Competing in a rapidly transforming financial services industry requires both broader access to cloud services and reliance on a trustworthy cloud-based solution to managing regulatory compliance.

Digital transformation. The words imply a tsunami of innovation that transforms traditional businesses into digital marvels. But this wave of innovation is actually a ripple effect that began for the banking industry as far back as the 1990s, when banks began to expand beyond branch-based services into new channels. Over time, banks adopted mobile, digital, and social channels to deliver products and services to their customers. Yet even these innovations were only a partial transformation.

Banks today recognize that their innovations haven’t translated into the kinds of experiences that customers want from digital companies. Much of this has to do with the fact that banks haven’t addressed the underlying challenge of adapting their customer data and applications to deliver meaningful, digital customer experiences. What we’re witnessing today is the next wave of innovation, which I call the Platform Era. It’s a back-to-front transformation that focuses on improving how banks deliver and manage core applications to their customers.

Today, many banks are running legacy information technology infrastructure and applications that were designed for a financial market that existed 30 years ago. What I’ve seen among the “leaders” in the banking industry is a pronounced shift away from legacy applications toward new, innovative applications that run on the cloud. But this isn’t just an infrastructure transformation, although that’s an important part of it. It’s also a cultural transformation as banks look to streamline internal processes and equip employees with real-time data access and innovative applications to deliver great customer experiences.

It has become an axiom in business that customers expect digital experiences that match their last great experience with a company. For example, I’m not looking for Bank A to deliver the same or slightly better experience than Bank B. I’m comparing Bank A to Amazon, where I can find what I need in seconds and have it delivered in less than 48 hours.

I would love to have an Amazon-like experience when I’m looking for a mortgage, rather than signing and reviewing a six-inch stack of paper. Or talk to my financial advisor without having them pull out a stuffed manila folder of investment transactions and banking statements. Far from delivering best-in-class customer experiences, banks are notorious for delivering some of the worst experiences.

But banks are getting much smarter about how they do business in the digital age. Sometimes, that intelligence looks like wisdom, as when Goldman Sachs wisely decided to support Apple’s credit card rather than go to market with their own “me too” credit card. By both companies leveraging the expertise of the other, they were able to acquire a very large number of customers in a short time, particularly as consumer trends shifted away from paper-based money in the wake of the COVID-19 pandemic.

American Express is another example of a big, traditional financial company that “smart partnered” its way to innovation with the recent acquisition of Kabbage, a digital-native company that specializes in small business loans. With the focus on small business lending in 2020, Kabbage gives American Express the ability to quickly expand its small business banking offerings using a digital-native platform that Kabbage has already developed.

This is what innovation looks like for banks going forward. It’s not about what banks can deliver in terms of new products so much as it’s about what banks can deliver in terms of adding trust, speed and better experiences to those products. The more banking feels like buying something on Amazon, the more that banks will compete effectively in a digital-based world.

Learn more about IBM Cloud for Financial Services

A more scalable approach to such innovation, besides acquiring intellectual property, would be for banks to give their app development teams access to relevant public cloud resources and services. A prevailing hurdle to doing do is governing regulatory compliance on cloud vendor platforms; and at stake are large fines for failing.

Find out how IBM Cloud for Financial Services provides a comprehensive solution to managing compliance in public cloud.