Technology Is Only One Piece of True Digital Transformation Puzzle in Banking

Few banks or credit unions would disagree with the importance of digital transformation. But the overhyped term too often translates only into a handful of mobile banking applications. Missing is a fundamental shift away from thinking like traditional banking institutions and more like non-bank, digital competitors.

Digital transformation is one of those buzzwords tossed around pretty freely these days. But when you go beyond the hype, what does digital transformation truly mean for banks and credit unions?

  • It includes — but is certainly not limited to — technology.
  • It needs to be part of a comprehensive cultural shift within the financial institution.
  • It demands that banks and credit unions stop thinking like traditional institutions.

No question, the latest and greatest digital tools are competitive must-haves. Retail and small business customers expect convenient, highly personalized online banking that rivals their other online experiences with entertainment, media and shopping. That means being able to use their smartphone, laptop or other device to handle money management needs that go well beyond checking their account balances or depositing checks to bill payment, peer-to-peer payment, card management, opening or aggregating accounts, managing rewards, and financial wellness support and guidance.

Enhancing the Customer Relationship with Digital Service

At its core, banking has always been about building relationships with customers, and digital technology doesn’t change that — it simply extends and enhances it. For example, chatbots increase customer satisfaction by providing fast access to information. Simplifying identity verification and sending real-time alerts help people feel confident about security. And video chats provide opportunities to reinforce trust without requiring finding time for in-person meetings.

But while technology is essential to transforming banking, it has to be part and parcel of a broader strategic commitment to creating a culture focused on innovation and continuous improvement.

In Other Words:

Digital transformation is less about transforming the technology and more about transforming the organization.

This culture change must start at the top with the executive team and board of directors, and permeate throughout the organization. It’s hard work, and it takes skilled senior leadership dedicated to managing it. In our experience, reimagining how an organization wants to look and act three to five years down the road begins with three probing questions:

  • What problems are we trying to solve?
  • Are we hiring the right kind of people to get us where we need to go?
  • What strengths and assets can we best leverage to accelerate innovation?

Answering these questions with the vision and creativity required to drive culture change requires banks and credit unions to stop thinking like… banks and credit unions. That’s absolutely the most critical factor in successful digital transformation. Recruiting experienced executives from fintech, technology or other sectors outside the banking industry spurs innovation by bringing in new perspectives and different approaches to problem-solving.

Thinking Outside the ‘Banking’ Box

Banks and credit unions can learn a lot from non-financial institutions, especially in today’s radically reconfigured competitive landscape, where the biggest threats no longer come only from mega money-center banks or neighboring community institutions. There are fewer than 9,000 financial institutions in the United States today, down from 20,000 in 2008, while online banks are skyrocketing in popularity. The top seven online banks have already attracted close to 40 million customers.

Worrying about competition from challenger banks, fintech companies and Big Tech keeps plenty of bankers up at night — and piles on more pressure to transform in order to survive, let alone thrive. There’s good reason to hit that innovation accelerator, given that recent history is riddled with businesses that were weakened or ruined by disruptors. Think Kodak film and digital cameras, Blockbuster and video streaming services like Netflix, or taxis and rideshare companies like Uber or Lyft. Banks and credit unions that don’t focus every single day on digital transformation are at growing risk of being left behind.

Expanding the banking business model is key to transformation. To respond to evolving market demand, banks and credit unions have to move outside their brick-and-mortar footprint. Building more branches, the traditional route to growth, is yesterday’s tactic as consumers increasingly prefer to handle their money matters with devices rather than people.

Don’t Get Stuck In Old Ways:

Traditionally, the banking industry used branch networks as the route to growth. There needs to be a new model moving forward, given consumer preferences.

Tapping into new opportunities — and new regions — could include launching digital banks targeted to specific affinity groups, such as new physicians, Millennials or sports fans, or jumping on the popular co-branded card bandwagon. Other options include “coopetition” — collaborating with potential competitors or “frenemies” to create value for mutual benefit.

Similar to Sprint’s strategic partnership with Amazon to deliver books wirelessly on demand and build new broadband customer relationships in the process, financial institutions could explore partnering with fintechs or even investing in companies that develop innovative digital financial products and services.

Digital Transformation Success Takes Vision and Teamwork

The point is, digital transformation is a team sport. The more ideas, the more perspectives and the more experience banks and credit unions can draw on, the better. Digital transformation management structure should include a team that manages all emerging and existing digital initiatives, such as mobile, bill pay and cash management.

Creating a digital “SWAT” team to explore alternatives to business as usual can pay substantial dividends in attracting new consumers, better servicing existing ones and increasing profitability.

Innovation and digital transformation are equally as vital in internal operations as customer-facing applications. Many traditional banking providers remain bogged down by legacy technology and systems. Integrating digital technologies such as artificial intelligence, machine learning and robotic process automation can boost efficiency and reduce operational costs. Data capture and analytics help track performance and customer engagement, providing valuable opportunities to strengthen competitiveness.

No matter how far along banks and credit unions are in their digital transformation journey, there’s always additional work to be done. That’s because digital transformation is so much more than adopting the latest technologies. It’s about shifting to a culture that welcomes and pursues innovation in order to constantly reimagine how banking can serve people better. And that’s continuous improvement in the truest sense.

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