Priorities for Adopting an Exponential IT Mindset in the Banking Industry
Adopting exponential IT is critical for business growth and sustainability.
- Security is essential to the operation of your bank, and advances in quantum computing will begin to present a real threat.
- Use of AI and autonomization is accelerating and reshaping operations. These technologies are going to redefine all aspects of products and services.
- New technologies are reshaping customer understanding, products/services, and risk. If your bank does not take action to adopt Exponential IT, you are risking your long-term viability.
Our Advice
Critical Insight
The retail banking industry is in the early stages of a significant transformation powered by new technologies that appear massive in scale and complexity. They feel out of reach for all but the largest and most complex banks. Your bank must formulate a strategy that allows it to not only participate but thrive while at the same time ensuring it remains secure and relevant.
Impact and Result
- Recognize the urgency of adopting Exponential IT. Your bank must start the conversation now on how Exponential IT will change banking to begin making the significant changes required.
- Understand the five priorities of Exponential IT transformation. There are five areas of focus that you must focus on as your bank develops its Exponential IT capabilities.
- Build the foundational capabilities and maturity required to begin an effective Exponential IT transformation that results in value creation.
Priorities for Adopting an Exponential IT Mindset in the Banking Industry
Adopting Exponential IT is critical for business growth and sustainability.
Analyst perspective
Enable value creation through Exponential IT
Information technology has radically transformed organizations, from the computerization of operations to the digital transformation of service models. As technological disruption accelerates exponentially, a world of exponential opportunity is within reach. To capitalize on this upcoming opportunity, IT leaders will have to become business leaders who unlock advanced value for the organization and help mitigate exponential risk through an Exponential IT transformation. However, uncertainty surrounds innovation readiness in the realm of Exponential IT, requiring the creation of new skills and capabilities.
The retail banking industry needs to consider urgent adoption of Exponential IT to counter industry disruptions. Understanding five key priorities of exponential IT transformation is crucial for competitiveness. Additionally, recognizing and incorporating foundational capabilities is essential to initiate an effective Exponential IT transformation, leading to value creation within the industry.
David Tomljenovic, MBA, LL.M, CIM
Head of Financial Services Industry Research
Info-Tech Research Group
Executive summary
| Your Challenge | Common Obstacles | Info-Tech's Approach |
|
Security is essential to the operation of your bank, and advances in quantum computing will begin to present a real threat. Use of AI and autonomization is accelerating and reshaping operations. These technologies are going to redefine all aspects of products and services. New technologies are reshaping customer understanding, products/services, and risk. If your bank does not take action to adopt Exponential IT, you are risking your long-term viability. |
New technologies seem out of reach for your bank. Quantum computing, AI at scale, and autonomization will change banking, but you don't see how your bank will be able to afford or participate in these changes. You are not sure how to prepare for such significant change. Many of the key elements of Exponential IT are still in development, so you are unsure how you should be preparing now. The level of innovation and change is overwhelming. Your bank doesn't seem to have the right people, processes, or technologies to enable Exponential IT, and the level of change required is overwhelming. |
Recognize the urgency of adopting Exponential IT. Your bank must start the conversation now on how Exponential IT will change banking to begin making the significant changes required. Understand the five priorities of Exponential IT transformation. There are five areas of focus that you must focus on as your bank develops its Exponential IT capabilities. Build the foundational capabilities and maturity required to begin an effective Exponential IT transformation that results in value creation. |
Info-Tech Insight
The retail banking industry is in the early stages of a significant transformation powered by new technologies that appear massive in scale and complexity. They feel out of reach for all but the largest and most complex banks. Your bank must formulate a strategy that allows it to not only participate but thrive while at the same time ensuring it remains secure and relevant.
What is Exponential IT?
Exponential IT is a framework defined by Info-Tech Research Group.
The technology curve has recently bent exponentially.
Generative AI has been the catalyst for this sudden shift, but there are more and more new technologies emerging (e.g. quantum computing, 5G), putting significant pressure on all organizations.
Speed is now imperative. All IT leaders and organizations are at risk of falling behind if they do not adopt new technologies fast enough.
Our framework instructs all IT leaders on how to transform their organization and elevate their value-creation capabilities to close the gap between the exponential progression of technological change and the linear progression of IT's ability to successfully manage that change.
This research provides IT leaders with industry-specific priorities for Exponential IT and how to begin an effective Exponential IT transformation, resulting in value creation.
Your Exponential IT Journey
To keep pace with the exponential technology curve, adopt an Exponential IT mindset and practices. Assess your organization's readiness and embark on a transformation journey. This report will provide greater insights to help you build your Exponential IT Roadmap.
Adopt an Exponential IT Mindset - The focus of this report
Info-Tech resources: Exponential IT Research Center, Research Center Overview, and Keynote
Explore the Art of the Possible
Info-Tech resources: Exponential IT research blueprints for nine IT domains
Gauge Your Organizational Readiness - Repeat annually
Info-Tech resource: Exponential IT Readiness Diagnostic
Build an Exponential IT Roadmap - Repeat annually
Info-Tech resource: Develop an Exponential IT Roadmap blueprint
Embark on Your Exponential IT Journey
Info-Tech resources: Ongoing and tactical domain-level research and insights
To access all Exponential IT research, visit the Exponential IT Research Center
Go to this link
The pace of technological change will continue to increase exponentially in banking
IT must solve the problem of rapidly and exponentially increasing expectations.
Organizations are adopting exponential technologies at an accelerated rate due to the rapidly changing landscape. Traditional linear IT is no longer viable to sustain IT's place as the leading technology provider for their organization.
Failure to launch will leave you far behind. The chasm between the organization's desire to harness technology and IT's ability to deliver it will continue to widen.
The challenges with traditional linear IT:
A - Slow to adapt to more modern service delivery models
B - Processes and decision-making that can't accelerate to meet demand
C - Transactional arms-length relationships with organization units and vendors
D - Insufficient funding and focus on technology innovation
E - Locked into a siloed and hierarchical operating model
The Case for Exponential IT
IT needs to fundamentally transform the way it is operating in the following ways:
A - Build an Adaptive Delivery Model: Enable flexible and efficient delivery of products and services.
B - Optimize & Autonomize Operations: Maximize efficiency while mitigating risks through intelligent automation and data-driven decision-making.
C - Broker Strategic Relationships: Strengthen and build both external and internal relationships to better align IT capabilities to organizational goals.
D - Embrace Digital Innovation: Evaluate and adopt solutions that drive consumer value, enterprise growth, and innovation.
E - Cultivate Workforce Flexibility: Dismantle traditional jobs and hierarchies, normalize new collaborative ways of working, and adopt a federated and hybrid IT operating model.
The retail banking industry has significant challenges in adopting Exponential IT
Legacy Technology
- Modern and next-generation capabilities require new infrastructure that may be incompatible or difficult to integrate with existing systems, platforms, and technologies.
- Application data is often trapped within legacy technology. Exponential IT relies heavily on data that may not be accessible through APIs. Data can also be inaccurate or outdated.
- Maintenance costs are consuming IT budgets. Legacy technology support costs are growing due to aging hardware and a shrinking workforce, taking away from budgets to enable exponential IT.
Regulatory Complexity
- Banking regulators require extensive disclosure. The nature of many Exponential IT components such as AI may not be able to satisfy disclosure requirements.
- Truly autonomous systems will be challenging for regulators. Autonomous systems replace business rules with neural decision-making that is almost impossible to document for regulators.
- AI models ingest data without methods to remove it. Global data privacy regulations empower individuals to have data deleted on request. AI possesses no such deletion mechanism.
Finite Resources and Capacity
- Technology teams in banking are already trying to deal with major changes. IT team and organizational capacity will be stretched to their limits with the magnitude of change from Exponential IT.
- Many exponential IT elements are massive in scale and cost. Technology such as quantum computing and AI at scale require very expensive technology to implement.
- The talent required to implement exponential IT will be intensely competitive. The human talent required to implement technologies such as quantum computing, post-quantum encryption, autonomization, etc., is scarce, and competition for the right talent will be extreme.
70% of banks' IT budgets are spent on maintaining legacy systems.
Source: Medici Bank, 2020
58% of banks believe their biggest challenge for digital banking is staffing.
Source: Dragonfly Financial Technologies, 2024
67% of chief risk officers are focusing on AI to automate risk and compliance.
Source: "What banking directors should ask " EY, 2023
Navigate industry disruptions by adopting Exponential IT in the retail banking industry
Market Disruptions and Obstacles
1 Mitigate security risks created by new paradigm technologies (QC, AI)
- Quantum computing (QC) has the potential to jeopardize the security of the entire banking industry and undermine consumer trust in the banking system
- AI is powering a new generation of security risks. AI powered by quantum computing creates more complex security challenges for the industry.
2 Structurally reduce costs through the adoption of technology-enabled capabilities (AI, autonomization, QC)
- AI and autonomization will radically alter banking costs. Replacing people and unintelligent automation will dramatically reduce costs.
- AI and quantum computing advances make technology more cost effective. Human-centric value creation will become more challenging.
3 Transform customer experience (CX) by combining new compute capabilities with data (QC, AI, data)
- Significant increases in computing power will enable almost real-time CX. AI and autonomization powered by real-time data will transform CX.
- Data will continue to increase in value. Greater computing capabilities and real-time data access will drive value to CX capabilities.
4 Navigate the evolving competitive landscape transformative technology capabilities are enabling increased speed to market, new entrants, and the ability to adopt new business models
- Existing banking products and services will become outdated. AI, autonomization, and increasing computing power will reshape the future of banking.
- Costs to enable new products, services, and models are dramatically dropping. Reduced costs, risk, and fraud are some of the key areas that will be transformed.
Info-Tech Insight
The banking industry is on the verge of a new era that will be driven by transformative technology capabilities powered by quantum computing, autonomization, and AI. Banks need to learn to rapidly adopt these technologies to remain competitive, secure, and compliant.
Business opportunities are developed from industry disruptions
| Challenges | Market Disruptions and Obstacles | Business Opportunities | |
|---|---|---|---|
| Legacy Technology | Mitigate security risks created by new paradigm technologies | Create a First-Mover Advantage | 1 New technologies with very different capabilities and cost structures will create the opportunity for fast-moving banks to capitalize on first-mover advantage. |
| Regulatory Complexity | Structurally reduce costs through the adoption of technology-enabled capabilities | Build Customer Trust and Engagement | 2 By being proactive in adopting new technologies and capabilities, banks can demonstrate their commitment to security to enhance trust and engagement. |
| Transform customer experience by combining new compute capabilities with data | Launch Innovative New Products/Services | 3 New technology capabilities with different cost structures will fuel the creation of innovative new products and services. | |
| Finite Resources and Capacity | Adopt new business models enabled through the combination of transformative technology capabilities | Gain Market Share | 4 Banks that fail to adopt Exponential IT technologies and capabilities may be left behind, creating an opportunity for early adopters to take over the market share left behind. |
If IT leaders cannot lead this upcoming transformation, then the organization will move forward without them
Only 2% of CXOs report that their IT department can transform the organization. Most IT departments (77%) still struggle to adequately support the organization.
Info-Tech CXO-CIO diagnostic benchmark data, 2023, n=229
Info-Tech Insight
As organizations strive to succeed in the next phase of technology-driven transformation, CIOs have an opportunity to demonstrate their organizational leadership. To do so, they will have to start delivering organizational capabilities instead of services while owning organizational targets.
Determine IT's innovation maturity to assess Exponential IT readiness
Complete the CIO Business Vision Diagnostic to understand business needs and satisfaction with IT.
IT must score above 70 to be properly supported by the business and prepared for an Exponential IT shift.
Evaluate IT's capability effectiveness and importance in executing Exponential IT
Complete the Management & Governance Diagnostic to assess core IT processes for improvement.
To properly execute Exponential IT, the organization must understand IT's strengths and weaknesses for effectively managing and improving the department for innovation.
Collect the data the organization needs to start the process improvement journey and enable Exponential IT. The organization will get a customized report highlighting its most pressing IT process needs based on the following color coding.
Any processes that require improvement or evaluation should be prioritized for advancement before starting the Exponential IT journey. These core processes are required to effectively execute standard IT processes before innovating to Exponential IT processes.
Leverage Info-Tech's Exponential IT Diagnostic to gauge readiness
Complete the Exponential IT Diagnostic to determine organizational and IT readiness for exponential technologies.
Info-Tech's Exponential IT Readiness Diagnostic is designed to assess the readiness of your organization to embrace and extract value from exponential technologies. It measures executive stakeholder perceptions of organizational readiness for transformation and IT leader perceptions of IT readiness for transformation.
This readiness assessment is a crucial initial step in the Exponential IT journey to help you understand the needs, opportunities, and priorities of stakeholders across the organization.
Organizational readiness
Organizational readiness refers to perceived readiness to adopt exponential technologies and willingness to change into a more adaptable, forward-looking organization.
Without strong organizational readiness for transformation, IT will need to take extra steps to drive technology adoption, break down silos, and gain support for its own transformation efforts.
IT readiness
IT readiness includes current maturity across all IT domains, willingness and support for transformation, and foundational elements required for Exponential IT.
Without a high IT readiness for Exponential IT, the transformation roadmap may need to include additional foundational change efforts in its first year.
Review streams and work packages to determine areas of focus
| STREAMS | WORK PACKAGES | ||
| BUILD AN ADAPTIVE DELIVERY MODEL Enable more flexible and efficient delivery of products and services. |
Invest in D&A capabilities Create more efficient data practices, ensure high-quality data, and invest in capabilities that will drive value and realize the potential of AI. |
Drive product management & ownership Shift to a more productized, empowered, and collaborative organization with true product ownership. |
Shift to autonomous & distributed delivery Use natural language and low-code/no-code to enable AI/ML-driven capabilities and solutions. |
| OPTIMIZE & AUTONOMIZE OPERATIONS Maximize efficiency while mitigating risks through intelligent automation and data-driven decision-making. |
Enhance security & risk management Lead the charge in governing new technology and mitigating the associated risks while strengthening defenses against AI-enabled attacks. |
Optimize data for real-time decisions Prepare and optimize data for aggregation and analysis at the enterprise level to drive business value and scale to future AI needs. |
Shift to autonomized capabilities Leverage AI to automate traditional capabilities, accelerate processes, generate insights, and improve productivity while shifting to autonomous processes and decision-making. |
| BROKER STRATEGIC RELATIONSHIPS Strengthen and build both external and internal relationships to better align IT capabilities to organizational goals. |
Strengthen external partnerships Strengthen vendor management practices to enhance the role of existing third-party vendors, and identify and develop strong collaborative relationships with new strategic vendors. |
Align IT with the organization Build and strengthen internal partnerships across the organization to better align technology initiatives with the goals of the broader organization and set the stage for co-creation of products and services and co-owning organizational targets. |
|
| EMBRACE DIGITAL INNOVATION Evaluate and adopt solutions that drive consumer value, enterprise growth, and innovation. |
Define enterprise growth experiences Define, design, and drive seamless end-to-end experiences that focus on consumer value delivery and enterprise growth and innovation. |
Redirect funds and resources to innovation Create flexible budgets and prioritize and redirect funds toward critical opportunities and differential solutions that will achieve the greatest gains for the organization. |
Lead technology-driven innovation Implement new technologies that will transform not only IT's but the organization's capabilities. |
| CULTIVATE WORKFORCE FLEXIBILITY Dismantle traditional jobs and hierarchies, normalize new collaborative ways of working, and adopt a federated and hybrid IT operating model. |
Redefine skills & roles Create new ways of working that do not rely on traditional jobs and hierarchy by orchestrating omni-resourcing of capabilities using a blend of internal talent, external partners, and AI. |
Embed IT into the organization Break down silos and embed IT in the organization by federating all technology strategy, governance risk, and data capabilities at an enterprise level and strategically embedding technology capabilities into all areas of the organization. |
Prioritize efforts within your streams and work packages
| STREAMS | WORK PACKAGES | ||
| BUILD AN ADAPTIVE DELIVERY MODEL Enable more flexible and efficient delivery of products and services. |
Invest in D&A capabilities
|
Drive product management & ownership
|
Shift to autonomous & distributed delivery
|
| OPTIMIZE & AUTONOMIZE OPERATIONS Maximize efficiency while mitigating risks through intelligent automation and data-driven decision-making. |
Enhance security & risk management
|
Optimize data for real-time decisions
|
Shift to autonomized capabilities
|
| BROKER STRATEGIC RELATIONSHIPS Strengthen and build both external and internal relationships to better align IT capabilities to organizational goals. |
Strengthen external partnerships
|
Align IT with the organization
|
|
| EMBRACE DIGITAL INNOVATION Evaluate and adopt solutions that drive consumer value, enterprise growth, and innovation. |
Define enterprise growth experiences
|
Redirect funds and resources to innovation
|
Lead technology-driven innovation
|
| CULTIVATE WORKFORCE FLEXIBILITY Dismantle traditional jobs and hierarchies, normalize new collaborative ways of working, and adopt a federated and hybrid IT operating model. |
Redefine skills & roles
|
Embed IT into the organization
|
Leverage Exponential IT to transform and unleash the true potential of the banking industry
