3 Effective Strategies for System Integration Challenges in Banking By Rejith P R, Correspondent, CIOTechOutlook

3 Effective Strategies for System Integration Challenges in Banking

Rejith P R, Correspondent, CIOTechOutlook | Monday, 06 January 2025, 06:18 IST

55% of banks see that their in-built banking systems as the biggest obstacle to achieving their digital goals as the banking industry faces system integration challenges, as per the 10x Banking report. As per the survey conducted on more than 200 well-experienced IT decision maker, they pointed out the immediate requirement for a change toward modern banking solution. The integration of AI technology is a major driver of transformation but a significant challenge persists in the core solutions.

Considering the global system integration market, it was estimated at USD 385.95 billion in 2023 and is anticipated to grow at an impressive CAGR rate of 13.8% from 2023 to 2030. In this digital world, banks are in the phase to meet the changing requirements of the customers. However, with the legacy systems in place, the system integrations can be a concern which has to consider with effective strategies.

Let us delve into the key three strategies to address system integration challenges in the banking industry.

Adopting Modular Architecture for Scalability

The banks majorly face system integration challenges due to their legacy systems. It is crucial that banks switch to state-of-the-art systems so that integration becomes smoother and avoids further complications. In the usual scenario, banks depend on legacy systems, making it very difficult to deal with the advanced technologies without disrupting business operations. Utilizing modular architecture streamlines the banking process by lowering downtime.

UBS CEO Sergio Ermotti says to Reuters that moving Credit Suisse clients onto the banks own platform to be main challenge in the integration process. He further added that the client migration was the most difficult stage of the integration.

With the help of modular systems, updates can be performed in isolated modules without impacting banking operations. Besides, modular architecture is very cost-effective, so banks can easily emphasize several other areas of operations.

For instance, JP Morgan adopted a modular architecture to improve scalability in their IT infrastructure. By simplifying intricate systems into smaller, the bank can effectively scale operations while maintaining flexibility. The strategy has worked out in meeting their needs for online services ensuring security.

Puneet Gupta, Vice President and Managing Director, NetApp India/SAARC said "Legacy IT infrastructure often grapples with the demands of modern-day business operations"

APIs Enabling Seamless Interoperability

In this modern era, Application Programming Interfaces (API) plays a pivotal role when it comes to system integration. By integrating into the banking systems, API makes communication easier even with disparate systems, fostering efficiency and interoperability. The key benefit is that API is an intermediary, enabling various software applications to transfer information systematically. API is an unavoidable aspect of the banking industry as it is crucial in connecting banking systems with third-party applications such as finance solutions and payment gateways.

The deployment can be swift with API, which will lower the time-to-market for the latest services. Moreover, integrating customer applications with backend systems becomes smoother, ensuring live updates and seamless user experience.

For example, Wells Fargo, a renowned financial services firm, integrated APIs into its banking offerings for seamless interaction between third-party providers and its system. These APIs ensure smoother interoperability with financial applications, assisting customers and businesses with banking offerings.

Hemal Savla, CIO, Shalina Healthcare, said "It is important to carefully select and integrate technologies that align with business goals and industry specific needs"

Prioritize Data Security

Banks must ensure that they have robust data security measures to make the overall business process seamless. More importantly, proper system integration cannot be performed without having data security measures. As customers rely on digital banking operations, maintaining the secrecy of the data is vital from the banker's point of view and ensuring compliance with regulations and data integrity is essential.

Dato’ Seri Abdul Rasheed Ghaffour, Governor of Bank Negara Malaysia says to FinTech Global “The fight against online scams is a shared responsibility. We welcome this effort by the banks to enhance their online banking apps with malware-shielding technology to curb malware-related scams. This helps to create a more secure banking environment for all Malaysians. We also urge members of the public to remain vigilant against requests to download apps from unofficial sources.”

Nowadays, system integration challenges in banking constitute a significant concern that encryption protocols can control to help protect data. Putting role-based access controls in practice ensures that only an authentic person can view the data, even by performing security audits that help to find and mitigate vulnerabilities.

The multi-layered security approach helped HSBC protect customers' data across its worldwide operations. The firm used threat intelligence systems to mitigate security threats actively, ensuring advanced data protection.

Ramasubramaniam R, CIO, TTK Prestige said "Organizations should develop comprehensive cyber strategies as well as resilience frameworks to counter these risks and it is important for them to review and adapt them to align with the evolving threats"

All in all, as the world moves digitally, banks should ponder about advanced technologies that will make them stay active in the banking operation, adding value to their customers. Though system integration can be challenging, it is integral to banking operations. Banks can reduce system integration challenges by implementing modular architecture, utilizing APIs, and taking advanced data security measures. These impactful strategies can reduce the system integration challenges in banking to a greater extent, allowing banks to focus more on their core operation. As banking operations grow, system integration will play a key role in overall success.