Working with ISVs and SaaS Providers to Achieve Innovation in the Financial Sector

After avoiding all things cloud due to regulatory and compliance concerns, a growing community of fintech leaders have joined independent software vendors and software-as-a-service cloud providers to offer financial institutions highly tailored services.
Financial services providers are making inroads into financial institutions as executives in the sector accelerate their business transformation and technology modernization initiatives.
Banking needs have evolved significantly as branch offices have closed or limited the services they offer in physical locations.

New technological developments, the rise of new competitive disruptors and changing customer expectations have elevated the importance of accelerating the pace with which institutions bring new value-added services to market. A growing number of executives are taking a hard look at how fintech services, ISVs and SaaS resources can support this “need-for-speed” in a risk-adjusted manner.

These were among the conclusions of a BizTechReports interview with Eyal Levin and Judy Grussing of IBM.

After years of avoiding all things cloud because of regulatory and compliance concerns, a growing community of fintech innovators have joined independent software vendors and software-as-a-service cloud providers to offer financial institutions highly tailored services. These financial services providers are making inroads into financial institutions as executives in the sector accelerate their business transformation and technology modernization initiatives. Much of the urgency is driven by dramatically new consumer behaviors in the wake of the pandemic. Banking needs have evolved significantly as branch offices have closed or limited the services they offer in physical locations.
Changes in how enterprise priorities are established and managed are also driving financial institutions to further leverage independent software vendors and SaaS providers. Some IT budgets have been flat for years. Some CFOs and CIOs now prefer OPEX models to CAPEX spend. And as business units increasingly demand specialized functionality, SaaS models make it so much clearer to see who is paying for what service.”
This has resulted in a major architectural shift. Whereas in the past many financial institutions had a strong bias for hosting everything on premises, interest in cloud -- especially SaaS -- is rising. The cost of hosting has gone up significantly. Some organizations will never be as good as the SaaS providers for areas in which they specialize. So they are branching out. But at the same time, we are still mindful that we are heavily regulated and that we must comply with GDPR as well as all kinds of records retention and data governance requirements.”
However, integrating services and offerings from multiple ISVs and SaaS providers is challenging. Legacy enterprise infrastructures and applications were not designed to absorb cloud-based services. Many banks still operate back office operations that are highly siloed. Some organizations have largely worked in siloed environments. But with big changes in the strategic landscape, we are now working with integrators that involve all the different business groups in our institutions so that we can have some kind of standardization.

More vendors are entering the fintech space, with questions arising around how to handle a new fragmented set of silos from hundreds of cloud offerings. Organizations have many dozens -- and in some cases hundreds -- of vendors currently running critical functions within their institutions. IBM’s Judy reported approximately 66% of financial institutions do business with over 500 vendors. "So, there are a lot of cooks in the kitchen. This can have an impact on both speed to market and risk mitigation." Properly managed, a move to the cloud can improve governance, reduce risk and elevate compliance. Another executive pointed out that there are a growing number on-premises vendors that are moving their delivery model to cloud-based services.

With a growing number of financial institutions leaning into their cloud options -- across all layers (IaaS, PaaS and SaaS) and locations (private and public) -- extremely pointed questions were posed about transparency, auditability, backup and recovery. All vendors claim -- and document -- security and disaster recovery measures. “You can't put something out in the market without saying you have disaster recovery.” That, however, does not absolve institutions from asking a lot of tough follow up questions: “Do you have high availability? Do you have fail-over if one client has a problem? How much time does it take to fail over? What is the SLA? Will you try and fix something in production? These are questions that business users need to have answered about the third-party, fourth-party and even fifth party vendors.”
In addition to transparency through the cloud value chain, organizations need to establish “sandbox” environments that allow institutions to experiment and perform scenario-based contingency planning. They have to anticipate some of these failures and make sure they can be handled. A lot of vendors offer things like a sandbox during the sales process and proof-of-concept phases. Often, however, they go away once we go to production. We are trying to keep sandboxes in play so we can understand the implications of changes -- such as future upgrades or any of the other configuration changes.
Active vendor management and monitoring -- even predictive assessments -- emerge as an issue that will be an important part of how financial institutions integrate independent software vendors and SaaS providers into their operations. These factors, explained Judy and Eyal of IBM, have driven the attributes that are included in the IBM cloud for financial services. “It is a framework of industry specific controls that is designed to de-risk third-party vendors that are included in the IBM financial services ecosystem.” It provides transparency into the compliance of participating ISVs and SaaS providers, which are then validated against a common framework of controls.
On this point, the IBM team was kind enough to share some interesting background on the work that is going into building out a robust cloud platform for rationalizing the management of myriad ISVs and SaaS providers:

De-Risking the Ecosystem for Banking and Insurance Clients with IBM Cloud for Financial Services, www.ibm.com/cloud/blog/de-risking-partner-ecosystem
Why the former chief technology officer at Bank of America is now leading IBM's bid to build a cloud banking platform. IBM's huge bet on building a cloud for banks and fintechs
How a growing ecosystem of 90+ partners creates opportunities for clients with IBM Cloud for Financial Services, developer.ibm.com/blogs/ibm-cloud-for-financial-services-ecosystem/

For more information on BizTechReport podcast interviews, please contact Melissa Fisher at MFisher@BizTechReports.com.