Digital transformation is no longer just a buzzword. Many firms in the capital markets are just beginning to confront the reality of aging technology stacks and the growing demand for innovation.

The banking industry is at a crossroads. Banks have long relied on point solutions and disparate systems accumulated over the years from in-house developer initiatives and strategic M&As. The pains are exacerbated by varying adoption outcomes across business units — prime brokerage may have its own technology that precariously integrates with the risk department's proprietary technologies. As banks reconcile growing customer bases with industry expectations, those that fail to update and modernize will inevitably fall behind competitors.

The financial sector is experiencing some pretty seismic shifts. Trading volumes are at an all-time high. CME Group reported its international average daily volume increased 14% from 2023.¹ Customer expectations continue to change. And new financial players — such as private credit — are claiming share of voice once dominated by traditional lenders, meaning a traditional source of lending revenue is now being driven toward private credit.

The challenges of adapting to today’s environment puts greater pressure on banks to rethink their operating models. As your institution looks for ways to stay competitive, here are five steps you can take to assess your tech sophistication.

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1. Benchmark against industry standards

To begin understanding where you stand in terms of technology, it’s important to benchmark your systems against the industry.

Key questions to ask:

How do current solutions compare with those of competitors, particularly best-in-class institutions?
How does our digital strategy implementation timeline compare to peer institutions?
How does our investment in digital initiatives as a percentage of overall IT budget compare to industry leaders?

For instance, consider the rate at which FinTech firms are transforming customer expectations. Customers want a seamless digital experience, whether they are interacting with their bank through mobile apps, online platforms, or AI-driven services. Benchmarking allows you to identify gaps between where you are today and where you need to be, and it helps you set a realistic roadmap for achieving your transformation goals. As you assess systems, it’s also important to consider the internal processes that power your technology, such as data flow, system integrations, and support for future scalability.

2. Assess your system’s digital maturity

Another key aspect of evaluating your technology is understanding the digital maturity of your current systems. Digital maturity refers to how well-equipped your infrastructure is to support a modernized business model, leveraging the full power of digital tools and data analytics.

Many banks have relied on legacy systems built over decades, often amalgamated through acquisitions or created to serve specific business units. These systems often lack the interoperability and standardization of data needed to provide a cohesive view of operations. Their inability to integrate disparate technologies means that critical data may be siloed, making it difficult to draw insights from the full scope of available information. For instance, a bank’s risk department will want a view of concentration risk across clients.

Key questions to ask:

Are my systems able to handle the data and performance demands of the future?
How integrated are our digital systems across different business functions?
Do our systems offer audit tracking and data lineage capabilities?
What level of automation have we achieved in our core processes?

If your technology stack is riddled with disparate systems that don’t align with industry standards, your digital maturity may be low. Upgrading outdated infrastructure and ensuring your systems are adaptable, scalable, and interconnected can go a long way in improving digital maturity. This is particularly important to support the growing volume of data banks must process. Financial services like prime brokerage, for example, need to model and manage derivatives at scale. A bank that wants to capture business in the space must ensure its technology can support those complex operations — especially at scale.

3. Conduct a gap analysis

Once you benchmark your technology and assess its digital maturity, the next step is to conduct a thorough gap analysis. This is where you identify the key differences between where your systems are now and where you ideally want them to be.

There can often be a cyclical challenge where operational gaps are exacerbated by gaps in technology.

Key questions to ask:

What are the gaps between my current systems and the solutions I want to implement?
Are systems designed to support all business use cases? Or are they serving only specific units or functions, such as retail banking or risk management?
Are systems able to reduce manual and key-person dependencies?
How many outages are there? Are downtimes restored within SLA?
Does our current IT team have both technology and banking expertise?
How are we integrating both structured and unstructured data?

A common mistake is assuming that a one-size-fits-all solution, like a data lake, will address all needs. While a data lake may work for some business units, it’s often not purpose-built for others. A gap analysis helps ensure technology investments align with the specific needs of different business units, enabling better decision-making and more effective operations.

By clearly understanding where your current systems fall short, you can prioritize the areas most critical to your bank’s future growth and begin working toward solutions that will close those gaps.

4. Ask honest questions about your technology

Asking the right questions is essential to understanding whether your current technology is up to the task of driving future growth. The questions most pertinent to your organization will help you understand your existing technology’s limitations and how to prioritize solutions. And if you’re ready to hear the answers, you’ll be able to focus on the gaps that will have the most impact on your bank’s performance.

Key questions to ask:

Is your system purpose-built for all use cases?
As your bank grows, can your technology support the volume of transactions and data that will flow through the system?
How easily can your systems answer complex, cross-business unit questions?

These questions should drive discussions within your leadership teams and help shape a strategy to addressing technology gaps. Sophisticated technology must be able to scale without introducing significant risks or inefficiencies. In an era where risk management and auditability are critical, your bank’s technology should help you answer key customer and regulator questions.

5. Ensure there is a champion at the top

For any successful transformation, it is essential that a champion at the highest levels of leadership supports the initiative. Without this commitment, banks risk failing to prioritize technology modernization and may miss opportunities for growth.

In many organizations, transformation begins with the CEO who recognizes the need to modernize technology. They then bring in the appropriate leadership, such as a CTO or COO, to drive the transformation forward. Having a high-level champion ensures that resources are allocated, strategic decisions are made, and the transformation is treated as a core business priority rather than a secondary concern.

Key questions to ask:

Who on the executive team will take ownership of driving our digital strategy?
Does our board understand and support the need for digital transformation?
How often does digital transformation appear on our C-suite and board meeting agendas?
Are we allocating sufficient resources and budget to support digital initiatives?
How is our leadership fostering a culture of innovation and experimentation throughout the organization?

A senior leader’s backing helps align various business units with the broader vision, ensuring the entire organization is on the same page when it comes to technology strategy. Transformation is a long-term commitment, and it’s essential to have consistent leadership throughout the process to see it through.

Ready to transform your technology?

As companies strive to adapt to a changing environment, it’s clear that evaluating the sophistication of technology is no longer optional — it’s essential. A comprehensive assessment, including benchmarking against the industry, understanding the digital maturity of systems, conducting a gap analysis, asking the right questions, and ensuring senior leadership support, will provide the foundation for a successful transformation.

While modernizing technology can be complex and long-term, institutions ready to invest the time and resources to address critical areas will be better positioned to compete in an always-changing market and address customer expectations. In the end, it’s not just about having the most sophisticated technology — it’s about ensuring your systems align with the needs of your business, your customers, and the future of banking.

Sources:

1. CME Group International Average Daily Volume, CME Group, January 13, 2025.