Failure to keep pace with technology change is now a top risk factor for financial services organizations, according to the most recent Banana Skins Index, which measures the risks facing the banking industry. Coming in at No. 3 in the index, technology risk has never ranked so high in the 15 years that the CSFI has published its index.
Not only does this finding reflect the impact of the pandemic on increasing the need for remote operations and new service delivery systems, but it’s also a sure sign that banks’ metamorphosis into technology companies is well underway.
A key factor in whether the industry can steer its use of technology from a risk factor to a competitive advantage is its ability to attract tech talent. Unfortunately, thus far, the industry has struggled to do so. External partnerships can certainly help the industry address the tech skills shortage, as long as the evaluation process takes into consideration organizations’ key concerns. By carefully evaluating their talent needs and understanding how partnerships work, banks can make the choice that’s the right fit for their digital strategy.
The Tech Talent Shortage Is a Global Concern
The roots of the tech talent gap are clear: Technology roles such as data analysts and artificial intelligence (AI) and machine learning specialists are expected to account for one in three financial services jobs globally by 2022. Even fintechs aren’t immune from the talent shortage, with hiring crunches reported in the European Union (EU) and Hong Kong.
The battle is especially acute in the UK, where the post-Brexit end of free movement is exacerbating a tech talent shortage so severe the government has announced a new visa category to attract fintech specialists.
Despite ambitious plans to hire thousands of data scientists and engineers, many UK banks tell us they’re priced out of the technology job market, unable to match the lure of lucrative salaries and pioneering work with emerging technologies offered by companies such as Google, Apple and Facebook. It’s a stark about-face from 20 years ago, when banks had their pick of top technology talent with hot skills.
For all these reasons, we’re increasingly hearing from financial institutions that are proactively reaching out to external partners for talent reinforcements — and expressing trepidation about it. They worry they’ll lose core competencies by contracting with external partners, and they fear compromising their ability to innovate and deliver new products. Many are hesitant to switch off old systems despite the potential for application modernization to transition their often complex, fragmented infrastructures to the latest technologies and operating models.
Banks also grapple with the hunt for profits amid low interest rates. Lower costs are on every banking leader’s mind. So is reducing the property footprint, with banks in the UK and Europe announcing real-estate cutbacks of 20% to 40% as work-from-home (WFH) becomes a permanent change.
Vetting the Talent Quotient of Potential Partners
By incorporating the following guidelines, banks can approach their evaluation of prospective partnerships with confidence and successfully address the technology talent gap:
- Prepare for a culture change. In the past, banks hesitated to adopt new technologies because they considered them not quite ready for the industry’s heavily regulated, 24-hour demands. Then came 2020. The pandemic became the testing ground banks needed to prove that distributed services and digital channels were not only reliable and secure but also popular with customers.
Now, it’s not technical debt but mindset debt that gives banking leaders pause as they contemplate new technology models. That is, instead of managing a big annual spend and a data center staffed by thousands of employees, they face the prospect of trusting an outside party to run the function that has become the engine of their business.
Complicating the transition is that this arrangement requires them to outsource the work but not the risk: Regulators require banks to retain accountability even for work performed by a vendor or service provider. In reality, the amount of risk does not change when technology models shift – only the procedures to mitigate them do. Best practices are readily available to help banks make this cultural and mindset shift.
- Anticipate regulators’ questions. Designing outsourced operations requires working closely with regulators and having ready answers to their questions. For example, does the proposed change in technology model place the customer at a disadvantage or risk of exclusion? Have you established robust governance to manage risk in your partner supply chain?
Our banking clients are also concerned about fully understanding the regulatory aspects of working extensively in the cloud. Some of their concern is justified. For example, while cloud infrastructure makes it increasingly easy to distribute data, regulations restrict the passage of global operations data through the EU and US. Such concerns, however, should not slow the pace of change.
In reality, regulatory challenges are more of a communication issue than anything else. By taking time to establish a dialog with regulators, banks can develop a roadmap that lets them partner more effectively and remain compliant.
- Accept the reality of talent rotation. The hallmark of consultancies and service providers is innovation and continuous learning — and that means team members move on to different projects. For financial institutions, which historically prize long-term employment, rotation takes some getting used to. Yet rotation can keep teams motivated, just as longevity can lead to members working on autopilot.
To bring fresh eyes and objective thinking to projects, we typically rotate individuals out after no more than 18 months. Aligning with partners on objectives and a common purpose can provide banks with a greater sense of confidence.
- Plan for one team, one purpose. In the most successful partnerships, both service providers and clients consider their partners to be extensions of their own organizations. For example, we’re flexible when it comes to using collaboration tools such as Zoom, Microsoft Teams or Trello and willing to adopt the client’s preferred tool even if it’s not one of our own standards. To better support collaboration in the WFH environment, we’ve established 15-minute morning “stand-up” meetings to orient teams for the day.
Similarly, we advocate for including external team members in company events like earnings calls, new product launches, and team-building and strategy sessions. In our experience, relationships can suffer when external teams aren’t invited to participate in such events. In the bigger context of working partnerships, such relatively small gestures often have an outsized impact on the sense of teamwork, even if it means paying for the partner’s time.
By designing robust, flexible operating models that tap into external partners’ services, banks can run leaner, lighter technology infrastructures that reduce technology risk by enabling them to access the tech talent they need.
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