Drive Digital Disruption with Middle- and Back-Office Workloads

Modern technology is key to digital transformation, but as of 2022, just 7% of core banking workloads globally have shifted to the cloud (link resides outside of ibm.com). It has been observed that the emphasis so far has been on the front-office applications (or digital front ends), but middle- and back-office systems also need modernizing.

We believe the real value of digital transformation lies in modernizing these middle- and back-office systems. These systems are often the backbone of a financial organization’s operations, and modernizing them can help improve long-term competitiveness, cost-efficiency, resilience, security and compliance protocols in a constantly changing regulatory landscape.

For example, one of the leading financial trading organizations boosted performance by up to 3x by moving their trading platform to the cloud, helping clients seize fleeting opportunities for profit in a security-rich cloud platform and protecting client investments.

Modernizing middle- and back-office workloads can be a complex process, especially for established organizations and those in regulated industries. It requires a deep understanding of the existing operations and where the business wants to go, in addition to the regulatory and security issues inherent to these types of industries and the complexity of moving to the cloud. We believe the benefits of modernizing middle- and back-office system outweigh the risks.

Enterprises usually encounter challenges in four key areas:

1. Platform: We have seen clients struggle with the cost of a secure, resilient and regulatory-compliant multicloud platform. A secure and resilient platform should leverage a confidential computing environment, spanning compute, containers, databases, encryption and key management. It should also leverage an industry-specific common-controls framework that supports an enterprise’s regulatory compliance requirements; however, the cost of maintaining a controls framework can be a challenge. Additionally, we believe relying on one cloud provider adds to cloud-concentration risk, impacting application performance and resiliency.
2. Application: The complexity of middle- and back-office applications can be a significant challenge that organizations must tackle. High-speed and high-volume transaction processing, data consistency, batch processing and complex business rules contribute to this complexity. These applications have been around for years, and resources that understand the business rules and technology that supports them are few and far between.
3. Data: Data is another critical area of concern. Data sprawl, consistency, latency and encryption are essential factors to consider. Latency between cloud front ends and on-premises middle- and back-office applications can impact user experience. Data sovereignty requirements can affect workload placement decisions and potentially stifle innovation.
4. Operating model: Operating models can pose a significant challenge in the modernization journey as organizations shift their processes, technology and culture to embrace new technologies and ways of working. People and skills are crucial to success, with new roles like Site Reliability Engineer (SRE), full-stack developers and cloud engineers necessary for transforming applications. To address the need for cloud-native development, organizations should consider training and upskilling their workforce to have the talent needed to thrive in a rapidly changing digital landscape.

So, what techniques can be applied to help overcome these challenges and fully realize the benefits of digital transformation?

A strategy and vision that encompasses optimal workload placement, a business process-centric approach to modernization, security and compliance considerations, and a 360-degree operating model are crucial to a successful digital transformation journey across the front, middle and back office.

1. Determine optimal workload placement: Reassess your current application and data portfolio in light of a hybrid multicloud approach to determine the best modernization pattern and “fit-for-purpose” landing zone to maximize business value. Consider the attributes of resiliency, performance, security, compliance and total cost of ownership in determining the optimal workload placement. This orientation is essential to drive business optimization and gain efficiencies while modernizing applications. The fact is that different workloads have different needs to operate efficiently
2. Take a business process-centric approach: Evaluate critical end-to-end business processes to determine how to optimally modernize front-, middle-, and back-office applications and data. To deliver efficient and seamless experiences, companies should also assess their underlying digital supply chain, including workflows, process automation and business rules. The strategy for middle- and back-office applications should be developed in parallel with front-office modernization, using prototypes to validate the approach. Organizations need to define new workflows, support configurable business rules and modernize the integration layer with APIs, messaging, eventing and other technologies to transform middle-office applications. For back-office applications, core banking functionality and high-throughput transaction processing can often run on the mainframe, with modern technologies like Linux and Java used to modernize in-place.
3. Build security and compliance capabilities into modernization design: Security and compliance challenges in hybrid multicloud environments include complexity, lack of end-to-end observability, API vulnerabilities and changing regulatory requirements. We have noticed that “roll-your-own” security and compliance frameworks have shown to be costly to sustain over the years. Compliance capabilities aligned with industry frameworks can simplify operations and accelerate cloud deployment. We’ll discuss more about security in our upcoming blog.
4. Establish a 360-degree operating model: Instantiating an operating model that addresses platform governance, DevSecOps and FinOps helps improve agility, establish a unified automated delivery pipeline with continuous monitoring and feedback, and enable collaboration and prioritization of data-driven investments. Focusing on culture and cloud-native development skills while adopting structures and systems that encourage sharing of information and ideas is crucial to IT transformation.

It is crucial to prioritize digital transformation initiatives based on business value and total cost of ownership in the current economic climate, where budget, talent and time can be limited.

Drive discrete projects with a focus on cost efficiency. Organizations can start by modernizing either the front or back/middle office and connect their way up or down, respectively. Several clients have successfully executed such a strategy:

• A major bank in Brazil is modernizing its Credit Direct to Consumer and Credit Card processes by modernizing the front-office applications to a cloud-native architecture on private/public cloud while leaving systems of record on the mainframe.
• A major airline is modernizing its IT application landscape using hybrid cloud and AI capabilities, resulting in a streamlined digital platform to improve agility, reduce costs, strengthen cybersecurity and enhance customer experience by leveraging existing IT investments while adopting new technologies.
• A large finance mortgage loan company began by moving their most mission-critical workloads to a hybrid infrastructure to improve customer experience and create a sustainable technology platform for the future. Then, they gradually worked their way up. IBM’s solution provided scalability, reduced total cost of ownership, and decreased time to market.

For regulated industries, it is essential to have a partner who can provide a cloud platform that is secured and adaptable to changing needs and supporting compliance requirements, regardless of where the cloud journey starts.

IBM has been dedicated to delivering on top parameters—resiliency, performance, security, compliance protocols and total cost of ownership—with IBM Cloud, particularly for clients in highly regulated industries, so they can make decisions on their critical workloads in the middle and back office with confidence.

IBM has expertise in designing mission-critical and resilient systems for regulated industries and enterprise clients. We offer tailored solutions to meet your needs, leveraging deep industry expertise. We offer x86, Power and zSystems for running high-performance, mission-critical workloads in our cloud and on-premises. Our team has the expertise to deliver new solutions or improve existing ones.

Ready to begin your digital transformation journey? Speak with an IBM Tech Expert today by visiting our website and clicking on Chat with an IBM expert.

Avoid surprises on your cloud bills by estimating them even before migrating your workloads to the cloud. Take the no-cost cloud modelling assessment today.

Check out our blog on IBM Cloud driving innovation in regulated industries with security at the forefront.