Unlike the 2008 economic crisis, the financial turmoil resulting from the COVID-19 pandemic did not bring liquidity problems to banks, but it did spur other, no less important issues.

One of these issues is that digital transformation has accelerated the advance of fintechs and bigtechs, which now threaten the market share of the traditional financial system. The result: Traditional financial institutions must respond with innovation, according to Likhit Wagle (pictured, right), general manager of global banking and financial markets at IBM.

“Just to give you an example, PayPal is the second largest financial services institution in the U.S.,” he said. “That’s become a real problem, which the banking industry is going to have to deal with going forward.”

Wagle and John Duigenan (pictured, left), global chief technology officer, vice president and distinguished engineer of banking and financial services at IBM, spoke with Dave Vellante, host of theCUBE, SiliconANGLE Media’s livestreaming studio, during IBM Think. They discussed the situation of the banking sector during COVID and beyond, how these organizations should innovate to face new competitors, and the role of hybrid cloud along the way. (* Disclosure below.)

Hybrid cloud can help banks innovate

The threat from fintechs has already resulted in a loss of space for banks in areas such as the payment system, lending and remittance, where many new players have entered the marketplace. The reason startups were able to innovate quickly was because they did not have a legacy system, according to Duigenan.

“They were able to be relentlessly laser focused on building new, using the API ecosystem going straight to public and hybrid cloud, and not worrying about everything that had been built for the last 50 years or so,” he said. “The benefit for existing institutions, the incumbents, is that they can use all of the same techniques and tools and hybrid cloud accelerators.”

In addition to the advancement of fintechs, another issue for the banking sector is the growing regulatory demand for operational resilience, according to Wagle.

“Regulators universally are making very, very sure that banks do not have a technical debt or a complexity of legacy systems issue,” he explained. “That is very much top of mind at this moment in time, so I think discretionary investment is going to be put towards solving that particular problem.”

To meet the challenges of fintech and operational resilience, banks need to undertake an architectural and digital transformation around their central platforms and analytical systems, according to Duigenan.

“It can be very hard to accelerate the delivery of new capabilities onto an aging platform,” he said. “So, in every single case, institutions are looking to hybrid cloud and public cloud technology, and pre-packaged AI and pre-packaged solutions from an ISV ecosystem, software vendor ecosystem.”

Watch the complete video interview below, and be sure to check out more of SiliconANGLE’s and theCUBE’s coverage of IBM Think. (* Disclosure: TheCUBE is a paid media partner for IBM Think. Neither IBM, the sponsor for theCUBE’s event coverage, nor other sponsors have editorial control over content on theCUBE or SiliconANGLE.)

Photo: SiliconANGLE