• Martin Gaffney, Vice President EMEA at Yugabyte


• 11.10.2023 02:15 pm
#fintech

The financial sector is no stranger to rapid change, and the past decade has seen a seismic shift towards fintech and digital innovation. However, what if I told you that the traditional giants of finance and banking are far from obsolete? 

In this article, database veteran, Martin Gaffney, VP EMEA, Yugabyte, explores the evolving landscape of financial services and the symbiotic relationship between fintechs and established institutions, and examines how forward-thinking strategies can help traditional banks stay ahead of the curve.

The Ever-Evolving Financial Ecosystem

Ten years ago, the consensus was clear: fintech and digital contenders would dominate the future of banking. Despite this, the last few years have revealed an intriguing development within the global financial services sector, an ecosystem where innovation has thrived, but traditional incumbents are far from obsolete.

There are now over 26,000 fintechs, but they have not supplanted the older Tier One and Tier Two banks as predicted. The market for core banking services for consumers and businesses provided by these incumbents continues to grow robustly, nearing $50 billion annually. Conversely, fintech investment, once surging, has shown a marked slowdown, dropping from $46bn in the second half of last year to $23bn for the first half of this.

The downward trend can be attributed to various factors, including the volatile journey of cryptocurrencies and the adaptability of legacy banks. 

Established banks have found ways to address their legacy IT challenges and become more agile (and hence, more attractive to consumers and businesses). Moreover, collaboration and tech-sharing between financial organisations have become commonplace, with traditional companies forming alliances with cloud-native players for mutual benefit.

Learning from Fintech Pioneers

The financial landscape remains dynamic, and staying ahead of the competition requires vigilance. While working with financial services operators, I've noticed a recurring pattern: Larger banks often adopt tomorrow what newer, agile fintechs are doing today. Fintechs serve as canaries in the mine, offering early warnings about the direction of the online banking market (including what doesn’t work!)

There is a Darwinian struggle, as only those at the cutting edge, equipped to tackle emerging challenges swiftly, will survive. Even well-established institutions must eventually confront change or become obsolete.

For Chief Information Officers (CIOs) of major banks, monitoring fintech activity provides a valuable insight into the sector's emerging challenges and opportunities. Similarly, those seeking to launch ground-breaking payments or De-Fi products must keep a close watch on their peers in the realm of digital platforms and technologies.

Future-Proofing IT Modernisation Plans

Based on my interactions with Independent Software Vendors (ISVs) and fintech clients, here are four key strategies that I believe will help you future-proof your IT modernisation plans:

Prioritise Multi-Cloud  

Analysts and regulators increasingly advise cloud users to mitigate risk by using multiple hyperscale cloud providers. 

Fintechs have embraced this strategy, ensuring they can deliver on multiple cloud platforms to meet diverse customer preferences. As major banks adopt multi-cloud approaches, it's crucial to avoid single-cloud solutions that limit flexibility. 

On the database front, this means steering clear of singular vendor technology solutions that may lead to reduced IT flexibility in the future.

If you go all in with Cosmos from Azure, Amazon’s Aurora, or a specific service from Google, you may end up tied to a single (less than ideal) data tool further down the line.

Don’t Let Tech Choices Constrain Operational Plans 

In today's hybrid environment, where some enterprises have not fully committed to the cloud, being adaptable is crucial. Some customers prefer software as a service (SaaS), while others operate a mix of on-premise and cloud accounts. Banks must offer solutions across the spectrum, from cloud-first to on-premise-only. The data layer should support these options to enable, rather than dictate, business strategies.

Navigate Regulatory Complexities

Large banks operate internationally, necessitating compliance with varying regulatory requirements. Managing geolocation, data residency, and data sovereignty is critical. As applications operate globally, constraints on data storage locations are common. Historically, this challenge was resolved by maintaining multiple database instances, adding complexity and delays. 

Modernising your data layer for ease of use and security is now imperative. The regulatory layer makes for a much more complex architecture. A fintech starting up now wouldn't dream of adopting a data layer that couldn’t support the data residency and data sovereignty requirements the market demands. Is it time to consider how you can modernise your data layer to achieve the same ease of use and security? 

Rethink NoSQL as a Solution

While NoSQL databases have merit, they may not meet the rigorous demands of financial services, which require transactional consistency. 

Instead, consider "scalable postgreSQL" as a mission-critical option. PostgreSQL offers the scalability required for cloud-native databases without the proprietary hardware constraints. This strategy aligns with multi-cloud compatibility and transactional consistency, ensuring robustness in any cloud environment.

Embrace Fintech Inspiration

The financial landscape is in constant flux, and traditional banks must embrace innovation to stay competitive. Fintechs serve as valuable indicators of industry trends, and banks should be proactive in adopting their forward-thinking strategies. 

Remember the words of Picasso, "Good artists borrow, great artists steal." 

By learning from fintech pioneers and embracing their innovative spirit, smart CIOs in established banks can secure long-term success in an ever-evolving industry.