Powering finance: Digital transformation of an ‘always on’ industry

Since the first ATM was installed in 1967 and New York's Nasdaq exchange debuted digital trading in 1971, the financial services industry has been a frontrunner in technological innovation. But for decades, technology remained a back-office affair, servicing traders and executives who called the shots.

Today, however, technology has been propelled to the top of financial institutions' list of priorities as customers demand seamless digital experiences and regulators require constant access to industry data. The technology leaders and their teams who can meet these expectations have become some of the most sought-after employees for insurers, banks, and asset managers alike.

Technology is now [about] how our clients experience the bank, whether it's through an app or digital service," says Mike Dargan, group chief digital and information officer and executive board member at UBS. As a natural consequence, tech is now an integral part of our business-it has a seat at the table and is part of our firm's strategy."

A cloud-based future

Underpinning the financial services sector's transition to an on-demand" data and services industry-where companies pay specialist providers for storage and infrastructure when the need arises-is cloud computing. These specialists are often the cloud service arms of Microsoft, Google, and Amazon. Only such tech companies, with their global networks of giant data centers, have sufficient computing capacity to meet the ever-growing demands of the finance industry.

If you look at all the new requirements coming from central banks, governments, or even investors, financial services companies don't have the data storage capacity to meet the needs," says Scott Guthrie, executive vice president of the Microsoft Cloud + AI Group.

Back when banks embraced technology in the 1970s, they developed their own infrastructure, often installing servers in their data centers. The traditional system worked fine when computing demand was relatively uniform. But in periods of intense market volatility when demand for computing power spiked, banks needed to ensure that spare capacity kept growing, even though it was redundant most of the time.

We often talk about the burstable, elastic nature of cloud," says Dargan, referring to the idea that if a bank's demand for computing power exceeds its normal level, its cloud partners can provide additional capacity instantaneously and only charge for the time it is used. This not only drives cost savings, but it also reduces carbon emissions because spare capacity is aggregated for the entire industry at the level of the cloud services providers, rather than maintained by each company. Reliability and uptime are also improved, because cloud providers have multiple data centers that can back up each other. Dargan says UBS achieves above 99.999%, or sixth sigma availability across its estate, partly driven by the move to cloud.

Cloud providers do not just offer storage and infrastructure, but also platforms and tools through which apps and services can be developed. Since Dargan joined UBS in 2016, its tech teams have shifted from using 50 different development tools to just one cloud-based service they launched, called UBS DevCloud. Through this open ecosystem, built on public cloud, UBS software engineers have a seamless experience to develop, test and release code within a single tool, enabling them to launch products quickly and update them often.

Cloud also allows financial services companies to match best-in-class consumer applications and develop exceptional customer-facing services. The best-in-class consumer apps that you use every day know exactly what you click on and what you don't click on, and exactly what their recommendation engines are doing. This means they can improve their features really quickly. Applying the same in our industry can be game-changing for our clients," says Dargan. Such a desire to improve customer service, often amid competition from startup digital-only competitors, was one of the original drivers in financial services' embrace of cloud computing, says Guthrie. Financial services companies wanting to [provide] mobile or online, digital services to consumers was an early source of movement to the cloud."

Cultural evolution

For an industry that pioneered the large-scale application of computing through in-house infrastructure, financial services firms' shift to the cloud is a significant, generational change. That naturally leads to a degree of cautiousness.

Finance often has the most sophisticated infrastructure teams of any industry, so the reaction [to transitioning to the cloud] was often I'm sure our on-prem must be better than cloud,'" says Guthrie.

Crucial to winning trust is to transition gradually. When Microsoft helps a client with cloud migration, Guthrie says the company spends the early part of the project building guardrails" to ensure security is in place and code can only be deployed in specific domains. If you spend the time upfront getting it right, then you can go faster every day afterwards," he says.

In 2016, when Dargan joined UBS, between a tenth and a fifth of its services were on the cloud. He and his team have increased that to half, with more than 1,000 apps transitioned. The aim is to migrate two-thirds of apps to the cloud, he says.

A similar staged approach can be applied to the adoption of agile ways of working, where skeleton products are rapidly built end-to-end, then released to users to gain feedback that informs future development. Access to cloud-based dev-ops tools-a set of practices that combines software development and IT operations-and automated testing is making such ways of working possible for large financial firms that traditionally specified every feature up front and planned multi-year release cycles. UBS has shifted 13,000 staff to a unified agile way of working and has developed an in-house playbook, academy, and coaching to help staff with the transition.

Like Guthrie, Dargan recommends a gradual transition with an emphasis on training and ample preparation for new ways of working. Digital transformation has to be an evolution," he says. It is not a big bang."

Staffing the change

The rapid and widespread adoption of cloud services and increasing importance of technology is creating demand for entirely new technology roles, from cloud engineers to migration specialists. The result, according to Dargan, is a war for talent" not just between financial services companies, but every other industry. Competition is particularly intense, because so few candidates have the necessary experience. Guthrie agrees. Finding someone with 10 years of cloud infrastructure experience is not possible, because some of these areas didn't even exist 10 years ago," he says.

To address talent gaps, both cloud services providers and financial services companies have developed in-house training initiatives, rather than relying only on external recruitment. The UBS Distinguished Engineers framework allows technologists to progress from certified" up to fellow" as they master skills. Such accreditations may be prized more highly than promotions or line-management opportunities, according to Dargan, because they show the holder has acquired rare and highly marketable skills.

Another key recruitment and retention tool may be the speed of cloud transition itself, as engineers with cloud experience seek out opportunities to work in sophisticated environments where they can rapidly develop and release code.

Client expectations for seamless digital experiences and the determination of fintechs to carve out a piece of the financial services revenue pie are likely to accelerate adoption of technology and cloud-based tools and services. To be successful, firms must find a way to nimbly develop products in the cloud, save on infrastructure costs, and attract the best engineers with advanced work practices. All without throwing out the infrastructure, teams, and methods that made them digital pioneers in the first place.

This content was produced by Insights, the custom content arm of MIT Technology Review. It was not written by MIT Technology Review's editorial staff.