and keep a lid on costs. The research found that the top drivers of investment in colocation are sustainability, faster data access and improved connectivity, likely driven by the need to improve customer experience and connect disparate hybrid IT structures.
More importantly, by deploying a combination of cloud and colocation strategies, organisations can create a resilient and secure foundation for growth. This will enable them to flex and scale operations when building new services and innovations to meet future demand, while also ensuring they provide their customers with a responsive and high-performing service. And by choosing a colocation facility in close proximity to financial markets and exchanges, organisations can benefit from reduced latency and faster data processing to enable real-time big data analysis.
Moving to the edge
Despite lagging behind other sectors in most areas, financial services are leading the way when it comes to edge computing. 72% of respondents have already implemented a strategy for edge computing, driven by a need to optimise data volumes (36%), digitally transform (34%) and match competitor capabilities (34%). However, over a third say they are challenged by a lack of understanding of edge networks and their purpose as well as uncertainty over which locations to gather and manage data in.
Given that it’s now more important than ever for financial services firms to store, access and analyse and access exponential levels of data at record speeds, it is not surprising that interest in edge computing is soaring. Gartner predicts that by 2025, 85% of infrastructure strategies will integrate on-premises, colocation, cloud and edge delivery options, compared with 20% in 2020.
Demand for edge is also likely to be driven by its convergence with other technologies such as cloud and colocation and is evidenced by the fact that many firms opt for a mix of technologies. Ultimately, the key to success for organisations will be building the right infrastructure foundations and connectivity, and the right data centre partner is critical to achieving this.
Embracing the connected future
Financial service providers have a huge opportunity to provide the seamless, secure and personalised services that today’s consumers crave. But doing so requires digital transformation.
As data volumes and connectivity increase, new developments such as predictive modelling to prepare for ‘what if’ scenarios, automation of front-end sales and customer-facing environments and the enhancement of customer care by self-service functionality will become commonplace. However, success depends on having the right IT infrastructure to enable fast, secure and seamless connections. It will be those that can build a connected, secure, reliable, scalable, flexible, resilient and low latency IT infrastructure that will be winners in the race to the connected future.