The Top 5 IT Challenges Facing Banks Today

Technology is developing at a breakneck pace, and the banking sector is no exception. Although banks have pioneered the introduction and use of digital tools, precisely because of the rapid development of technology, they still face many IT challenges – among which we have highlighted the Top 5.

The Top 5 IT Challenges Facing Banks

The Top 5 IT Challenges Facing Banks

Compliance: Meeting Strict Regulations

The financial sector is one of the most regulated sectors in the world. Compliance with strict and frequently changing supervisory regulations for the banking sector as a whole often entails serious IT challenges, as each change in regulations has to be reflected in the IT systems used by the company – this brings new development challenges.

In addition to financial supervisory regulations, similarly rigorous data protection regulations are in place since 2018 – thanks to GDPR. Since banks store and manage large amounts of personal data (think of customer databases with hundreds of thousands, even millions of records!), maintaining GDPR compliance alone involves serious IT tasks.

Finally, let’s not forget about the various reporting obligations imposed on banks: They are required to provide data to central banks, financial supervisory bodies, and statistical authorities. In Hungary, a bank is obliged to provide daily, weekly, monthly, quarterly, half-yearly, annual, and ad hoc reports to the National Bank of Hungary (MNB), with prescribed form and content, otherwise it runs the risk of being fined. In the absence of a software solution, this involves a large amount of manual work, which is time-consuming and costly on the one hand, and also prone to serious errors. Therefore, there is no need to emphasize how useful a software solution can be.

Digitalization: Meeting Customer Needs

Today, customers (whether retail or small business) expect quick and simple banking – they are reluctant to spend hours at a branch. Thus, the use of digital devices in the field of customer acquisition and portfolio expansion can already be the source of competitive advantage for a bank.

Agile, innovative fintech companies pose a threat to banks in this area – although the latter have also made significant progress in digitalization, they are inevitably slower than a small fintech startup due to their size.

The introduction of internet banking and mobile applications, where customers make a transfer, open an account, apply for a loan or manage their savings from home at the most convenient time, can result in a significant improvement in customer experience and at the same time reduce costs – instead of time-consuming personal administration.

In parallel with the above, in no small part driven by the COVID pandemic, the gradual dismantling of bank branch networks has started, which may result in significant cost savings on the one hand, but on the other hand, it requires the further development and expansion of digital services.

Replacing paper-based customer communication with digital means also significantly reduces costs, as paper, printing and postage costs can all be saved.

Modernization of Legacy Systems: Outdated Technologies – Real Risks

A few decades ago, the banking sector played a pioneering role in the introduction and use of IT tools. However, this also means that many banks still have old, well-established systems in place that are less and less up to today’s requirements – both in terms of hardware and software. It often happens that behind the attractive and modern user interface used by customers, data is stored and managed by a decades-old technology – linking the two together is becoming increasingly difficult, and the slowness of outdated technology negatively affects the frontend system and thus the customer experience.

Such technologies include AS400, DB2, COBOL, Visual Basic, COM+… and associated operating systems that have not been supported for years, such as Windows XP, 2000, 7 or old versions of Windows Server, sometimes even with DOS-based solutions. And they either cannot be run on today’s modern hardware at all, or only with workarounds, limited solutions that are typically no longer supported by the system’s vendor.

In addition, fewer and fewer professionals understand these technologies: The team of experts that could be counted on in the operation and further development of these systems will soon retire. These systems are no longer taught at universities, so there is no fresh supply of specialists.

Finally, the use of obsolete technology often entails IT security risks – this poses perhaps an even greater threat to the banking sector than to other industries.

More and More Customer Data: Challenges and Opportunities

Banks store more and more customer data – fuelled not only by the increase in the number of customers, but often also by the availability of more data about individual customers.

This huge amount of data must be recorded and stored in the right quality (and free from duplications), managed in compliance with data protection regulations, and analyzed using tools that are easy to use for a wide range of users in-house – which also impose additional IT tasks on banks.

A common challenge is the creation of core systems: This involves the consolidation of customer databases stored in several independent systems, which enables uniform storage and management of customer data and thus uniform customer communication. Such a project also involves significant data cleansing, data normalization, and deduplication tasks, which is also a non-trivial IT challenge. This can be an even more complex task in case of mergers or acquisitions, since in such a case there is little chance that the various customer databases will be available in a similar structure and using the same technology.

Immediate Demand for IT Staff: Good People, Fast and at Reasonable Cost

All of the above challenges can trigger a sudden increase in the demand for IT staff. If custom development with a strict deadline is required (for example due to the introduction of new regulations), generating the need for several IT experts with the right skills and industry experience, the traditional internal recruitment process often cannot keep up with demand. In such cases, the involvement of external expert resources with experience in banking seems to be the best solution.

DSS in the Banking Sector: Decades of Experience

We at DSS Consulting “speak banking”, as we have worked with nine of the top 10 commercial banks in Hungary. Thanks to our decades of experience in banking, we have deep sector-specific business knowledge, and we are well versed in typical banking processes and systems.

In addition, we have acquired special expertise on the regulatory (statistical and supervisory) side – we know what kind of IT solution a bank needs to fulfil its reporting obligations flawlessly, thus avoiding supervisory fines. We anticipate what’s next in European financial regulations by the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) and can help banks prepare for changes.

Our experience in solving the challenges detailed above can be briefly summarized as follows:

  • Custom software development: Building on our deep and relevant technological background, we have gained considerable experience in developing and supporting typical banking systems, both for banks and supervisory authorities – such as reporting management systems, risk management systems, internal portals, internet banking solutions.
  • IT contract staffing: We provide several banks with IT professionals (developers, testers, project managers, business analysts, etc.) or entire IT teams to support the implementation of their IT projects.
  • Software testing: We have extensive experience in testing almost all typical banking systems.
  • Data quality assurance: In banking, the quality of customer data is key to successful operations. We have performed data quality assessment, automated data cleaning and deduplication of large customer databases, real-time data validation using the DSS Quality Monitor solution  and our data quality standard specifically developed for the banking sector.
  • Data privacy solutions: In response to GDPR requirements, we have developed two solutions that have proven themselves at several banks. DSS Data Anonym enables the use of properly anonymized data in customer databases, while GDPRoofed enables our banking clients to efficiently perform the registration tasks of the regulation.

But Why Should You Work with a Hungarian Company?

Because Hungary has best-in-class software developers. For this, there is no better proof than HackerRank’s ranking based on their own statistics: Hungary ranks 5th on the Best Developers list globally, head to head with Switzerland and Japan and well ahead of not only Ukraine, Bulgaria and Romania but also France, Italy, Germany and the UK.

Is your company facing similar challenges? Why not discuss them over a great cup of coffee?