(The following is focused on banks but most of it applies to any type of business)

A number of years ago I was the CTO of a very successful fintech firm. We were in the middle of an exponential growth spurt where in two years we went from essentially no revenue to nine digit revenues, were highly profitable, and were still growing like crazy. It was a heady time.

Then one fine day someone took their work laptop home, failed to follow our security protocols, inadvertently infected their machine, and the next day, despite our elaborate anti-malware defenses, very nearly wreaked havoc on all of our office systems, and potentially some data center systems too. The entire R&D team ran from system to system disconnecting (hardwired LAN) and disinfecting. By the end of the day everything was back to normal, and fortunately we had not lost any sensitive data, or money. No harm done, just a day lost, but we were very lucky the malware had not yet been remotely activated to do any harm before we removed it

Malware defense is just one challenge for banks today, albeit a very serious one. Banks today face several technology challenges that impact their operations, security, and ability to adapt to changing market demands. What follows is a very high level overview of the major challenges banks face today, and elements of the solutions for those challenges. If there is interest I’ll dig deeper into each of the areas below in future posts.

1. Cybersecurity Threats:

  • Challenge: With the increasing frequency and sophistication of cyber attacks, potentially stealing or destroying or holding hostage critical data, or stealing funds, banks must constantly update their cybersecurity measures to protect sensitive customer data and financial transactions.
  • Solution: Defense in depth is needed across all bank systems. Like layers of Swiss cheese laying atop one another, no one method of defense is without holes, but a layered approach can ensure that no hole goes all the way through every layer. This means implementing advanced cybersecurity measures, including multi-factor authentication, encryption, regular security audits, employee training, advanced malware detection and blocking, data tokenization, advanced devops strategies, and more. Collaboration with cybersecurity experts and investment in cutting-edge technologies to detect and respond to threats in real-time is needed. Even then, with AI-driven abilities to mimic and fool people exploding, it’s becoming exponentially harder to protect against all exploits.

2. Legacy Systems and Outdated Infrastructure:

  • Challenge: Many banks operate on outdated technology systems that can be slow, inflexible, and costly to maintain and upgrade. Some core systems in use today were developed decades ago and are difficult to maintain and keep up to date with current challenges.
  • Solution: Invest in modernizing core banking systems, adopting cloud-based solutions, and leveraging emerging technologies like blockchain and artificial intelligence. This can enhance efficiency, reduce costs, and improve agility long term. As almost all, or perhaps all, banks use 3rd party core and other systems, the onus is on the core system vendors and other fintech vendors to modernize and continuously stay current. When selecting vendors and software, banks need to factor in the vendors’ ability to stay on the leading edge while also staying secure.
  • However … the concept of a core conversion gives most CIO’s and CEO’s heartburn. Plus, the choices of new ones are not all great. One popular approach is abstracting what the core does with APIs. It’s a way to just let the core be a ledger and innovate on top of it.
  • As an aside, not core specific, it is clear that new technologies like blockchain and AI need to be broadly leveraged in modern banking. The challenge is in defining how best to utilize these capabilities for your business, and how to implement necessary changes not just in the software, but in how the organization operates.

3. Digital Transformation:

  • Challenge: Adapting to the digital era involves transitioning from traditional banking models to more agile, customer-centric, and technology-driven approaches. Most banks are already well down this path, but it’s a moving target.
  • Solution: Digital transformation initiatives, such as mobile banking apps, online services, and digital payment solutions have already been widely adopted, and need to be constantly enhanced. There is no end point, just an endless succession of improvements. Foster a culture of innovation, encourage collaboration with fintech partners, and invest in technologies that constantly enhance the overall customer experience.

4. Regulatory Compliance:

  • Challenge: Banks must adhere to an ever-evolving landscape of regulatory requirements, which can be complex and time-consuming to navigate.
  • Solution: Implement robust regulatory compliance frameworks, leverage regulatory technology (RegTech) solutions for automation and monitoring, and establish strong relationships with regulatory bodies to stay informed about changes. This is one area that most banks understand deeply. Enough said.
  • A good example is Dodd Frank 1071. Essentially, for all business loans, banks and CU’s are required to capture HDMA data on applicants (same info for a consumer loan). It’s essentially coming into place on Jan 1, 2026, and some banks and CU’s are very far from being ready for it, or having a detailed game plan to get ready.

5. Data Management and Analytics:

  • Challenge: Banks generate and store vast amounts of data, but leveraging this data effectively for insights can be a challenge. (As can keeping it secure)
  • Solution: Invest in advanced data analytics tools and platforms to derive actionable insights from data. Implement robust data governance practices, ensuring compliance with data protection regulations. Utilize artificial intelligence and machine learning for predictive analytics and risk management.

6. Customer Expectations:

  • Challenge: Customers increasingly expect seamless, personalized, and real-time interactions with their banks.
  • Solution: Prioritize customer experience by investing in user-friendly interfaces, personalization algorithms, and AI chatbots for quick customer support. Use data analytics to understand customer behavior and preferences, tailoring services accordingly.

7. Fintech Disruption:

  • Challenge: The rise of fintech startups challenges traditional banking models, forcing banks to adapt to new and innovative technologies. They are fostering continuous fintech innovation and constantly resetting user expectations. The only surprise is that it is not morphing faster.
  • Solution: Get ahead of the game by collaborating with fintech companies through partnerships or, if you are big enough, acquisitions. Embrace fintech innovations and integrate them into existing services to stay competitive. Create a culture of constant innovation within the organization.
  • However … partnering with fintech firms must be done very carefully, bearing in mind factors such as compatibility of strategic direction (are your tech needs and their tech priorities aligned long-term), ability of the partner to respond to requests for new functionality in a timely fashion, quality of work, ability to scale, and more.

8. Interoperability:

  • Challenge: Banks often use different systems and technologies that may not easily integrate with one another.
  • Solution: Invest in open banking initiatives, application programming interfaces (APIs), and standardized protocols to enhance interoperability. This facilitates seamless data exchange and integration with third-party services. Easier said than done, as banks generally use a lot of 3rd party software that they have little control over. For 3rd party software, look for vendors that make it a priority to make their software and data easy to integrate.

Doing all of the above doesn’t ensure there will be no issues, but it greatly improves your odds of long-term success. It requires a strategic, multi-faceted approach that involves constant professional paranoia about security, an intensely customer-centric culture, efficient regulatory compliance management, constant focus on innovation, and a commitment to adapt to changing market dynamics.

(With thanks to Dave Waller for review of, and valuable contributions to, the above)

Gordon MacGregor

President, Zaiten Software Services