How strategic IT investments support the development of the financial industry

Technology plays a key role in driving business success in the financial industry. Conventional methods of allocating IT funds, which mainly focus on maintenance and minor improvements, are no longer sufficient.

Financial services firms must leverage the latest technologies to drive better business outcomes. This article examines how strategic IT investments, enterprise architecture innovations, and advanced technologies like AI can deliver transformative growth in the financial sector.

Re-prioritizing IT investments

Banking and finance organizations must move beyond conservative IT spending focused on maintaining legacy systems to realize significant business benefits. The key is to shift investment toward innovative, high-ROI technologies that require a transformational mindset, not a traditional one. This requires rethinking how IT and business strategies are aligned and executed.

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In the financial services sector, fragmented initiatives often lead to a lack of tangible return on investment (ROI). For example, the CIO may lead digital transformation while the CDO pursues separate AI initiatives, diluting the overall impact. Financial institutions should create an integrated, holistic vision with all stakeholders.

To demonstrate tangible ROI, identify and prioritize quick wins and must-have initiatives that demonstrate immediate value. For example, in our company’s experience implementing AI-enabled customer service platforms, we saved costs by minimizing dependency on Tier 1 operations teams. Additionally, we optimized IT asset management for a prominent financial services client by implementing tools such as ServiceNow software and hardware asset management and Integration Hub. This resulted in tangible ROI through significant cost savings and increased operational efficiency.

Implementing Open Banking and M&A strategies

Open Banking as a Driver of Growth: Open banking APIs facilitate third parties to access financial data securely and uniformly with consumer consent. These APIs, classified as data APIs, transaction APIs, and product APIs, provide read-only access to financial data, enable fund transfers and payments, and list financial products, respectively. This system reduces IT complexity and simplifies financial transactions. It can also increase customer engagement by offering more personalized services.

It’s time for banks and financial organizations to embrace open banking, which facilitates innovative features such as account-to-account payments, where payments are made directly from one party’s bank account to another party’s account. By 2027, account-to-account payments could exceed $200 billion in volume, with a compound annual growth rate of 19%.

JPMorgan and Mastercard have launched a Pay-by-Bank tool that leverages open banking to enable secure and efficient account-based payments directly from consumers’ bank accounts. The tool illustrates how open banking can streamline financial transactions and improve user experiences.

Strategic mergers and acquisitions for technological advancement: Mergers and acquisitions can accelerate digital transformation by introducing new technologies and capabilities. Financial institutions should consider mergers and acquisitions not only for market expansion, but as a strategy to acquire innovative technologies and talent.

Organizations need to divest assets and invest in M&A to grow their customer base and digital capabilities, providing a return on their investment in value. For example, a traditional bank can immediately benefit from acquiring a blockchain fintech, increasing security and transaction efficiency.

As a transaction manager for a financial services firm acquiring a global trading platform, I saw the company gain a competitive advantage by incorporating the trading platform’s robust digital capabilities. Working closely with our practice team and client executives, I helped secure a large transaction by developing our M&A services integration capabilities. My input included solution strategy and approach to accelerate application implementation and ensuring implementation of rigorous architectural standards, streamlined processes, and end-to-end service configurations.

This approach facilitated a smooth operation and significantly improved our client’s M&A process. Reflecting on my experience integrating M&A businesses, I believe it is crucial to drive each business line to excellence by leveraging its unique strengths, fostering innovation, and aligning with strategic goals. Companies should avoid the common trap of treating all business lines as one; instead, they must tailor their integration approaches to respect the distinct identities and capabilities of each party.

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Implementation of advanced technologies

Technology is a key enabler of optimizing business functions and can help save costs and increase revenues. Financial planning and analysis is a core finance function that can greatly benefit from technological advances.

AI is revolutionizing FP&A by automating complex processes, delivering predictive insights, increasing the accuracy and speed of financial reporting and decision-making. Financial firms can use AI to automate budgeting, reduce errors, and free up analysts to focus on strategic initiatives, leading to better resource allocation and cost savings.

Another advanced technology that banks can consider is digital twins. According to IBM, a digital twin “is a virtual representation of an object or system that is designed to be an exact replica of a physical object.” Using digital twins, banks can simulate scenarios and optimize operations. Companies can create digital twins of core banking systems to test new technologies and regulatory changes in a risk-free environment, ensuring smoother implementations and improved compliance.

Financial institutions must focus on resilient growth by leveraging technology to improve operational efficiency and customer engagement. Investing in AI and machine learning can improve fraud detection and ensure safe transactions. Prioritizing RegTech and cybersecurity secures sensitive data and ensures regulatory compliance. Data analytics helps banks understand consumer demands and offer personalized financial products, increasing loyalty and revenue. Growth in a competitive financial sector requires customer retention and value-added services.

Establishing a Global Enterprise Architecture Framework

A solid enterprise architecture framework supports digital transformation by aligning IT infrastructure with business processes and scalability and agility goals. However, beyond being solid, EA should be flexible.

Drawing from best practices from frameworks such as TOGAF and Scaled Agile EA, our firm’s approach focuses on creating an EA practice that is dynamic and responsive to changes in technology and our business environment.

Integrating AI, blockchain and cloud technologies into an enterprise architecture can provide a scalable and secure platform for financial services, enabling rapid innovation and better customer service.

Taking a strategic approach

Financial services organizations must be strategic in their IT spending and adopt innovative technologies and a strong enterprise architecture to succeed in today’s marketplace. By focusing on these areas, organizations can unlock significant business value while improving customer experiences. This approach provides a strategic guide for financial institutions to successfully navigate the complexities of digital transformation and maintain a competitive advantage.

The information provided here is not intended to be investment, tax or financial advice. You should consult a licensed professional for advice regarding your specific situation.