The Financial Services Industry’s Unique Barriers to Digital Modernization 

Aaron Ritchie
The Financial Services Industry’s Unique Barriers to Digital Modernization 

In the news last week: 73% of financial services executives have experienced a digital talent shortage since 2020. The impact? Only 15% of those surveyed by RGP have successfully completed critical, data-intensive projects since that time. 

What does this mean for financial services companies? For many, it means an urgent need to make up for lost time. Not only have they been unable to keep digital pace in recent years, but the industry has been historically plagued by an inability to transform. 

Why the financial services industry has been slow to modernize 

Regulatory constraints 

As one of the most-regulated industries in our business world, the financial services sector prioritizes risk management and compliance over speed and innovation.  

This is particularly true when we look at digital modernization. Companies must comply with a quickly shifting (and growing) landscape of data protection regulations that makes change slow at best. Missteps can be dangerous for consumers and incredibly costly for banks. 

High technical debt 

Case in point to being slow to change? The technical debt within the financial services industry. Companies in the banking industry are near the top of the list when it comes to technical debt. One McKinsey study found that the average age of IT applications at traditional banks was 14 years, while insurers averaged 18 years. In comparison, those at retailers averaged 4.5 years.  

It can be difficult, daunting, and expensive to navigate the digital path forward with legacy solutions in place. And, many leaders don’t account for it in planning and budgeting for digital transformation. 

Culture challenges 

With a reputation for being traditional and inflexible, financial services companies have long struggled to lure IT talent away from startups or companies in fast-paced, innovative industries. One major sticking point is remote work. While many tech workers prefer remote work, banking executives are doubling down, demanding all employees return to the office.  

We’re moving towards a very near future of work where employees will be distributed, digitally native, reskilled, and agile. Financial services companies must embrace and invest in a cultural shift if they want to attract talent.  

Of course, these are in addition to the reasons that all companies are struggling to successfully modernize their operations. It’s costly. Change management is difficult. And, perhaps most importantly, every single company is facing a widening digital skill gap right now.  

Could Hire-Train-Deploy (HTD) be the answer? 

An HTD approach is a viable solution to getting financial companies back on the digital transformation track. Not only does it address the biggest headache of the digital skills gap, but it helps financial institutions overcome their industry-specific barriers to modernization efforts. 

Frictionless, competition-less access to talent 

It’s not easy to go head-to-head with anyone over talent, but it’s most difficult when you’re in an industry that doesn’t align to the expectations and working requirements of tech employees. HTD can be a great approach here, as it creates net-new talent custom trained for specific clients. 

Scalable hiring to match needs 

Digital modernization projects rarely go as planned. McKinsey research finds that more than half of digital banking transformations go over budget, exceed their timelines, or fail. When these efforts need to change course in order to get back on track, companies need to be able to tap into a talent source that isn’t at the mercy of the incredibly tight IT labor market. 

In-house vs. outsourced talent 

Most research suggests that for successful digital transformations, at least 50% of IT talent should be in house. An HTD model allows financial services companies to build their digital teams with early-career talent from the ground up. This approach often creates a stickiness, allowing employers to establish stronger relationships and loyalty with their teams. 

The widening digital skill gap presents serious challenges to financial services companies, who have struggled to attract and retain tech talent for years. Smart leaders will look for alternative ways to bring in talent to their organization – and an HTD offering could be the best path forward. 

Let’s Build Your Team

Connect with the Smoothstack team to learn how to close your digital skills gap with a custom-trained team.