Banks in the U.S. are engaging service providers for digital transformations as they adapt to evolving market requirements and regulations, according to a new research report published today by Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.
The 2023 ISG Provider Lenstm Digital Banking Services report for the U.S. finds that banks are modernizing legacy systems and adopting modern, agile and efficient platforms to increase efficiency, satisfy new customer demands, gain competitive edge and become more resilient in challenging economic times.
"Banks are finding that older technology keeps them from seizing new market opportunities," said Owen Wheatley, ISG's lead partner for banking and financial services. "Digital banking services offer a path to modernization and growth."
COVID-19 lockdowns accelerated consumer demand for digital banking, and challenger banks, neobanks and large technology companies have entered the financial services market to satisfy that demand, the report says. At the same time, the U.S. is adopting new payments standards and open banking regulations to expand consumers' options. These changes, and the growing need to attract new customers, have made modernization an urgent priority.
Many established banks are migrating to cloud-native and microservices-based architectures by "hollowing the core," moving certain functions out while using the legacy core as a system of record, or by using a dual-core approach during a gradual migration, ISG says. A growing number of banks are pursuing greenfield implementations of modern platforms exclusively for new product lines and geographies or even building parallel digital banks.
As payment systems rapidly evolve, banks are using services to consolidate and modernize their existing payment platforms for better efficiency, agility and customer experience, the report says. They are implementing new real-time payment (RTP) methods that require continuous, 24/7 transaction capability, such as The Clearing House (TCH), along with small-transaction RTP systems such as Zelle and real-time, cross-border payment tools using Swift GPI.
Changing compliance requirements and the need to keep up with new technologies are fueling the adoption of banking business-process-as-a-service (BPaaS) offerings, ISG says. Some BPaaS providers are taking over clients' legacy IT estates and modernizing them, while others execute operations and deliver BPaaS entirely through their own platforms. New types of digital financial services providers that have not built their technology infrastructure are also embracing BPaaS.
"Many banks find BPaaS a good way to reduce expenses and gain new capabilities," said Jan Erik Aase, partner and global leader, ISG Provider Lens Research. "Providers offer innovative multiyear engagement models that are based on cost takeout and offer efficiency gains up front."
The report also explores other digital banking trends in the U.S., including service providers' increasing use of AI and ML and banks' efforts to reduce human intervention to speed up some processes.
For more insights into the technology challenges facing U.S. banks, including the rising cost of maintaining legacy systems, and advice on how to address these issues, see the ISG Provider Lenstm Focal Points briefing here.
The 2023 ISG Provider Lenstm Digital Banking Services report for the U.S. evaluates the capabilities of 34 providers across three quadrants: Core Banking Technology and Integration Services, Payment Modernization Technology Services and Banking Business Process as a Service.
The report names Accenture, Cognizant, HCLTech, Infosys and TCS as Leaders in all three quadrants. It names Capgemini, FIS, LTIMindtree and Wipro as Leaders in two quadrants each. Genpact and Mphasis are named as Leaders in one quadrant each.
In addition, Capgemini, Mphasis and Tech Mahindra are named as Rising Stars ? companies with a "promising portfolio" and "high future potential" by ISG's definition ? in one quadrant each.
The 2023 ISG Provider Lenstm Digital Banking Services report for the U.S. is available to subscribers or for one-time purchase on this webpage.
About ISG Provider Lenstm Research
The ISG Provider Lenstm Quadrant research series is the only service provider evaluation of its kind to combine empirical, data-driven research and market analysis with the real-world experience and observations of ISG's global advisory team. Enterprises will find a wealth of detailed data and market analysis to help guide their selection of appropriate sourcing partners, while ISG advisors use the reports to validate their own market knowledge and make recommendations to ISG's enterprise clients. The research currently covers providers offering their services globally, across Europe, as well as in the U.S., Canada, Brazil, the U.K., France, Benelux, Germany, Switzerland, the Nordics, Australia and Singapore/Malaysia, with additional markets to be added in the future. For more information about ISG Provider Lens research, please visit this webpage.
A companion research series, the ISG Provider Lens Archetype reports, offer a first-of-its-kind evaluation of providers from the perspective of specific buyer types.
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world's top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,600 digital-ready professionals operating in more than 20 countries?a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry's most comprehensive marketplace data. For more information, visit www.isg-one.com.
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