How Banks and Other Financial Services Providers Can Reduce Technology Risk by Gaining Technology Talent

The gradual and recent evolution in the market in terms of its behaviour and way of working has made us relook at the core competency theory with a questioning look whether the banks and other financial services providers should continue to focus only on their core competences, and ponder over the aspect and prospect of adapting to the ‘agile’ age by developing T-shaped skillsets just like the agile framework prescribes it to the individuals – the T-shaped skills here referring to the technical prowess in addition to the banking and financial services (BFS) core competence for the BFS institutions. The latter has given rise to the ‘Fintech’ and clearly shows its inevitable and growing importance.

Change is in the Air

In today’s world there is no denial that the financial services industry can not live without the technology and more importantly a smarter and faster handling of data, and hence need an extensive capability in terms of technology infrastructure and capability. With the definition of banking and financial transactions transforming gradually and digitally, financial institutions (FI) can no more be a traditional brick-and-mortar one-stop shop. They have to embrace technology more than ever, if they wish to tap into a value creation opportunity of up to $20 trillion estimated according to a McKinsey study.

Apparently the strong and leading technology (tech) firms have shown better success in extending the wings to the domain and become the disruptor (fintech) compared to their incumbent counterpart, financial institutions, in adapting to in-house technology strength- for example, Google, Amazon, Microsoft, PayPal, etc.

Commerce Needs to Marry Technology

In addition to the above concern on competition and a complete reshuffle in the way of working post-Covid era, FIs also need to adopt technology as soon as possible because of new arenas opening up so fast and becoming indispensable (like Artificial Intelligence [AI], Machine Learning [ML], Cyber Security, Data Science and Analytics), and also because of mounting cyber threats forcing the FIs to adapt digital operational resilience.

Also, the use of internet, popularity of e-commerce and advent of cloud are causing the territorial clarity fading out and making it difficult for the regulators to trace and track them, imposing newer reporting requirements like CESOP to fight against the e-commerce VAT fraud.

Another example of technology disruption can be in the area of car leasing. With the expected change in the car landscape, predicting the depreciation of electric vehicles would need a different calculation model than that of the traditional cars. This example is just to show that the calculation, analytics and reporting requirements for leasing organizations may vary substantially in the future and may need a major overhaul of IT capabilities.

Financial Institutions must have tech talent and resources to live up to these ambitions, if not to surpass them.

Should the BFS participants build their IT spin-offs (or at least a voluminous and strong IT department), duplicate their governance efforts, keep on growing by managing the complexities that may be totally different from their core operations, and as a result drift away from their original core purpose? Or should they outsource the technology addendum and focus on core competences? Also not to forget that sustainability and climate risk mitigation have huge influences on core business and information technology strategies. The solution probably lies in balancing the two in a smart way.

The Technology Talent Gap Broadens

Financial institutions continue to struggle with finding tech talent. They have cited a lack of tech skills in job candidates as one of their top challenges in the post-pandemic era. Technology firms remain the preferred choice for the technology aspirants because of their lucrative salaries and precedentary work with emerging technologies. The solution is not impossible, but needs to be carefully crafted

This gap can be reduced. FIs can equip themselves with the right technology competence and capability, either ingrown or complementary, if they strategize and implement well. Also, the fintech slump may provide the FIs an opportunity to close the talent gap.

1. Embrace the Cultural Change

It is high time that financial institutions make a sincere effort to reduce not only the technical debt but also mindset debt, if at all there is any still remaining, in contemplating new technology models. What complicates this transition further is that, by outsourcing the work, they are still not able to outsource the risk. The regulators still mandate the FIs to own the accountability for the work done by their IT vendors. FIs should carefully address these in their strategy and governance, but should no way avert the contemplation. The technology should not be an overhead but rather an enabler for the institution.

2. Engage Early

FIs should be innovative in reaching out to and convincing talents first. One way can be through walking up to campuses for recruiting young tech talents, or attending/hosting other engaging events to promote themselves as employer of choice for the tech graduates (like innovation bootcamps, coding challenges, etc.).

We should, however, keep in mind that recruiting is not the solution unless one has a good plan for onboarding them and training these talented minds. A good learning and development (L&D) strategy and plan must be in place.

3. Select the Most ‘Suitable’ Partner

Instead of investing and spending too much time and effort on building and growing an in-house talent pool for a competence that might not be a core competence for the bank or other financial services industry participants (according to their strategy and appetite), FIs can call upon the expertise of the tech vendor(s) or partner(s) as they would anyway need to look for and manage those talent pools.

If this is the chosen way forward for the institution, it is very important to look for a partner or vendor who:

• has the capability to understand the client
• matches the intent, culture, appetite and execution
• has a robust and enabling L&D plan to groom talents

4. Initiate IT Consolidation

In case the FI has decided to offload a part of its IT development, implementation, and maintenance efforts to technology providers/vendors, it is helpful to keep an eye on the number of vendors in the organizations network. While it is absolutely justified to select vendors based on their expertise in the context of a specific programme, and hence is quite normal to end up with multiple vendors in the institution’s ecosystem, the essence is not to have too many to manage.

Many organizations are taking up an exercise of rationalizing and consolidating their IT vendor landscape primarily for (but not necessarily limiting to) the following drivers:

• one face to interact with, or "single point of contact"
• minimized interaction and minimized complexity of delegation
• concentrated risk to manage

5. Establish Good Governance

As we already mentioned, even though the tech competence and the related work/deliverables are delegated, the risks are still with the FI. So, a good governance is very important with regard to traceability of ownership, and having a ‘fallback’ mechanism in place. But more importantly, partners should feel like an integral part of the governance and enable the organization in an effective setup with a supporting role, and not merely following mandated actions. This can happen better when vendors:

• are already be completely aligned with the end objective(s)
• have extensive experience of working with a range of clients with varied capacity, aspiration, and culture
• see the client as a fellow ‘partner’ in the journey

6. Make a Real and Involved Partnership

A partnership becomes successful when both parties consider the other its extended organization. A good handshaking can resolve many stumbles. A success story is written when both:

• exchange ideas and best practices
• adopt and embrace agility
• support and motivate talent retention and rotation

Serving customers by looking forward as well as back is a big promise, 
but the power of today’s new digital capabilities is vast and growing. Let’s talk about how digital can work for your business.