Inside Consulting

Rethink. Reboot. Recoup. A new technology investment paradigm.

To optimize technology investments, improve customer offerings, and scale efficiency gains, leading Financial Services Institutions (FSIs) around the globe are working closely with major technology players. Together, Oliver Wyman and Amazon Web Services (AWS) have developed a robust methodology to help FSIs evaluate, prioritize, and communicate their technology investments.

The COVID-19 pandemic has underscored the need for digital channels and foreshadowed the consequences of ignoring digital transformation plans. Mastering technology investments has become an essential skill for FSIs to maintain a competitive edge — “those who unlock the value will not only survive today but thrive for years to come.”

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Key drivers shaping today’s technology investments

Many FSIs are reprioritizing strategic technology investments, aiming to relieve pressure on older systems, cut costs, respond to evolving customer needs, adapt to new security requirements, and maintain compliance. There are four drivers that are likely to determine the technology investment agenda.

1.  Expensive legacy technology

Most FSIs suffer from the burden of legacy technology and inflexible applications that impede productivity gains. Fearful of the complexity and risks of re-platforming core systems, many companies persevere with outmoded, costly legacy Information Technology (IT). In fact, close to 70 percent of IT budgets are relegated to simply run, leaving only 30 percent to grow and transform. Firms that prioritize retiring outdated technology can reallocate budgets to invest in innovation.

FSIs need to modernize the way data, products, services, and partnerships are established. Modernizing legacy systems eliminates data silos so FSIs can analyze customers’ data in real time, speed up processing, quickly deploy features, and streamline updates. New, cloud- based technologies provide FSIs with more business resiliency by lowering infrastructure and capital expenditures.

2.   Evolving customer expectations

As a result of the pandemic, there was a dramatic increase in digital activities, cementing fundamental changes in the way consumers interact with FSIs. Cash transactions, for example, decreased by up to 50 percent in some European countries, and payment providers reported significant growth in contactless transactions. Customers have increased their use of mobile apps to schedule payments, access customer support, and assess new products. A seamless digital experience with personalized engagement and reporting has become today’s baseline.

In response, FSIs are evaluating the best channels, systems, and features needed to most effectively meet customer expectations and achieve a return on investment (ROI).

3.  New cybersecurity risks

Transitioning almost overnight to remote working environments created additional IT vulnerabilities for FSIs. With the shift to remote operations, they incurred new risks around data theft, fraud in remote authentication, application validation, and phishing via new channels.

Going forward, FSIs will need to protect against new forms of fraud and develop new flagging for breaches and data theft. Already, more than a third of FSIs have made changes to their technology infrastructure to improve the security of employees who are working remotely.

4.  Changing regulatory requirements

The pandemic added new responsibilities on FSIs to collaborate with local governments on payment deferral requests, mortgage relief, and stimulus disbursements. FSIs were already logging different patterns of behaviors that would require redefinition of their risk measurement and modelling with credit risk at the top of their agenda. Industry-leading FSIs are working to derive new insights and trends from this data as it can directly link to the firm’s profitability.

Regulators will likely require FSIs to more frequently and dynamically measure risk at the customer and overall institutional portfolio level, with ad-hoc, real-time risk reporting being one of the potential requirements in the near future. Hence, FSIs will also have to modernize existing risk platforms and develop new processes to manage credit risk, liquidity risk, and market risks to their portfolio.

These four drivers underscore the need for technology investment so that FSIs can stay profitable and competitive. The challenge is for FSIs to quickly and easily substantiate technology investments to deliver the business of the future, faster.

Rethink-Reboot-Recoup Report

About the author

Oliver Wyman

Oliver Wyman is a global leader in management consulting. With offices in 60 cities across 29 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm has more than 5,000 professionals around the world who work with clients to optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].