From online-only banks to apps that enable users to trade stocks and shares on their mobile device. As they race to catch up, however, these traditional firms are finding that their progress is being prevented by their legacy technology infrastructure.

The sector’s slowness in adopting new technologies has seriously damaged financial firms’ ability to meet their customers’ needs, as a recent Forrester study shows.

Forrester found that 84% of UK financial service organisations are concerned about their ability to identify customers correctly, while a third believe they are ‘seriously lagging behind competitors’ when it comes to fraud checks. Meanwhile, the researchers found that UK firms have less interest in adopting new approaches to authenticate customer identity, lagging behind China, Singapore and the US.

It’s not all bad news, though. In autumn 2018 KCOM conducted in-depth research among senior decision makers at businesses in a number of sectors, including financial services, to gauge their progress towards cloud migration. We found that 80% of respondents from financial services businesses say they plan to invest in cloud migration in next 12 months to drive innovation – the highest of any sector studied.

The cloud is central to any significant business transformation project and enables financial services companies to throw off the shackles of legacy technology. But cloud migration is always a serious undertaking, and particularly so for financial services businesses.

A poorly-planned and executed cloud migration may simply achieve the continuation of a flawed system. This year we saw the huge risks of a failed migration, with a traditional bank suffering severe reputational damage. When a big technology project goes wrong in a large financial services business, it tends to make the front page. Just look at the reams of negative publicity that TSB garnered when the bank ran into problems updating its IT infrastructure. Do bank customers face a year of more of uncertainty and disruption, while challengers steam ahead with their superior tech agility and ability?

No industry takes its customers’ security more seriously than financial services, and our research suggests that respondents are fully aware of the potential risks of cloud migration. When choosing a technology partner, they were most likely to use selection criteria that are heavily weighted towards partners that they can trust, as measured through their delivery on previous projects.

Almost two in five respondents (38%) from financial services businesses use this criterion – more than those who choose a partner based on their ability to deliver against a defined technology road map (34%), and those that use agile methodologies, frameworks and contracts that enable the delivery team to work through the unknowns (28%).

This is understandable. Trust is especially vital in the financial services industry, as we’ve seen. Yet is such caution always the best way to develop systems and infrastructure that will support a financial services business’ success in the years to come? If financial services providers truly trust their technology partners, shouldn’t they be more open to accepting their advice on innovation and cloud migration projects, rather than expecting them merely to follow the strict instructions in the proposal?

Our research suggests that this remains a Rubicon that the financial sector is still unwilling to cross. We found that only 10% of respondents expect their partners to introduce ideas and help drive innovation, compared to 36% who identify the required technology first and then issue an RFP.

While financial services was a little ahead of other industries in being open to ideas from their technology partners, this 10% figure is hardly evidence of a “pioneer spirit”. Given the pressure from challenger banks, we would expect the industry to be more open to listening to technology experts.

We fully accept why financial services firms would approach digital transformation projects, including cloud migration, with caution – but can they afford to spurn the advice of their technology partners? For example, a trusted partner might advise that financial services businesses would do better to focus on cloud-native innovation and a more measured, gradual migration to cloud, rather than doing it in a “big bang”.

We don’t believe that the go-it-alone approach works for financial services businesses. Earlier this year, for example, we found that only 6 per cent of UK financial businesses know when all their infrastructure components will reach their end-of-life-date.

True partnership involves listening on both sides – it’s the best way of avoiding major misunderstandings, while also opening up the full gamut of possibilities that the cloud can provide. As the financial services industry looks forward to 2019 and beyond, we hope that it will be more open to collaborating with their technology partners, and taking advantage of their expertise – and so more effectively meet the challenge from their younger, more-agile rivals.

To find out more download the Art of the Possible report here.