By Rahul Singh/HCL Technologies’ Financial Services Division

There is some pride in the fact that a vintage 60-year-old computer language, COBOL, powers 95 percent of ATMs and 80 percent of in-person transactions. One recent estimate suggests that there are 220 billion lines of COBOL code running across banks even today[i]. These are fascinating facts, in a morbid kind of way. The question to ask is: Can COBOL drive innovation? Can COBOL target young programmers who are attracted by the prospect of using stuff like Python, Java, Erlang and Scala that organizations like Google and Apple allow them to play with?[ii] The truth is that financial institutions must get their tools and techniques right if they are going to compete with FinTechs, like Robinhood that offers trading without charging a commission, Prosper that connects borrowers and investors for unsecured personal loans, SoFi that offers student loan refinancing, Paytm which manages mobile payments for 300 million registered users and which didn’t exist until 8 years ago or Alibaba's Yuebao, one of the largest money market funds that didn’t exist until 5 years ago.

Once considered upstarts, these are the FinTechs dominating and driving the future of the financial services space. The challenge is to stay abreast and, ultimately, out run them in terms of innovation.

In a survey done recently by HCL across financial institutions, 60 percent respondents said that legacy applications were the biggest barrier to agility, innovation and to fueling disruption. Respondents felt that FinTechs, on the other hand, didn’t have to manage burdensome legacy and could therefore maximize the potential of new technology (read HCL’s complete report, Thriving in a World of Digital Disruption, here).

To gain perspective of the scale on which new technology is being leveraged, consider this: Global investments in FinTech were estimated to be US$31 billion in 2017[iii]. This level of investment has the potential to unleash a staggering tsunami of change in the world of financial services. This leaves just one path for traditional service providers who have the painful task of adapting to the coming challenges—to relentlessly examine trends and identify technologies that can catapult them into the future.

Trends are relatively easy to identify, even though consumer behavior is in a rapid state of flux. The problem lies in responding to the trends. In the world of financial services that is bristling with regulatory and compliance restrictions, the going can be slow. Even financial institutions in the Fortune 500 are fighting a grim battle to keep pace. The only solution is to recognize that technology is becoming a driver and that investments in technology will help re-shape processes, products and business models quickly and cost-effectively. In other words, technology will keep financial service organizations agile and help them respond with alacrity to changing trends and keep risk under check.

Which are the technologies that should be on the radar of an ambitious financial services CIO? Where does the organization place its bets? It is easy to get lost in the maze of new technologies. The financial services industry is being buffeted by Cloud, Mobile, Automation, Big Data, Analytics, Artificial Intelligence, Natural Language Processing, Cybersecurity and Blockchain. Each in itself is a powerful driver of change. It can therefore be difficult for a CIO to pilot an organization across these bewildering choices.

We believe that the first step is to understand the future of financial services. This is the direction in which an organization needs to innovate. It then needs to identify the technology (or combination of technologies) that will move it faster in the chosen direction and simultaneously help reach scale.

There are two straight forward strategic aspects that CXOs will do well to bear in mind:

• A distinct long-term technology roadmap needs to be developed separately from short term goals. The long-term roadmap would leverage a basket of technologies, and not a single overarching one. When combined, these technologies deliver more than the sum of their parts, elevating the customer’s end experience by several magnitudes.
• Relentlessly experimentation is the key. Only with experimentation will FS organizations be able to understand the technologies that need to be adopted in order to improve the pace of innovation and meet business goals. Ideally, FS organizations need to venture out and partner with smaller boutique firms too. These partnerships often result in unconventional but highly effective solutions. This is the path to agility and the ability to compete with GAAF-type behemoths.

Only when innovation is powered by a sharp strategic focus and powerful technological partnerships can FS organizations address the challenges posed by legacy applications.