Australian banks know they need to accelerate their digital transformation but are struggling to put the change into practice, partly because they over outsourced IT in the past. Now, challenges around architecture, software development and organisational structure are putting the incumbent banks at risk of being left behind as new digital competition emerges. 

That’s the view of Ben Henshall, Country Manager, India and Director of Sales, Financial Services APAC at Red Hat, a firm helping customers like ANZ and Macquarie overhaul their digital infrastructure with open source enterprise software. He argues there is no shortage of awareness but banks are struggling to accelerate change.

“There’s a recognition that ‘I need to do digital transformation’ and it’s board level, it’s all understood now,” Henshall told Which-50 during the Sibos conference in Sydney this week. “If you are known as a digital native bank you get a premium stock price.”

“The next question is: ‘what do I actually need to do, on the ground, within my kernels, to actually execute?’ That’s where this desire and initiative to do digital transformation is somewhat coming unstuck.”

Many organisations are struggling, Henshall says, because they don’t have the oversight or capability necessary to transform. A problem with roots in the 1990s.

Bad Advice

According to Henshall, the advice organisations received from management consulting firms in the 90s to outsource their IT has left them ill prepared for digital transformation today.

“They outsourced [IT] to these big consulting companies. And that worked to a degree because they were outsourcing risk, outsourcing cost and project delivery risk. But now because IT is a core capability that helps on the transformation, they have to bring some of those capabilities back in-house.”

Ben Henshall, Red Hat Country Manager, India & Director of Sales, Financial Services APAC

The IT capability is necessary if banks are to advance their digital transformation, something Henshall argues is essentially about agility and customer response.

“Digital transformation at its distilled level is about ‘how do I get ones and zeros into production? How do I get code into a deployable state?’

“If you can’t do that on a continually fast, iterative basis and if you can’t get feedback quick enough then you are going to get overtaken by the Silicon Valley startups, so to speak.”

Indeed many of Australia’s large banks are placing a high value on speed as as new, more agile, competition emerges and business models are upended by regulatory changes.

But reaching that level will require banks to change the way they develop software and upgrade their digital architecture and organisational structure, Henshall said. Those elements are at the heart of digital transformation and what leaders are leveraging, according to Henshall. 

It’s not enough for banks to think of themselves as software companies, as others have argued, they must excel at software development and delivery as one of their core capabilities and commit to a dev ops culture, he said.

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