Between 2013 and 2022, banks increased their technology investments by 38 percent to better address customers’ digital demands. Today, the global financial sector’s tech spending is immense. Banks alone contribute around $650 billion annually to information technology and digital transformation efforts, a figure that rivals the GDP of many countries.
According to McKinsey research, banking now leads all major industries in IT spending as a percentage of revenue, with investments typically ranging from 6 to 12 percent, far outpacing the 3.75 to 5 percent spent by sectors like telecommunications, media, and technology.
As banks expand their investments in technology, much of this spending is directed toward product innovation and the transformation of core offerings. However, traditional banking product management has often been vertically siloed, with product managers focused on specific domains like payments or loans. Now, to stay competitive and fully realize the value of their tech investments, banks must shift toward more horizontally integrated product strategies – creating solutions that meet customers’ holistic needs across retail and corporate banking rather than isolating innovation within one product area.
Banks have long structured themselves around vertical product lines – credit cards, deposits, loans – often siloing product innovation and hindering cross-collaboration. This fragmentation is a challenge when it comes to developing a unified customer experience. Leaders, incentivized by siloed unit performance, find it difficult to create the seamless solutions modern customers expect.
The role of composability, microservices, and AI
We are seeing the rising demand for composing new value propositions for customers by orchestrating capabilities from microservices. Traditional, rigid architectures are giving way to flexible, modular platforms. Fintech companies and consumer-facing neobanks are already leveraging it to develop innovative features, applications, and improved customer experiences. And now, banks are using modular platforms to reduce operational friction and break down product functionality into microservices for faster product evolution, greater resiliency, and better scalability.
When these modular platforms are integrated with Artificial Intelligence, the result is a wave of innovation and action across the industry.
Conversations with banking clients have transitioned from initial exploration and experimentation to a new focus on scaling up AI applications for real impact. Generative AI, paired with modular systems, is becoming a core tool for product managers. Banks that use AI can automate complex workflows, gather actionable insights, and launch new products faster than before. In short, the comprehensive toolkit for product managers now includes AI, low-code solutions, and composable architectures, indicating a future where product development becomes more about orchestrating existing components than building from scratch.
Modern AI solutions are driving decision-making, removing much of the guesswork traditionally associated with product development and bringing banks closer to offering truly intelligent and adaptive services.
Data as a strategic asset
Data platforms have become the top technology priority for banks, climbing from outside the top 10 to #1 within a year. This shift is driven by the realization that effective AI implementation requires comprehensive data management, which many banks have not yet mastered.
Banks need to view data as a byproduct of transactions and a significant input for creating new value propositions.
As such, product managers must start thinking creatively about the data their banks possess. This requires a mindset shift where product teams take ownership of the data they manage and explore innovative ways to use it beyond traditional reporting and compliance purposes.
Our role at Zafin is to extract and abstract data from various banking systems, creating a layer that enables better orchestration and integration of services. It’s why we are a strategic enabler in the bank’s digital transformation journey.
The shift from traditional product management to horizontal integration
Years ago, banks were embedded in communities, providing local, in-branch services where employees knew their customers and built deep, personalized relationships. However, when banks moved online over the last few decades, their business models remained static while customer preferences shifted toward digital self-service. This requires product managers to think beyond functional requirements to integrating capabilities across different product sets to build comprehensive offerings.
But to achieve this holistic transformation, modernizing the underlying core systems is dire.
Legacy infrastructure has been a persistent roadblock, with nearly six out of 10 banking leaders citing it as a major challenge to business growth, according to a 2023 Forbes Insights report. Many banks are accelerating their core modernization efforts to leverage the potential of AI, with more than three-quarters planning to increase investments in data management and cloud solutions, according to Deloitte’s State of Generative AI in the Enterprise June 2024 Report.
However, replacing outdated mainframe-based cores, which no longer support key functionalities, remains a significant hurdle. While banks have made progress, the ability to shed “tech debt” and move toward next-generation systems will be important for unlocking the full promise of AI.
As Michael J. Hsu, Acting Comptroller of the Currency, noted in 2024, many banks feel “hostage” to their legacy technology. It’s time to break free.
