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Advantages and Challenges in Digital Transformation in Banking

As the digital transformation in Banking snowballs into an inflection arc, it is worth remembering that preparations for it didn’t happen in a vacuum. Information technology that boosts productivity and improves the bank’s process quality has been mainstream for a decade. The next stage – distribution – accelerated by the internet explosion (especially across the developmental economies) got an unexpected shot in the arm via the pandemic. Now, the tipping point nears as emergent technologies (especially AI, ML, 5G, and IoT) fundamentally change banks’ business models and user experience.

Banks at the Crossroads

Incumbent banks (global or regional) are like deers blinded by headlights on highways. On one side, riding on their scale and distribution prowess are the fintech start-ups and neo-banks, and on the other are the tech giants – the data masters – who, with their digital payment apps, are helping customers bypass credit or debit cards instruments (consider Ali Pay or WeChat Pay in China, as one example)

Advantages of Digital Transformation in Banking

More value, quicker, at a lower cost. Traditional banks realize that the three variables – values, speed, and costs – are the lowest common denominator. More customers than ever are online, and the way they interact (with their banks)is changing fast. From rethinking business models to strategy shifts in customer acquisition to engaging customers via omnichannel platforms, legacy banks intend to seize advantages in the hypercompetitive market. Offering faster, cheaper, and more nuanced services are undeniably the most significant digital advantage.
Ability to create meaningful experiences. Focused on expanding the convenience and cost-efficiencies, banks are reimagining the user experience. This could mean adopting front-end initiatives (making self-administration options friction-free) or back-end data architecture investments that replace out-of-sync customer information or even patching up the fragmented portions that jar user experience across channels. Said, embracing digital transformation is one way for banks to offer intuitive services by maximizing touchpoints.
Opportunity to stand out from the competition. Embracing digital transformations allows banks a powerful window to reframe what “growth” means. One way for a legacy institution to seek a different future is via metrics and how they can translate operational metrics. Consider this. Instead of the standard performance measure of the rate of digital customer growth, a more realistic metric can be the ‘cost-to-income’ ratio. Another opportunity that digital transformation brings is the chance to cultivate a digital culture, both in terms of mindsets and organizational rituals.

Challenges of Digital Transformation in Banking

Employee fears being replaced. Digital transformation gathers stiff resistance from employees who are skeptical (and detractive) of the entire operations. Rather than seeing the change as an opportunity to upgrade market-worthy skills, many employees – consciously or not – feel powerless. A practical and pre-emptive step is to gather employees ahead of time and help them map their influential past contributions to the components of the digital future. Doing so allows them to reclaim control of the situation.
Digital Transformation is not about technology. Force-fitting or setting the business strategy after deciding on the transformation mandates is like putting the cart before the horse. Undoubtedly, banks are advised to focus on speed, innovation, and digitalization, but these levers are to be used in the service of an overarching growth plan and market-first aspiration. For instance, before a bank invests in virtual digital technology, it needs to be clear that it is a means to an end. This case quickens the speed-to-market by reducing the time from design to sampling.
Piece-meal approach. Digital transformation practiced in its actual avatar is an all-encompassing endeavor. A comprehensive banking solution offers long-term rewards for banks engaged in retail, corporate, SME ops, or wealth management. This solution has components that interlock user experience management, identity & access management, process digitization, open banking via APIs, and cloud deployment. To minimize the risk of failure and unlock the full potential of digital transformation, banks need to conduct deep dives across technology, domain, digital methodologies, and other intellectual property.

To sum it up, digital transformation is today’s game-changer. Nevertheless, it has to be approached with knowledge and enthusiasm because market platforms, while critical, are insufficient for effecting a comprehensive on their own. Singular vision is indispensable for banks to achieve scale, sophistication, and agility in their unique transformation journeys.

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The need for Digital Transformation in Financial Services.

There are 250 digital banks worldwide, including 20 percent in Asia-Pacific. 70% of these banks were established between the years 2016 – 2020. It is a telling statistic that makes a strong case for legacy banks to embrace digital transformation. Few learnings from the digital banks are already profitable – AiBank, MyBank, WeBank (China), Jibun, Rakuten, Sony (Japan), Kakaobank (Korea), and Paytm Bank (India).

Learning from the new-age banking institutions

While companies with diverse domain expertise support most digital banks share a few commonalities – strong brand recognition, established customer base, scalable technology, data-driven cultures, agile governance mechanisms, and a product sequencing approach that balances incomes with costs.

Need for digital transformation in Financial Services

Value Structure

As the demographic shifts globally with more digital natives joining the workforce and earning incomes, incumbent banks are discovering newer ways to define “value” and revamp engagement structures that capture and harness it. With the mainstream popularity of omnichannel banking growing, incumbent banks are experimenting with various business models and ecosystem partnerships. However, the path to ramping up digital transformation is long-drawn. It comes with specifics – from deciding the product build (front) and technology stack that supports (back end), agreeing on operating models, establishing risk management processes, and mobilizing a go-to-market.

Technology Enablers

To stay competitive in the industry, financial institutions continually question the viability of their core and supplemental technologies. Crystal gazing for the future includes mapping the emergent tech. (AI, ML, 5G, IoT) and how these new-age disruptors fit into the bank’s longer-term strategy. As the dynamics of migrating digital assets and data to new platforms is a recurring feature at most banks, so is the need to firm up their digital transformation mandates. The considerations of flexibility and sustainability will always present themselves as banks formalize how their end-state enterprise architecture will look like. Whether technology is understood or embraced, digital transformation in financial services is a constantly changing and high-stakes endeavor.

Increased competition

A few years ago, when Netflix jumped into the business of developing original content, they said, “for us the aim is to become HBO faster than HBO can become us .”Similarly, today’s banks have to embrace digital transformation at never-before-seen speeds. For digital giants with a strong advantage across customer access, brand recognition, scale, network effect, and formidable customer trust, the finance industry presents a juicy opportunity – a sizable revenue pool, high returns on equity, and capital-intensive approaches. Told another way, hyper-competition in the finance industry is expected only to grow. Ergo, digital transformation is not about “if” but “when.”

Drive to Scale

Size in today’s business world is hugely coveted. Look at the top companies – Walmart, Amazon, Apple, Apple – their employees, market cap, and geographic presence. Understandably, everything is about scale. Operating at lower unit costs, investing more prominent in technology and marketing, and expanding their customer databases are all edges that come with sheer size. Digital transformation in the financial industry, likewise, is about scale. Here is a proof point. Considering pre-COVID numbers, about the world’s top two banks. With an $11B technology budget, JPMorgan spends 50% of it on disruptive technology, and Bank of America, with a $10B tech overlay, consumes 30% on new tech initiatives.

End-to-end Customer Journey

Most banking customers (wholesale, corporate lending, or retail) are wary of friction-heavy transaction processes. This challenge comes from various corners – legal & risk architecture, P&L requirements, and legacy IT systems. Eliminating pain points prompts banks to start mapping end-to-end digital journeys. Subsequently, routine tasks (like onboarding scenarios, KYC requirements, account opening, document management, and loan processing workflows) are simplified as financial institutions leverage the mountains of customer data that lie unharnessed in their existing systems. The need to accelerate digital transformation will only rise as banks make customer pain point elimination their top agenda.

Conclusion

Post-Pandemic, the renewed waves of economic recovery are coinciding with macro forces – increased smart device usage, faster connectivity, and high demand for top-notch user experiences. As the number of digital-only banks grows, along with BaaS (banking as a service), more traditional financial institutions will step up their digital transformation initiatives.

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7 Goals Your Business can Achieve Through Digital Transformation

Let’s assess a few of the current techno-business trends – 5G influx, growth of intelligent cars-cities-homes, rise in hybrid cloud adoptions, boost in ‘everything-as-a-service,’ metaverse, and NFTs. Given these shifts, how do you think the winds of change blow after the pandemic?

A slew of new businesses (or new growth plays by older heavyweights) leveraging customer experience born out of immediacy and personalization offers the easy answer. Come to think of it – even Museums are turning to gamification, NFTs, and the metaverse.

But how do companies get quicker to the market and nearer to the customer? Digital Transformation.

Digital transformation – focusing on optimization or transformation as an end goal – encompasses familiar themes: interoperability with other businesses or systems, predictive analytics and business intelligence, security, remote work possibilities, data privacy, scalability, device, and platform management capabilities.

Like functional areas, the catalysts for Digital transformation, too, show similar grouping. Organizations were either pushed because of a business need or the market or competition pressured them.

No matter the motivations – reduce operational efficiencies, replace legacy, or create new revenue streams – when it comes to digital transformation, there are some irreplaceable business goals (and unspoken hazards to learn from).

Using the correct data and data infrastructure: While the pandemic rocketed digital adoption, most faltering companies that accelerated their pilot programs into production realized that getting the accurate data to the right place (across clouds, devices, and machines) was more straightforward than done. The idea is to embed the data strategy at the outset of any digital transformation initiative.
Technologies exist; the people resist: Even if the leadership aligns, management layers and functional silos aren’t enrolled or empowered before the new technology rolls out. The poor cultural energies (stall and blame games) show up quickly in the initial poor outcomes – costs, NPS, productivity. The learning: adopt change management frameworks and create change agents.
At heart, it is ‘always’ CX: The ‘shiny’ new tech glitters, but the gold is only found when customers’ needs and motivations are met. Use advanced data analytics to meet where your future customers will be and create the experiences they will compare you with. Repeat this over – successful digital transformations start and end with people.
Learn about and embrace risk: Amongst all the goodies (greater productivity, improved CX), there is one inevitable black box that digital transformation throws up – Risk. Innovative companies decide (and communicate) their definitive stance on managing risk, whether they arise from the fear of the unknown, failure, or pressure to deliver.
Focus wide, go deep: While traditional embraces begin with IT, the more significant gains happen when marketing, operations, customer service, and others are included in the DX mandate. Most successful journeys are company-wide efforts with formal steering committees, significant learning investments, and a laser focus on goal measurement.
Maximize Marketing: From the auditing of platform strengths (owned, paid, earned) to accurately mapping customer journeys and beefing up AI-enabled or traditional marketing automation, digital transformation exercises have necessary dependencies on an organization’s marketing communications and collaboration.
Method to the madness: Once the courage to go up the DX value chain has been worked out, it is necessary to spend time across the distinct three stages: choosing – incubating – and scaling. Across people, processes, and culture are required due diligence (and specific mindsets) for these fundamental organizational rhythms.

Conclusion

Digital done right means continuously identifying customers’ pain points, building an end-to-end experience, starting with a shared vision and growth strategy, and being fussy about graduating to a new culture that supports it.

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Role of Digital Transformation in the Banking Sector with its Importance, Future, and Benefits

In an increasing technology and data-driven landscape, banking faces a profound period of delivering differentiated client experience basis advanced digital technologies that eliminate pain points, provide new client values (like highly tailored predictive insights), and add value translated from the human relationship fabric.

Tectonic shifts accentuate Post-Covid, the importance of digital transformation in banking. The accelerating digital transformation is also surfacing new risks, and two, the continued market uncertainty shakes up forecasting, severely testing banking models and providers’ reputations. There is more by way of competition and the emerging market dynamics.

Competitive Landscape – The plot thickens

As the industry fragments and delayers (challenger banks bring in neo-normal, and big techs chip away at the value chain), banks must earnestly contend with market share and revenue leakages by shaping new business models finding radically new collaboration partners, and committing to purpose-filled innovation.

The role of digital transformation will be to factor in the following dynamics impacting ROI.

Client experience and the strong dependency on wallet share.
Institutional productivity that directly impacts bottom-line performance.
Talking a language of marketing and innovation that drives finer brand differentiation.

The future – Looking beyond 2022

Digital transformation in banking accelerates as declining branch traffic meets the rising consumer expectations are on the rise, competition from non-traditional players like Amazon and Google ramps, and escalating regulatory pressures compress margins. It is no surprise when the reputed financial company JP Morgan Chase spent $9B on its technology budget, employed 40,000 technologists, and its CFO declared they were a technology company.

After all, adopting digital ecosystems in Banks brings in faster team alignment, savvier customer service, and deeper transparency with speedier problem resolutions.

The Importance of Digital Transformation and its drivers

While turning digital hinges on the imperatives of innovation and hence being collaborative, data-driven, and therefore becoming customer-centric, cloud-based, and thus turning adaptive; for profitability purposes, banks must clearly articulate their strategic priorities, prepare their culture for nimbler ways of working, and most importantly, be willing to take risks.

Begin by supplying the vision and empowering teams with learning programs, and investing in digital collaboration tools is part of a solid beginning. Still, actual gains accrue as new operating and business models are positioned to seize advantages of emerging tech (like IoT, AI, and ML).

Quite a bit of the above exhortation is like preaching to the choir. After all, a global Fujitsu study points out that finance companies are the most advanced when it comes to digitalization. Compared to the industry average of 67%, 89% of finance companies have started their digital journeys, and 29% deliver outcomes compared to the 24% industry average.

Benefits of Digital Transformation.

Undoubtedly, the pandemic has accelerated digital transformation and brought in millions of additionally willing customers; the banking services have been preparing to diversify their offerings for years. Consider the following domains where banking functions continue to evolve dizzy.

From engagement banking (integrating services into people’s lives) to platform banking (plug-and-play functional services) to social banking (embedded banking that creates intermediary-free services) to High-Technology banking (capitalizing on the power of IoT, 5G, AI, and Robotics).

Digital Transformation in Banking – The accurate measures of success

Beyond technological upgrades, digital transformation must provoke cultural change that challenges conventional mindsets, nurtures innovation, and reshapes organizational stances around risk and reward.

Flowing from the top annual strategic goals, when these cultural rhythms permeate a Bank’s daily workflows, the actual benefits begin to emerge – compared to its competition, the banks start its leadership journey in the data and analytics space, customer experience, and NPS scores move northwards, and innovations in omnichannel offerings create more frequent customer aha’s.

Conclusion.

As more banks embrace digital transformation initiatives, driving differentiation will become essential. The focus would then shift to the different stages of customer interaction and how integrating digital services across—adoption, consideration, application, onboarding, and servicing—will make or break holistic customer engagement.

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Five Reasons why Digital Transformation is Essential for Business Growth

Since early 2020, organizations and industries have been dealt with a Hobson’s choice (a free choice where only one thing is offered). They had to embrace digital as overnight transactions and interactions went online.

Most executives concur that their companies experienced accelerated digitization of their internal operations and customer and supply-chain interactions by two to four years. As the uncertainty reduces, new growth is a business imperative two years on. An HBR study classifies four distinct approaches for companies to roar out of recession – prevention, promotion, pragmatic, and progressive. Regardless of the response organizations chose for the slowdown, their future rebound can be rebooted through digital transformation. Here are five reasons – urgent and essential.

Clear trends that reflect digital maturity: Most companies across sectors list customer-facing initiatives (for instance, digital marketing) among their top goals. This is a perspective C-Suite leaders have nurtured over months now, primarily because they believe digital technologies are fundamentally disruptive to their (or their competitors’) business models. The behavior can be seen in two pieces of evidence: More business functions (rather than CIO or CTO organizations) are sponsoring transformation budgets, and secondly, the rapid appointments of Chief Digital Officers. Finally, there is the associated mindset shift – Digital transformations today are more about revenue generation and increasing customer intimacy than the traditional focus on cost-cutting. For example, Frito-Lay ramped its digital and data-driven programs during the pandemic, fast-tracking five years of digital plans into six months.
Correlation between digital transformation and revenue growth: An influential survey of 1400 companies worldwide elaborates on how digital influences financials. Companies that report 70% completion also show twice the revenue growth compared to ones just getting started. Led by firms in Healthcare, Aerospace, Financial institutions, High Tech., and Communications, companies across North and Latin America are ahead of the rest of the world. Another layer of insights can be gleaned from the top three motivations: increasing market share and accelerating speed to market, improving brand reputation, and boosting employee retention and productivity. When it comes to departments closer to transformation journeys, the order works out as IT, Marketing & Sales, Product and Services Innovation, Customer service, and Operations.
Digital is the new way of responding to customers: More than thinking of it as implementing technology, digital transformation should be seen as a response to how technology changes the business landscape amid the shifting customer expectations. Consider how the innovators – Amazon and Netflix, for instance – seized the megatrends on the horizon (mobiles, social media, IoT, and cloud computing) to reinvent business models (eCommerce and electronic delivery) and optimize processes (supply chain and new features). Admittedly, digital transformations dare to go where no one else does. From automating processes to creating a disruption-moat, or even enabling friction-less access to new features – digital – after all, is an organization’s way to catch up to the ever-escalating customer expectations.
Workforce Virtualization: As hybrid models and work from home (or anywhere) become a permanent option across companies, not to talk of ‘the great resignation,’ companies have to rely urgently on digital capabilities to select, hire, train, and manage talent. Most sectors tread carefully as their economic recovery models primarily depend on how quickly remote working can be scaled, made more seamless, and replicate the face-to-face texture essential to collaboration and innovation. With virtual learning, businesses contend with an overnight shift – a ‘great digital divide.’ 76% of workers, as per a global report, do not feel ready to perform in a digital-first world. Most gaps showed up in preparedness, access to learning resources, skill levels, and training participation. Organizations are girding up significant digital learning investments to close this hole, which will only grow if left unattended.
Every company must become a technology company: The COVID-19 has undoubtedly been a great leveler. Countries across borders have been affected equally, but the eye-opening lessons are also being felt with equal force. One insight that stares right back at the business community is that, regardless of a company’s distinctive products, services, or operations, every one of them must think (and behave) like a technology company. The reasons are not far to find. Evaluating various companies across industries on basic performance parameters (like creating new revenue streams, improving existing streams, and reducing costs) highlights the considerable edge technology brings through automation, scale, agility, and flexibility. So, be it digitizing end-user experience, modernizing IT infrastructure, scaling data and analytics, or redesigning the delivery model, companies can learn from the number one rule in the tech playbook: A tech-forward business strategy must integrate business and technology management across strategy and execution.

The final analysis that digital transformations are a lever to a robust economic recovery is not in doubt. The focus, therefore, has to be on an approach that combines leadership commitment up top to a clear, integrated strategy built on a business-led tech. And data platform

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