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The Need for Transformation for Financial Service Providers

Richard Buckle December 13, 2017

There are so many messages coming from the payments industry today associated with transformation. Entire countries are mounting campaigns to increase awareness around the need to transform. Take Australia, the Lucky Country[1]: Its politicians have been quick to highlight the transformation that they believe needs to happen, even to the point of admonishing its own citizens with the message, “Australia… it's time to be the smart country!” Australia is not alone.  Other countries recognize that their societies are in need of dramatic overhaul just to stay on the global stage. No matter the intentions, transformation seems to be on the top of everyone’s tongue, so hearing similar messages coming from financial services (FinServ) companies isn’t a surprise to anyone in the industry.

A short time ago, the HPE NonStop team held an educational “boot camp” outside San Francisco. The presentations all focused on the tremendous transformation that has been underway within the NonStop development environment for the past three years. There was the deep port to the Intel x86 architecture that surprised many industry analysts.  This port to x86 has led to where NonStop is now being recognized as “software.”  The umbilical cord that tightly coupled it with proprietary hardware has been forever severed. To add further emphasis to this transformation, NonStop has been reworked to be able to run on virtual machines, as HPE has recognized its potential in the world of clouds along with the advent of software-defined everything. Talking with CEOs from multiple vendors within the ecosystem of NonStop partners, it is clear that while the shock is subsiding with each announcement from the HPE NonStop team, the magnitude of the task these vendonrs face to embrace the transformation isn’t inconsequential.

In October 2017, Finextra (in association with Dovetail, now part of Fiserv) published a research paper titled Payments Transformation: Modernizing to Stay Relevant in the Digital Age.  It wasn’t surprising to read that FinServs, especially financial institutions (FIs) remain convinced that “payments will be fundamental to their future business.”  More surprising perhaps was the confirmation that “payments transformation is critical to their digital programs.”

“Digital is more than creating internal efficiencies,” suggests Daniel Szmukler, Euro Banking Association. “It goes a lot further.  Whole new experiences can be created by combining digital elements that were not possible before, such as context of the customer at a particular moment.” Expressed in a slightly different way, payments transformation is digital transformation, and, as such, payments are being retooled to not just compete with FinTechs, but to better embrace the transformation underway within IT as a whole.

More recently, HPE held its big-tent marketing event, HPE Discover, in Madrid, Spain. Among the invited guests was DreamWorks executive, Kate Swanborg.  DreamWorks operates in a world that is transformed almost daily, as it wrestles with a myriad of technical, social and commercial issues associated with bringing the latest animated films to the screen.  Swanborg first talked about the huge improvements that came with upgrading to the latest server offerings from HPE, the new HPE SuperDome Flex system:  20,000 core render farm from HPE that comprised 25 frames of Synergy (HPE’s latest resource management offering).  Without optimization, DreamWorks saw a reduction (in time needed to provision a resource) from three weeks to five hours. Perhaps more relevant to the FinServ industry was the Swanborg acknowledgment that “Transformation isn’t a project, but a lifestyle. In the context of digital transformation, it is not so much that digital is transforming, but rather it is the business that is transforming.”

In the same October report from Finextra, the global head of transaction services at ING, Mark Buitenhek comments, “Payments as we know is one of the most disrupted areas of banking and there are so many choices right now.” However, Buitenhek was also quick to note that “It requires a cultural mindset transformation and this can be made even harder to get organized (as) it also needs support and active endorsement from the top of the organization.”

Business is transforming and FinServ providers knowingly admit that they face cultural changes as they continue on their transformation journey.  But with so many layers and so much technology, together with new development models including Agile and DevOps, how do we retain the level of quality and indeed consistency required to satisfy consumers and protect brand value? FinTechs may be attracting the spotlight of late, but even among FinTechs the challenges are similar to what FinServs are facing – maintaining the quality of their testing as they decrease the cycle time from innovation to production.

At the center of the bank, everything is connected and executing (payments transformation) in isolation on legacy systems in an already changing world is simply a very difficult task: therefore,  this is why FinServs, and FIs specifically on a transformation journey have their work cut out for them. Similarly, when it comes to the underlying technology - with HPE being just one example - there are many, many pieces in play, from the metal to the underlying operating system and hypervisor to the virtual machines and containers up into the guest operating systems and their workloads including databases and network connections.  “They are all connected and all have an impact on an organization’s ability to renovate, innovate and yes, transform,” said Paragon CEO, Jim Perry. “More importantly,” said Perry, “all of the pieces that make up a modern, transformed system today are part of a  total brand presence that must be protected!”

Paragon is in the business of providing continuous and automated testing of payment applications and is revolutionizing the way the payments industry manages change as it continues on this transformation journey. Perry continued, “Paragon is the industry leader when it comes to our specialist areas around payments networks and ATMs, and we can even help when it comes to stress testing an entire payments processing environment – pre and post transformation.  In addition, we can integrate with an enterprise test platform and other specialist test tools in a way that better helps any strategically-thinking organization build and execute an overall testing strategy.”

Yes, there are many moving parts, and yes, the interconnects alone can be daunting, and yet, with all the work being done to transform, it is still the brand that is important and any careless undermining of the  brand value remains anathema to all financial institutions. However, just as with any sports team that develops a wining culture, so too can FinServs nurture a culture of successful transformation. “We are on a journey and this journey demands a change in our culture as a business,” surmises Perry. “Yet you still have to make sure all those moving parts work in an orchestrated manner to deliver the type of new services that must be delivered in order to remain competitive and relevant. It is a tall order, but Paragon welcomes the opportunity to help our clients with their ongoing transformation journeys.  It is gratifying to know that we are really making a difference in some of the most forward-thinking organizations."

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[1] Why Australia Is Called The Lucky Country:

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