In today’s rapidly evolving financial landscape, technology is the driving force behind innovation and transformation. Among the most significant technological advancements, the cloud has emerged as a game-changer for the financial technology (fintech) industry.
The fintech sector is characterized by its relentless pursuit of efficiency, security, and accessibility in financial services. Cloud computing, with its scalability, flexibility, and cost-effectiveness, aligns seamlessly with these goals. It empowers fintech companies to tackle complex challenges, streamline operations, and deliver cutting-edge solutions to an increasingly tech-savvy customer base.
In this exclusive discussion, we embark on a journey with Dnyaneshwar Gaikwad, Executive Vice President at Edelweiss Financial Services Limited, to explore the profound impact of cloud technology on the fintech sector.
#1 Why is legacy application modernization gaining ground in the financial services sector?
It is widely recognized that BFSI organizations have the budget and a large appetite for innovation and experimentation. So, I’d like to break this down into a few key areas.
Firstly, the big financial services organizations in the industry are keen to adopt the agility that fintech companies offer through new-age architectures and the latest technologies. They’re looking at tools like API Gateways for data integration and leveraging AI and machine learning for analytics. However, they also want to maintain their mature and reliable enterprise processes simultaneously. It’s a balancing act between agility and stability that they are striving for.
Second is the increasing importance of data. Every organization now aims to use data more efficiently to make data-driven decisions. Whether it’s running targeted marketing campaigns, conducting predictive analytics for sales forecasts, or other data-centric activities, there is a growing need to harness data effectively, moving away from gut-based decision-making.
The third reason is that businesses are keen on creating new revenue streams by offering highly personalized and customized products and services. They’re moving away from the one-size-fits-all approach and tailoring their offerings to individual customers, which is quite a shift in mindset.
Lastly, and perhaps most importantly, cost reduction is a major objective. Financial institutions are looking to optimize costs associated with customer acquisition, overheads, and intermediaries, which often represent a significant portion of their expenses. They aim to streamline operations and reduce the overall cost of doing business in the financial sector.
So, in essence, it’s all about being data-centric, extracting valuable insights from data, and optimizing business processes to stay competitive in the rapidly evolving financial landscape.
#2 What are the typical business risks and challenges associated with application modernization?
We face a significant supply chain risk in this domain, referring to the fact that our modernized app ecosystem does not operate in isolation. It’s intricately connected with multiple service providers, leading to complex interdependencies. This complexity brings about risks such as security vulnerabilities and service availability issues, which are likely to become more common.
Another key challenge is keeping pace with regulators and government agencies. These regulatory bodies issue circulars and guidelines periodically, but businesses crave agility. Technology often outpaces regulators and government agencies due to its rapid evolution. Adhering to these regulatory norms and effectively explaining our compliance during audits requires a heightened focus.
Another significant hurdle I have observed is change management when transitioning customers to a new-age application. For example, in banking we cater to different generations of customers—older customers prefer in-branch transactions, the next generation uses websites, and the current generation prefers mobile apps. Maintaining all these channels while transitioning customers from one to another is a substantial task. Financial services organizations often have a mix of digital and traditional channels, which they need to keep operational. Eventually, these channels will converge, but it is a major challenge that we face today.
Another challenge is shifting an organization’s mindset. Many companies lack a technology-first mindset, which should ideally be deeply ingrained in the organization’s culture. Governance, compliance, risk, and finance are typically top of mind, but technology should be equally prioritized. Some organizations, like ours, have addressed this by hiring tech-educated CTOs to foster this culture shift.
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Lastly, modernized applications have a limited shelf life. In my 20 years of industry experience, I’ve seen a shift from building applications meant to last for decades to a constant cycle of building, deploying, and rebuilding due to the ever-evolving tech landscape. The pace of change in technology can make it challenging to predict which technologies will be relevant in the future, reducing the visibility of an application’s lifespan. In summary, it’s a complex landscape with the rapid evolution of technology and the need to cater to diverse age groups, making it quite a minefield to navigate.
#3 How did you prepare your organization for digital transformation?
I believe in taking baby steps. Trying to change everything overnight seems overly aggressive and I prefer a balanced, holistic approach that can significantly reduce costs and prevent haphazard decision-making. A steady transformation stage is more sustainable in the long run.
Secondly, I advocate for a top-down approach to management. Change needs to be driven from the highest levels, such as the board or senior leadership within the organization. It should be a strategic change, not just an operational one. We’re looking to shift the organization’s culture and adopt a “technology first” mindset to compete effectively with agile fintech startups. This change has to be strategically driven from the top to be truly effective.
Thirdly, talent is crucial. I firmly believe that organizations need to create their talent pipeline. This involves building talent in two key categories: strategic and operational. While strategic talent is often readily available in the market, operational talent, especially at the execution level, can be scarce. Therefore, we must establish an internal university to develop operational talent. This can include upskilling, reskilling, and grooming interns for industry-specific roles.
Ultimately, skills are the foundation for delivering outcomes. Transformation is a complex process with many moving pieces, but when the organization is ready, and has the right people, skills, & mindset, it becomes more manageable.
#4 What else did you do in order to feel 100% assured of a successful cloud modernization?
We conducted an extensive study before venturing into the cloud and application modernization realm. It was essential for us to have the right knowledge and understanding of the latest technologies and trends that could benefit our business. We conducted internal research and collaborated with partners such as AWS and Azure to grasp their approaches and learnings, given their extensive experience with numerous customers over the years. We delved into their processes, timelines, and the outcomes they achieved.
Our internal study covered various aspects, and we followed a straightforward yet effective process. First and foremost, as a large enterprise running multiple businesses, our primary goal was to replicate our on-premises infrastructure in the cloud. We dedicated the first 6-7 months to building this cloud-based ecosystem, benefiting from the assistance provided by AWS partners and others in this area.
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The next step involved an internal assessment to identify which applications were suitable for modernization. We understood that simply lifting and shifting applications to the cloud without a strategic plan could lead to increased costs and complications. Instead, we focused on:Â
- Identifying low-hanging fruits
- Creating reference architectures
- Conducting proof of concepts (POCs)
Once we had a clear understanding of which workloads should move to the cloud and how they should function within that ecosystem, we proceeded with migrating these workloads using the lift and shift method.Â
After successfully migrating, we embarked on the application modernization phase. We leveraged cloud-native services, such as microservices, to transform our applications into a cloud-native format. This encompassed both backend and frontend structures. While we still have a few applications in a monolithic state, we’re in the process of modernizing them as well.
Our approach involved building the foundational cloud ecosystem, conducting assessments, architecture planning, and a gradual transition to modernization. This method ensured that we achieved 100% assurance in modernizing applications without disrupting our business, end-users, or internal technology teams.Â
Doing the groundwork and research before taking the leap was instrumental in our success. It allowed us to make informed decisions and execute our cloud modernization strategy effectively.
#5 How will cloud technology continue to shape the financial landscape?
Finance and cloud, while seemingly different, share numerous similarities when viewed from a broader perspective. Both have a common objective of optimizing resources to generate more output with fewer inputs. This optimization is essential because the world has limited resources. So, whether it’s finance or cloud, their overarching goal is resource optimization.
While I won’t delve into the specific nuances of these fields, when we look at the bigger picture, we can see that they complement each other rather than being in conflict. Some may argue that one is costly or that their traditional ways are better, but in reality, they work in harmony. Both are tools for optimizing resources and how we use them depends on human decisions and inclinations.
Cloud fuels innovation because any form of innovation requires financial investment. You can’t innovate without allocating resources and spending money. Ultimately, innovation drives businesses forward.
Moreover, the cloud brings agility, and in the financial services sector, agility is highly coveted. Many financial giants aspire to operate like startups, and the cloud empowers them to do just that. It provides the flexibility and adaptability they need. I believe that the cloud is poised to disrupt the landscape of financial services. We’ve already witnessed this trend, and I expect it to continue in the coming years.
