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Digital transformation in Banking and Financial Services – Measuring up to the New Frontier.

As customers demand more online access, the availability of new technology capabilities (and their reducing costs) such as data analytics, the cloud, artificial intelligence, and a collaborative regulatory framework, banks have increased their investments in digital capabilities in the last five years. While the Pandemic has accelerated digital adoption, what have the investments yielded? Are they changing the very nature of banking? And what will it take for legacy FIs to transform their operations and deliver unprecedented consumer value?

These questions drive deep into the heart of Digital Experience Engineering – a niche practice that Banking Tech partner, Maveric Systems, pursues through its rich consulting engagements.

Banking on Digitalization?

Three indispensable pillars for Digital Transformation Journeys

Reimagining customer journeys – From growing emphasis on client centricity, deep tech possibilities, and end-to-end process optimization, the primary focus of any transformation must always be the customer. In a world of fast e-commerce and hyper-personalization, clients have less patience for untransparent and cumbersome processes. To be able to reimagine, Banks must digitize the entire customer journey and then adapt. From streamlining and distilling customer onboarding and other essential functions, banks will, in a short time, gain customer loyalty.

Driving through the power of data – Client targeting, increasing wallet and mindshare, boosting customer loyalty, pre-empting, and customer abandonment are some of the use cases that data analytics brings for digitally-savvy FIs. Unlocking data is crucial to amping up competitive vigor in multiple ways. It makes the data-powered banks act as partners to their clients by advising them of relevant offerings and matching needs even before they are acutely felt. Moreover, today, the power of data decides how FIs will capitalize on their ecosystem partnerships, add to their market segments and product portfolios, nail the GTM approaches, and finally, differentiate on their client’s user experience.

Powered by humans and enabled by technology- Scalable real-time event-driven digital banking platforms are a powerful way for banks to act on the insights their data informs them about a customer’s context and life situation. Two underlying drivers make this scenario possible – a future-focused operating model and the creation of a digitally driven organization. The operating model is indispensable to cost-effectively deliver products and services across channels and capitalizing on emerging deep tech possibilities. The second driver – the organization’s digital culture – is decided by leadership engagement, embracing an agile working philosophy, and infusing change management into the daily rhythms.

With the digital transformation pillars in place, the next logical question is: how will the new frontier be measured?

With the Pandemic behind us and the rising economic volatility, the top banking leaders continue focusing on three top transformational priorities.

Client and customer satisfaction: Mobile banking has already surpassed all other banking channels in popularity, as almost one-quarter of bank customers now cite mobile apps as their preferred method for banking activities.

Regulatory Compliance and controls: The sector’s regulatory framework is frequently an impediment to digital acceleration, so banks are turning to cloud-based platforms with flexible reporting capabilities that can adapt to ever-changing compliance standards. These platforms can give a more comprehensive set of data that helps banks comply with ever-changing rules and respond to audit requests swiftly and effectively.

Operational Resilience: As banks struggle to negotiate the volatility caused by health and humanitarian crises, social inequality, and climate risk, a comprehensive and effective environmental, social, and governance (ESG) approach is required. Additionally, banks are adopting technologies that can assist them in analyzing the environment and predicting potential consequences using predictive analytics.

Conclusion

Digital transformation in the banking industry has direct benefits. From addressing the unique needs of new products and revenue streams, keeping pace with multi-generational consumer demands, and improving profitability – all depend on the operating and business models that FIs choose and execute.

While there would be matters of culture, leadership, and regulatory landscape that would determine the transformation strategy and digital approaches, in the long run, successful banking projects must integrate consumer, digital technology, and data analysis that creates new value to the customer experience. Additionally, banks will profit from adopting an ecosystem-based strategy.

About Maveric-Systems

Starting in 2000, Maveric Systems is a niche, domain-led Banking Tech specialist partnering with global banks to solve business challenges through emerging technology. 3000+ tech experts use proven frameworks to empower our customers to navigate a rapidly changing environment, enabling sharper definitions of their goals and measures to achieve them.

Across retail, corporate & wealth management, Maveric accelerates digital transformation through native banking domain expertise, a customer-intimacy-led delivery model, and a vibrant leadership supported by a culture of ownership.

With centers of excellence for Data, Digital, Core Banking, and Quality Engineering, Maveric teams work in 15 countries with regional delivery capabilities in Bangalore, Chennai, Dubai, London, Poland, Riyadh, and Singapore.

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Choosing the Right Digital Transformation Company

At the Pandemic’s outbreak, companies worldwide were suddenly exposed to a surge in digitalization. Those who pledged to keep operations going were given free rein to do whatever was necessary. Returning to work, however, many are confronted with the fact that digitalization’s north star is beginning to wane. Companies now face the same uncertainty over digitalization that they did before the Pandemic when investment priorities were clear.

After all, meaningful and long-lasting digital transformation requires businesses to prioritize product and process changes over technology investments. However, many companies have difficulty seeing past the immediate benefits of new technologies.

Choose the transformation partner after understanding the FI’s Business Model Canvas

Business Model Canvas – The nine basic building blocks

Starting with the value proposition, the backbone that summarizes gains delivered to customers, the right side of the equation (refer to above) discusses the primary customers and how a company makes its money (via customer relationships and channels).

The left side captures the business’s operational aspects – the essential resources, partners, and activities.

The two sides of an organization’s financial bedrock are cost structure and revenue streams – the outcomes transformation partners focus on (lower costs, increase revenues, and boost profits).

The right digital transformation company helps you map out the current business model.

Finding where you currently are is the first step in planning your next move. The right partner will begin by detailing your current business structure. If your present business model is more organic in nature than engineered, going through the nine sections of the canvas will provide a useful starting point for your transformation efforts.

Transformation Partner’s next port of call? Digitizing Operations

Using digital to optimize, simplify, and rationalize existing processes is an early step in the digital transformation path. Facilitating a Bank to embrace emerging technologies and tools like AI, 5G networks, and the internet of things (IoT) is crucial to unlocking its stellar transformational potential later. A company may start its journey toward digital transformation by digitizing processes, and as it grows, it may redesign processes from the ground up. That is why a CIO, CXO, or COO is a better leader for digitizing operations. Research shows their inherent process expertise (and managing KPIs) that ultimately save time, solve business problems, and serve customers.

Directing Action through the power of Data and Insights

Data on how a business interacts with customers, employees, and clients is easy to find and assess so that technology can have the most impact. The correct transformation partner understands the essential nature of capturing valuable data. Furthermore, they turn data into insights with the right skills and tools. Here, technology enlists analytics or the science of making sense. After all, testing new business models, products, or services is as much about getting it right as proactively avoiding missteps.

The Right Digital Transformation Company focuses on Outcomes.

In a digital transformation, often “transformation” wins over “digital.” indeed, long-term performance and meeting the financial metrics are crucial for a digital partner. More importantly, the results must be fed back into the processes (retroactive feedback loop) so that future insights are more accurate, practical, and valuable.

In summary,

Finally, the change in mindset, culture and the FI’s talent base makes for sustainable digital transformation, such as training and retraining employees to be ready for the future. And in choosing the appropriate digital transformation partner, the leadership sends out a clear signal to the rest of the organization: how to build a bridge that respects the past and advances fearlessly into the future.

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Top 3 Important Pillars of Digital Transformation

Many businesses have grown their agile-enabled units at a fast rate. But speed is only the start. How people work will need to be expanded quickly to determine digital’s actual value. There are risks to making such a significant change, but in the digital world, staying the same is the most considerable risk of all.

Digitization is suitable for most businesses, so they don’t need to be sold. Research from McKinsey shows that companies have high goals: in the next three to five years, they want digital initiatives to lead to growth and cost savings of 5 to 10 percent or more each year.

The Challenge of Scaling Digital

It’s hard to set up the tools to digitize at a large scale. Because digital touches so many parts of an organization, any extensive digital program needs to coordinate people and technologies in a way that has never been done before.

For example, a strategy to increase revenue from high-value customer segments needs analytics-based insights into which buying journeys generate the most value, a clear vision, a plan for capturing that value, and technologies and tools to digitize customer interactions.

The Three Pillars of Digital Transformation

Strategy, Strategy, Strategy. While a sector’s digital maturity influences how an organization acts, most approaches fall into one of the following.

Incumbents and market leaders do things to protect and take advantage of their current business models and advantages.
Market upstarts and challengers use their existing assets to improve their business model and customer relationships. They focus on building the skills they need to move quickly into new markets once they have been found.
Digital adopters use the benefits of digital to compete in existing markets and even change their business models.
Digital natives enter new markets and change how to compete based on price, experience, or product.
Finally, some orbit-shifters shape ecosystems by setting the rules that define the competitive landscape and recast whole value chains.

Digitizing processes have less to do with technology and how companies approach development.

Digital leaders drive value quickly by focusing on small but essential solutions targeting large-value CX journeys and expectations. This is more than automating something that is already being done. When a business goes digital, it often has to rethink its entire business process to strive for higher optimization and remove redundancies.

The People Organization

Companies know that models that are rigid and move slowly no longer work. The challenge is moving toward a more agile, flexible, and collaborative structure while keeping the rest of the business running smoothly. Successful incumbents become more flexible by making things easier.

They let structure follow the strategy and align the organization around their customer goals, focusing on fast, project-based systems owned by working groups with different expertise, from research to finance.

Getting a clear picture of the company’s “Digital Quotient” is an essential first step in identifying its digital strengths and weaknesses and identifying management practices that can improve financial performance.

Leading companies today have incubators to prototype the early stages of a digital transformation to build up their skills. But these skills need to be built into the central business to succeed.

The saying “what gets measured gets managed” is still valid regardless of the business’s model. Metrics that focus on the customer journey, like customer lifetime value, omnichannel behavior, and share of influence across stages of the decision journey, are essential to the most successful digital companies.

The Technology that Transforms

Most legacy companies have traversed through multiple phases of IT transformation in the past and know that updating legacy architecture takes years. But today’s changing market needs technology that can speed up innovation, automation, and personalization.

So, the best companies are moving to an IT model with speeds that allows them to make programs for customers quickly and make changes to their core systems, which are meant to be stable and manage data well, more slowly.

This usually means that high-speed IT teams are in charge of quickly iterating software, installing updates in beta, fixing bugs and kinks in almost real-time, and installing the software again. They aim to keep adding to a fast development infrastructure that can support near-instant deployment across channels and real-time decision-making.

Additionally, recent DevOps improvements ensure that continuous delivery makes it possible to speed up time to market and cut costs dramatically.

Conclusion

The Way of the Digital, Digital transformation takes time and comprises steps that are sometimes evolutionary and sometimes disruptive. Digital transformation has been called a journey by everyone who has been a part of it.

Usually, companies start by improving their IT and digitizing their operations. Then they move on to digital marketing and building new business. But all three pillars are essential for digital transformation so that they may happen in a different order.

The key to success is understanding that digital transformation is not just one thing but many different things. Having the right leader, resources, and ways to measure success are all the right notes a company must hit as part of its journey.

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Future of Corporate Banking in Digital Transformation

While the global corporate banking landscape changes dramatically, banks are rethinking business models to stay competitive and bring innovative offerings (be it in retail, corporate, or investment banking). Earlier, corporate clients were grouped in segments that suited the banks and not the clients (like SMEs were placed in retail banking, and larger cap companies came under the purview of commercial and investment banking or even M&A teams).

Leading banks are dedicating more of 2022 to offer solutions that meet such clients’ treasury needs – loans or leasing; these solutions are vital in mitigating risks related to import-export and other areas that impact profits and growth.

What is the future of corporate banking?

2022 banking trends are making headlines (rise of the super app, the growth in digital currencies, spending money in the metaverse, boost in ESG banking policies, and new moves for the cross-border payments area), but the future of corporate banking is closely linked to digital transformations.

As the industry matures, more free flow of data among banks, their clients, and third parties will be seen. These corporate banking ecosystems will surface new operating models that allow significant disruption. As an example of just two, watch out how this segment brings a single gateway for frictionless access to services and effectively mitigates risk through multi-dimensional data analytics.

The long-term digital impact on various corporate banking

At this point, it would help get a top-level view of the ways digital initiatives transform multiple lines of business.

Straight lending: Revenue increases as online applications are processed with quicker TAT. Costs decrease as workflow/straight-through process automation improves.
Cash management: Revenue increases as the cash management tools get more functional and assist in better lead generation. Cost decreases as cash management platforms improve, thereby increasing the straight-through-processing share.
Specialized finance: Across trade/supply chain finance, leasing, and asset-backed finance, successful digital initiatives increase revenue through better marketing push and superior lead generation. Simultaneously, cost decreases with digital workflow optimization efforts.
Capital markets: For this line of business, going digital offers higher convenience (via self-service options) and decreases costs from process efficiency gains.

Once we understand how the various LOBs would respond, it is worthwhile to talk about the significant shifts in the corporate banking industry.

Essential digital levers that are driving growth in corporate banking

Reimagining digital tech stacks: As digital transformations are unique to the entity (given their start points and end goals), the difference would come as corporate banks will compete on the technology stacks that shape their vision.

CX investments: Like retail banking, the growth plays for corporates revolve around how best customer journeys are aligned with product life cycles and how robust customer behaviors are anchored to market scenarios.

The boundaryless customer: Post COVID, like employees, the best banks understand their customers are free to transact from anywhere. How quickly the transition to “anywhere banking” permeates into the operating culture will differentiate the winners.

Ecosystem advantages: In addition to what has been stated, the increasing prevalence of multi-party transactions, Corporate APIs, open banking regulations, and available data are potent variables set to test a corporate bank’s appetite (and speed) for change.

Finally, any digital and corporate banking discussion is incomplete without talking about the Treasury APIs.

The rise and rise of Treasury APIs

Post-COVID, SMEs and larger corporates must invest in increased connectivity and straight-through access to supply chains and ecosystems. Here, banks have a unique opportunity to support their corporate clients’ increasingly complex needs through Open Banking and (APIs).

Be it – real-time information access, status updates on balances and payments, straight-through and real-time processing of transactions, reduced integration and process complexity, and intelligent multi-currency liquidity management solutions – corporate clients are eager to get all the help they can.

Similarly, some of the world’s most influential banks – Citibank, J.P. Morgan, DBS, Bank of America, and Wells Fargo – are already in the game. Their treasury and payments APIs are up and running, reeling in specific benefits like:

New revenue streams via monetizing enhanced services for corporates.
Capturing real-time data for data-driven decisions by the treasury or commercial sales
Resolving issues in reconciliation to improve STP rates in payments and collections
Scaling services that will enhance operational efficiencies and lower internal cash risks.

Conclusion

In the final analysis, embedding innovative technologies (such as robotics) along the value chain, industrializing core production, and redefining the IT and operating models will prove significant in redefining their product offerings. Moreover, emerging as a critical differentiator will be the advanced analytics DNA competency. This will help banks scale use cases and pursue continual improvement.

Eventually, the future of corporate banking in digital transformation will come from how quickly the financial entities digitize their processes end-to-end to increase customer satisfaction and reduce costs by building digital customer-centric journeys.

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Top Pillars for Successful Digital Transformation in Banking

Interstellar exploration begins to go mainstream with space tourism, fossil fuel cars make way for electric vehicles, and metaverse captures public imagination with its immersive reality just as the internet had cast its spell in the early 2000s. The winds of change blow heavy.

As business models in well-established industries change in the face of disruptive technologies and customer expectations, the banking industry leaders are hard at work. After all, creating new digital approaches offer both competitive differentiation and unrivaled economic value.

How is the banking landscape fundamentally changing?

Earlier banks owned each value chain layer – creating, packaging, and distributing its products. Neobanks offered a digital alternative to traditional offerings. Both entities had business models that were linear and vertically integrated.

Enter the digital-only players.

Fragmenting the value chain, they are unbundling traditional products into micro products or services and adding their offerings on top. The outcome of this vertical disintegration? More effective customer propositions.

This non-linear and adaptive business model is surfacing weaknesses of the incumbent banks like never before.

Today the challenger strategy can quickly configure and scale out innovative products with faster go-to-market speeds, lowering customer acquisition costs.

To make this all possible is, in a nutshell, the story of digital transformations in banking.

So, if digital-only players outperform their older peers via product componentization and respond quickly to market disruptions, what can we learn from them?

Successful digital transformation for banks rests on the following pillars.

1.) Meeting New-age Customer Expectations.

Recognize these players – Chime, Afterpay, Klarna, Stripe, Wise? Each has not only acquired tens of millions of customers but also created a product category by fulfilling a latent need that the more prominent players missed. Chime focussed on fee-free overdrafts and payroll accelerations. Afterpay and Klarna expanded the credit market with “buy now, pay later offerings,” Wise disrupted retail forex and debuted on London’s stock exchange with a market value of $11B.

The quick learning? Awaken to the customer who wants the best of “all” worlds.

Using digital transformation levers, the new players can offer the end customer the flexibility and transparency for their DIY (Do-it-yourself) Banking. DIY banking – combining services from different providers – is more than a trend; it promises to hardwire into a buyer purchase attribute.

2.) Adopting All-Inclusive (AI) Artificial Intelligence.

Slowly but surely, AI banks are populating the horizon. Understandably, AI initiatives emphasize technology, and data infrastructure is humongous.

It begins with a long-term robust business strategy that is hyper-focused on delivering superior omnichannel journeys and CX. To make the execution cost-efficient, investments are needed for modern, scalable platforms for D&A. Finally, along with military-grade secure access and cloud infrastructure, the banking cores have to be highly configurable and powerful enough to support scalable operations.

The learning that comes from AI banks? Reimagining customer engagement by unlocking new value through higher efficiency, expanding the market access, and increasing the customer’s lifetime value.

To make this pillar work, leading banks combine intelligent value propositions with seamless embedding into partner ecosystems and create more innovative experiences.

3.) Clarity on the transformation strategy.

Before the investment dollars are spent, and armies of technologists descend, banks must be clear about the fundamentals – what is the legacy we are chasing? Which consumer segments are must-haves, and which are good-to-haves? And what value is core to us as a bank?

Answering these questions sets the ball rolling to decide the scale and scope of the digital transformation. This clarity eases cost pressures, allays employee job anxieties, reaffirms risk appetite, and offers an accurate before-after assessment.

Basis the mentioned strategy, banks can go one of three ways: Skin – Tissue – Cell.

Firstly, it could work on the packaging or the ‘skin’ layer (self-service customer channels and models and digital interfaces for banks’ analog processes). The second approach goes more profound at the ‘tissue’ layer (APIs allow IT asset interfaces, incorporating data analytics, creating consistent omnichannel CX).

Finally, the third kind of transformation works deepest – the ‘cellular’ layer. This approach concerns digital native core, third-party and ecosystem partnerships, digital marketing, high-end data analytics, and bringing on board (or outsourcing) tech capabilities that are strategic to the banks’ core vision.

Conclusion

Along with the mentioned three pillars for successful digital transformation for banks, there are equally pertinent aspects to be taken care of. Like deep focus on creating a niche (or micro-segments) by experimenting with innovative offerings, renewing attention to the evolving ecosystem and the system aggregators landscape, and finally, constantly clearing the obstacles on the path to profitability by boosting the organizational readiness through financial education.

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