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Today, as digitization sweeps through the banking industry, CXOs are working on digital strategies to accelerate business performance and operations. While customer-centricity has been the mantra of the banking industry, evolving technology and customer needs pose a problem establishing banking services and products.

With digital banking and omni-channel experiences becoming common expectations, banks have to effectively strategize their digital resources. But tackling the digital landscape can be daunting. A recent survey by BCG stated that only 43% of organizations have a “clear digital strategy for the corporate bank as well as a well-defined roadmap for digitization”.

To decide the best digital transformation strategy for your organization, PwC recommends three approaches:

  • Front end only – CX improvements with no changes to the IT infrastructure
  • Wrap and digitize – Digitization of individual components of banking functions
  • Go digital native – Digital customer interface with a complete digital back end
Front end  Front-end only

Today’s tech-savvy customers are used to seamless online transactions and one-click applications. Fintech see a growing customer base with their offering of a wide range of services with an easy to navigate interface. For banks to compete in this environment, the first simple approach would be to digitizing the customer interaction channels. These include building a website or a mobile app to cover basic aspects of customer interactions with the bank.

The focus of this approach is on only improving the  CX and customer-facing systems. Viewed as a ‘cosmetic-fix’, helps banks put up a digital front without having to invest in changing the legacy systems. It is one of the quickest approaches and would give the banks the initial push towards digital transformation.

The cosmetic digital front has helped banks stay afloat in a competitive environment. But for true success, digitization of front end should be swiftly followed by integration of back-end systems to significantly improve customer service. Back-end operations cannot hide behind the digital front for too long without increasing operational costs. In order to scale up, back-end systems have to be updated.

For example, Digibank introduced the first mobile-only bank in India. The application implemented biometrics and artificial intelligence (AI) for a seamless paperless, signature-less and branchless bank. The easy onboarding process of less than 90 seconds has helped increase their customer base to over one million in just one year. The success of Digibank is a mix of right technology and marketing. Currently, Digibank offers limited products and services such as money transfers, bill payments, and ATM services. But for the organization to become a standalone digital bank would depend on its back-end process. As the bank looks to further expand its digital transformation efforts, it is working on alternate digital strategies to solve its sustainability issues.

Digital  Wrap and Digitize

A longer process to digitization would be the Wrap and Digitize approach in which, the front-end digitization is supplemented with replacing/upgrading legacy infrastructure with digital technology. This approach is effective as it integrates the middle and back offices during the setup process.

Banks are adopting the ‘Wrap and Digitize’ approach as it significantly improves customer experience compared to the front-end only approach. The process focusses on improving individual components of banking functions. As per PwC, banks can use APIs to integrate their data, functions, services, and products under one roof. The flexibility provided by the API enables the organization to be more agile in its operation. For example, the next phase of digital transformation for Digibank involved improvements in their back-end systems. A new code was built over the existing back-end assets to support rapid growth and expansion strategies. The new architecture enabled API-based banking and a digital platform for banking through multiple business partnerships.

The lengthy process of wrap and digitize can be a deterrent for banks. Every process is addressed one-by-one before moving onto the next one. The transformation process can take several years to be completed. Despite the long duration, the process is the most cost-effective as the investments are spread out over a period of time. The gradual approach of integration works as the best option for traditional banks and credit unions.

Digital native  Go Digital Native

PwC’s digital native approach is for challenger banks and digital-only banks poised for rapid growth. Banks start by creating minimally viable banks (MVBs) that offer limited services or products. By being digitally native, banks are built on a digital core and open architecture enabling the development of a fully-functional agile organization. This approach emphasizes on customer-centricity and enables banks to shift their operations based on customer preferences.

The functioning of a digital bank would require an infusion of digital mindset into the traditional banking atmosphere. Digital banks also face significant regulatory issues that have been written for traditional banking sectors. For example, in the United States, digital banks are expected to meet the same regulatory standards, reporting and consumer protection regulations as incumbents. But agile organizations like DBS, are using third-party services that leverage AI natural language processing (NLP) to manage regulatory compliance across governing bodies.

Digital disruption in banking is pushing banks to rethink its business models. To follow the path of digital transformation banks would have to determine their long-term strategy before choosing the technology. While there are several ways to decide the path to digital transformation, we outline a basic guideline for organizations:

  • Multidisciplinary thinking – To ensure the viability of an organization, develop a long-term strategic plan taking different perspectives of business, IT, compliance, and operations into consideration. The multi-faceted approach enables the development of an agile organization that is able to support quicker product development. Adopting a digital-first strategy enables growth that is not limited to existing technology and channels.
  • Functionality list – Deciding on the best digital banking platform is easier when the functionality of each platform is listed and understood. The solution selected should align with your long-term strategy, requirements, and goals.
  • Vendor cultural fit – Analyse your strategic partnerships and vendors for cultural fit with your organization. Vendors that leverage innovative technology are preferred as they enable an open-architecture approach. Connecting the ecosystem to a third-party service future-proofs your bank from modern technology disruptions.
  • Involve internal stakeholders – Get your teams to work closely with internal stakeholders, like senior management, to develop minimum viable products in the implementation phase itself. This approach ensures the reduction of time and cost while gaining valuable insights through customer testing.

Digitization is radically changing traditional banks and credit unions. Many banks have recognized the importance of differentiated digital strategies and working toward complete digital transformation.



Article by

Maveric Systems