Banks, insurers, and other financial services organisations in Asia Pacific have plenty of tech challenges and opportunities including cybersecurity and data privacy management; adapting to tech and customer demands, AI and ML integration; use of big data for personalisation; and regulatory compliance across business functions and transformation journeys.
Modernisation Projects are Back on the Table
An emerging tech challenge lies in modernising, replacing, or retiring legacy platforms and systems. Many banks still rely on outdated core systems, hindering agility, innovation, and personalised customer experiences. Migrating to modern, cloud-based systems presents challenges due to complexity, cost, and potential disruptions. Insurers are evaluating key platforms amid evolving customer needs and business models; ERP and HCM systems are up for renewal; data warehouses are transforming for the AI era; even CRM and other CX platforms are being modernised as older customer data stores and models become obsolete.
For the past five years, many financial services organisations in the region have sidelined large legacy modernisation projects, opting instead to make incremental transformations around their core systems. However, it is becoming critical for them to take action to secure their long-term survival and success.
Benefits of legacy modernisation include:
- Improved operational efficiency and agility
- Enhanced customer experience and satisfaction
- Increased innovation and competitive advantage
- Reduced security risks and compliance costs
- Preparation for future technologies
However, legacy modernisation and migration initiatives carry significant risks. For instance, TSB faced a USD 62M fine due to a failed mainframe migration, resulting in severe disruptions to branch operations and core banking functions like telephone, online, and mobile banking. The migration failure led to 225,492 complaints between 2018 and 2019, affecting all 550 branches and required TSB to pay more than USD 25M to customers through a redress program.
Modernisation Options
- Rip and Replace. Replacing the entire legacy system with a modern, cloud-based solution. While offering a clean slate and faster time to value, it’s expensive, disruptive, and carries migration risks.
- Refactoring. Rewriting key components of the legacy system with modern languages and architectures. It’s less disruptive than rip-and-replace but requires skilled developers and can still be time-consuming.
- Encapsulation. Wrapping the legacy system with a modern API layer, allowing integration with newer applications and tools. It’s quicker and cheaper than other options but doesn’t fully address underlying limitations.
- Microservices-based Modernisation. Breaking down the legacy system into smaller, independent services that can be individually modernised over time. It offers flexibility and agility but requires careful planning and execution.
Financial Systems on the Block for Legacy Modernisation
Data Analytics Platforms. Harnessing customer data for insights and targeted offerings is vital. Legacy data warehouses often struggle with real-time data processing and advanced analytics.
CRM Systems. Effective customer interactions require integrated CRM platforms. Outdated systems might hinder communication, personalisation, and cross-selling opportunities.
Payment Processing Systems. Legacy systems might lack support for real-time secure transactions, mobile payments, and cross-border transactions.
Core Banking Systems (CBS). The central nervous system of any bank, handling account management, transactions, and loan processing. Many Asia Pacific banks rely on aging, monolithic CBS with limited digital capabilities.
Digital Banking Platforms. While several Asia Pacific banks provide basic online banking, genuine digital transformation requires mobile-first apps with features such as instant payments, personalised financial management tools, and seamless third-party service integration.
Modernising Technical Approaches and Architectures
Numerous technical factors need to be addressed during modernisation, with decisions needing to be made upfront. Questions around data migration, testing and QA, change management, data security and development methodology (agile, waterfall or hybrid) need consideration.
Best practices in legacy migration have taught some lessons.
Adopt a data fabric platform. Many organisations find that centralising all data into a single warehouse or platform rarely justifies the time and effort invested. Businesses continually generate new data, adding sources, and updating systems. Managing data where it resides might seem complex initially. However, in the mid to longer term, this approach offers clearer benefits as it reduces the likelihood of data discrepancies, obsolescence, and governance challenges.
Focus modernisation on the customer metrics and journeys that matter. Legacy modernisation need not be an all-or-nothing initiative. While systems like mainframes may require complete replacement, even some mainframe-based software can be partially modernised to enable services for external applications and processes. Assess the potential of modernising components of existing systems rather than opting for a complete overhaul of legacy applications.
Embrace the cloud and SaaS. With the growing network of hyperscaler cloud locations and data centres, there’s likely to be a solution that enables organisations to operate in the cloud while meeting data residency requirements. Even if not available now, it could align with the timeline of a multi-year legacy modernisation project. Whenever feasible, prioritise SaaS over cloud-hosted applications to streamline management, reduce overhead, and mitigate risk.
Build for customisation for local and regional needs. Many legacy applications are highly customised, leading to inflexibility, high management costs, and complexity in integration. Today, software providers advocate minimising configuration and customisation, opting for “out-of-the-box” solutions with room for localisation. The operations in different countries may require reconfiguration due to varying regulations and competitive pressures. Architecting applications to isolate these configurations simplifies system management, facilitating continuous improvement as new services are introduced by platform providers or ISV partners.
Explore the opportunity for emerging technologies. Emerging technologies, notably AI, can significantly enhance the speed and value of new systems. In the near future, AI will automate much of the work in data migration and systems integration, reducing the need for human involvement. When humans are required, low-code or no-code tools can expedite development. Private 5G services may eliminate the need for new network builds in branches or offices. AIOps and Observability can improve system uptime at lower costs. Considering these capabilities in platform decisions and understanding the ecosystem of partners and providers can accelerate modernisation journeys and deliver value faster.
Don’t Let Analysis Paralysis Slow Down Your Journey!
Yes, there are a lot of decisions that need to be made; and yes, there is much at stake if things go wrong! However, there’s a greater risk in not taking action. Maintaining a laser-focus on the customer and business outcomes that need to be achieved will help align many decisions. Keeping the customer experience as the guiding light ensures organisations are always moving in the right direction.
While the discussions have centred around AI, particularly Generative AI in 2023, the influence of AI innovations is extensive. Organisations will urgently need to re-examine their risk strategies, particularly in cyber and resilience practices. They will also reassess their infrastructure needs, optimise applications for AI, and re-evaluate their skills requirements.
This impacts the entire tech market, including tech skills, market opportunities, and innovations.
Ecosystm analysts Alea Fairchild, Darian Bird, Richard Wilkins, and Tim Sheedy present the top 5 trends in building an Agile & Resilient Organisation in 2024.
Click here to download ‘Ecosystm Predicts: Top 5 Resilience Trends in 2024’ as a PDF.
#1 Gen AI Will See Spike in Infrastructure Innovation
Enterprises considering the adoption of Generative AI are evaluating cloud-based solutions versus on-premises solutions. Cloud-based options present an advantage in terms of simplified integration, but raise concerns over the management of training data, potentially resulting in AI-generated hallucinations. On-premises alternatives offer enhanced control and data security but encounter obstacles due to the unexpectedly high demands of GPU computing needed for inferencing, impeding widespread implementation. To overcome this, there’s a need for hardware innovation to meet Generative AI demands, ensuring scalable on-premises deployments.
The collaboration between hardware development and AI innovation is crucial to unleash the full potential of Generative AI and drive enterprise adoption in the AI ecosystem.
Striking the right balance between cloud-based flexibility and on-premises control is pivotal, with considerations like data control, privacy, scalability, compliance, and operational requirements.
#2 Cloud Migrations Will Make Way for Cloud Transformations
The steady move to the public cloud has slowed down. Organisations – particularly those in mature economies – now prioritise cloud efficiencies, having largely completed most of their application migration. The “easy” workloads have moved to the cloud – either through lift-and-shift, SaaS, or simple replatforming.
New skills will be needed as organisations adopt public and hybrid cloud for their entire application and workload portfolio.
- Cloud-native development frameworks like Spring Boot and ASP.NET Core make it easier to develop cloud-native applications
- Cloud-native databases like MongoDB and Cassandra are designed for the cloud and offer scalability, performance, and reliability
- Cloud-native storage like Snowflake, Amazon S3 and Google Cloud Storage provides secure and scalable storage
- Cloud-native messaging like Amazon SNS and Google Cloud Pub/Sub provide reliable and scalable communication between different parts of the cloud-native application
#3 2024 Will be a Good Year for Technology Services Providers
Several changes are set to fuel the growth of tech services providers (systems integrators, consultants, and managed services providers).
There will be a return of “big apps” projects in 2024.
Companies are embarking on significant updates for their SAP, Oracle, and other large ERP, CRM, SCM, and HRM platforms. Whether moving to the cloud or staying on-premises, these upgrades will generate substantial activity for tech services providers.
The migration of complex apps to the cloud involves significant refactoring and rearchitecting, presenting substantial opportunities for managed services providers to transform and modernise these applications beyond traditional “lift-and-shift” activities.
The dynamic tech landscape, marked by AI growth, evolving security threats, and constant releases of new cloud services, has led to a shortage of modern tech skills. Despite a more relaxed job market, organisations will increasingly turn to their tech services partners, whether onshore or offshore, to fill crucial skill gaps.
#4 Gen AI and Maturing Deepfakes Will Democratise Phishing
As with any emerging technology, malicious actors will be among the fastest to exploit Generative AI for their own purposes. The most immediate application will be employing widely available LLMs to generate convincing text and images for their phishing schemes. For many potential victims, misspellings and strangely worded appeals are the only hints that an email from their bank, courier, or colleague is not what it seems. The ability to create professional-sounding prose in any language and a variety of tones will unfortunately democratise phishing.
The emergence of Generative AI combined with the maturing of deepfake technology will make it possible for malicious agents to create personalised voice and video attacks. Digital channels for communication and entertainment will be stretched to differentiate between real and fake.
Security training that underscores the threat of more polished and personalised phishing is a must.
#5 A Holistic Approach to Risk and Operational Resilience Will Drive Adoption of VMaaS
Vulnerability management is a continuous, proactive approach to managing system security. It not only involves vulnerability assessments but also includes developing and implementing strategies to address these vulnerabilities. This is where Vulnerability Management Platforms (VMPs) become table stakes for small and medium enterprises (SMEs) as they are often perceived as “easier targets” by cybercriminals due to potentially lesser investments in security measures.
Vulnerability Management as a Service (VMaaS) – a third-party service that manages and controls threats to automate vulnerability response to remediate faster – can improve the asset cybersecurity management and let SMEs focus on their core activities.
In-house security teams will particularly value the flexibility and customisation of dashboards and reports that give them enhanced visibility over all assets and vulnerabilities.
Digital transformation has been a key company objective over the last two years – and more than a third of enterprises in ASEAN have it as their key business priority in 2022-23. They are aiming to be agile and digital organisations – with access to real-time data insights at their core.
Businesses have learned that their technology systems need to be scalable, accessible, easy to manage, fast to deploy and cost effective. Cloud infrastructure, platforms and software has become key enablers of business agility and innovation.
But the expansion of cloud applications has also seen an infrastructure and applications sprawl – which makes it essential for organisation to re-evaluate their cloud strategy.
Here are 5 insights that will help you shape your Cloud Strategy.
- Technology Change Management. Your cloud strategy must define the infrastructure and data architecture, security and resiliency measures, the technology environment management model, and IT operations.
- Building Scalable Enterprises. Focus on seamless access to all organisational data, irrespective of where they are generated (enterprise systems, IoT devices or AI solutions) and where they are stored (public cloud, on-premises, Edge, or co-location facilities).
- A Hybrid Multicloud Environment. For a successful hybrid multi cloud environment, keep a firm eye on hybrid cloud management, a suitable FinOps framework that balances performance and cost, and integration.
- A Technology-Neutral Approach. Partnering with a technology-neutral cloud services provider that leverages the entire tech ecosystem, will be critical.
- “Hybrid Cloud” Can Mean Many Things. Work with a cloud services partner, that has broad and deep capabilities across multiple hyperscalers and is able to address the unique requirements of your organisation.
Read on for more insights
Download 5 Key Insights to Shape Your Cloud Strategy – An ASEAN View as a PDF
