Why now is the time for IAM transformation in banking

We’ve hit a tipping point in the battle between traditional financial institutions (TradFi) and financial technology (fintech) disruptors. Digital banking (led by fintech) has become ubiquitous, with nearly universal adoption —  eight in 10 consumers now use some type of digital financial tool, and half of Americans use fintech tools on a daily basis. TradFi leaders know what’s happening, and they know what’s to blame. Bank leaders globally say sub-par customer experience is costing them up to 20% of their customers each year, and the vast majority (63%) blame their slow digital transformation. In fact, just 4% of bank leaders say they deliver excellent digital customer experience (CX).

Yet there’s no question that TradFi still has the upper hand. They control the vast majority of assets under management, they have deeper resource pools than their FinTech competitors, and it’s very clear how to stop the bleeding: On the front end, they know they need to step up their digital-first, app-centric experiences — and on the back end, they know they need to accelerate their shift to cloud-native infrastructure to support modern CX.

The biggest challenge is taking the leap — breaking out of legacy approaches. In a sector that prizes conservative thinking and stability, no one wants to be the first to try anything (the opposite of the FinTech world that hews closer to the “move fast and break things” ethos of the broader tech sector). 

How do we know this? It’s evidenced by the main question Okta hears when we talk to TradFi businesses: “What are other banks doing?”

To help give TradFi businesses the push they need to accelerate their digital shift, here’s a look at some of the tech trends we’re seeing in the financial services world.

Prioritising Identity and Access Management to catalyse transformation

A persistent trend in financial services is the prioritisation of security. And, despite clearly wanting better digital experiences, consumers also say security — specifically good fraud prevention — is the most important factor in choosing a financial institution. 

We’re seeing more and more banks lean into Identity and Access Management (IAM) as the critical enabler —the catalyst—for both their customer-facing innovations (digital banking products, mobile apps, etc.) and the behind-the-scenes tech changes that support them (the shift from legacy infrastructure to cloud-native tech stacks). While many point solutions on the market today loudly tout themselves as IAM solutions, few platforms offer holistic support. Leaning into Identity puts CX and security at the core — enabling TradFi leaders with a secure platform foundation that they can plug point solutions into.

Trends in consumer IAM

Consumer IAM typically looks a little different because security often plays second fiddle to CX. But banks walk a tricky line here: A few bad experiences will drive a customer away. After one security issue, they’ll never come back. Moreover, customers say they want frictionless experiences, but they also expect security to be table stakes. In fact, as security breaches dominate the headlines, consumers increasingly want more visible security features to give them peace of mind. But the key is implementing visible security measures without adding too much friction to the CX.

Using IAM to unlock digital- and mobile-first services

Financial institutions have an opportunity to get creative in bridging security with frictionless CX. Leading banks are using advanced IAM solutions that enable them to strengthen their security stance while keeping most of it invisible and painless for the customer. For example, Okta’s platform can help banks securely move their branch-related services to a digital-first mode.l Those banks can integrate state-of-the-art IAM with tools like DocuSign for signatures, Notarize for notaries, and other innovative apps that digitise traditionally in-person experiences. 

The goal here is to make it possible for customers to get all their banking needs met without ever stepping into a branch. And, critically, this is not limited to online banking — we’re helping these banks enable a truly mobile-first experience. Because consumers now don’t just live on our smartphones — a recent report showed consumers now trust the security features of their phones more than their computers.

Digitising and harmonising customer-facing apps

As financial institutions rapidly digitise their customer-facing apps — everything from retail and commercial banking to loan financing and servicing, wealth management, insurance offerings, and other services — they’re running into the problem of disjointed or siloed customer experiences. Leaders in digital CX are building a seamless digital CX around a single, unified Customer Identity. This ensures that customers have a consistent experience across apps — even when those apps span multiple lines of business. 

Larger banks are keeping this app development in-house (with the resources to do so). But small- to medium-sized banks will need to outsource the build of these apps and banking platforms. Banks must be careful in selecting vendors, avoiding two challenges: 1) vendors with legacy on-prem infrastructure that doesn’t support modern authentication on their end, and 2) vendors who have prioritised the stickiness of owning identities over the best security interests of the banks they’re partnering with.

Multi-layered security architecture

Okta Threat Insight can prevent 99% of attacks on a customer’s tenant. But to level up threat protection and stop the most advanced threats, we’re helping many banks implement a best-practice security architecture using web app firewalls (WAFs) and bot proxies in front of the tenant — working with vendors like Akamai, Fastly, Signal Sciences, and Cloudflare. We’re also helping bank customers leverage API gateways to control and monitor all API calls between the bank and the technology or banking platform. Finally, we’re helping banks integrate additional ID-proofing technologies like Jumio, Onfido, and LexisNexis Risk Solutions to create an extra layer of Identity authentication. It’s easy to layer in additional tools using the Okta Integration Network (OIN), which has over 7,000 pre-built integrations. (Or I recommend working with our Professional Services team to build custom API connections.)


Trends in workforce IAM

Across every sector, leaders in customer satisfaction and loyalty increasingly recognise the direct connection between employee experience (EX) and CX. We’re seeing more financial institutions reframe and prioritise workforce IAM (and better EX) as a precursor or enabler to better customer IAM (and better CX). In most financial institutions, the tools employees use to get work done look completely different from how they did three or four years ago. 

No doubt, many legacy, on-prem apps remain, but banks are rapidly shifting to cloud-native productivity tools and core operational technologies. Our 2023 Businesses at Work Report takes a closer look at these cloud shifts hitting every department. These are trends every IT leader should know about — what their peers and competitors are doing today and where they’re looking tomorrow.

Adopting cloud-based security tools 

To enable and protect these new ways of working, we’re seeing a corresponding shift from on-prem security products to cloud-based security, email security, data traffic security, etc. Tools that allow their employees to be more flexible and dynamic in where and how they work — without exposing the company to excessive risk.

Moving to the Zero Trust model 

Some banks still operate on a conventional, behind-the-firewall philosophy. But this outdated view isn’t prepared for the myriad of threats within the firewall. To enable the kinds of digital-first customer and employee experiences needed to outcompete the fintechs, every bank needs to shift to the cloud and embrace a Zero Trust model. 

In fact, The State of Zero Trust 2023 showed seven in 10 (71%) financial services companies already have active Zero Trust initiatives in place today. The move to Zero Trust will look different for branch-heavy banks with significant physical infrastructure, but the move is essential regardless of the model. 

Consolidating IAM teams 

One major trend we’re seeing is the restructuring and consolidation of IAM teams to support the entire business more holistically. IAM is traditionally separated between workforce IAM, customer IAM, and governance (provisioning), with leadership sitting at the top. But as organisations increasingly embrace Zero Trust models and prioritise the same frictionless experiences for employees and customers alike, we’re seeing these lines blur — and many banks are erasing divisions to consolidate IAM under one team.

There’s no one-size-fits-all banking transformation

We all know it’s smart to stay on top of trends in our industry — to know what our peers and competitors are doing. This is particularly critical for financial institutions amid the accelerating digital shift to battle FinTech disruption. Yet it’s equally important to know that there is no one-size-fits-all approach. Your financial institution’s path to modernised CX and cloud-native infrastructure will depend heavily on the specifics of your organisation, your product portfolio, your customer demographics, and (most importantly) what your tech stack and tech debt look like today.

You need to start with an honest assessment of your tech debt. Where are you in your digital journey? Does your business more resemble a retailer with locations or a digital-first enterprise?

The plan you implement needs to complement your business set and structure. Don’t try to clone the business plan of another bank with a different set of priorities, or worse, a FinTech competitor that’s completely different in its structure. To make a sports analogy: While they’re both world-class athletes, an Olympic marathoner trains differently than an NFL player.

You can’t get ahead by following

But there’s an even more fundamental thing to consider when thinking about trends. When leaders ask, “What are other banks doing?” it often hides the underlying sentiment of, “I’m scared to be the first to try something new.”

FinTech disruptors aren’t afraid to be the first. In fact, they’re stealing TradFi customers because they’re willing to try new things. Bank leaders need to recognise that they can’t get ahead tomorrow by looking at what others are doing today. The winners will be those who break out of the norm and think (and act) on new, modern approaches.

Read our full reports:

2023 Businesses at Work

The State of Zero Trust 202