The 6-Step Survival Guide to Digital Banking Transformation

Financial institutions realize that digital banking transformation requires making fundamental changes to existing business models to increase efficiency and to provide significant improvements to customer experiences. More than just investing in modern technology, there needs to be an alignment of business decision-making and back-office operations, supported by data and applied analytics.

While the importance of digital banking transformation existed far before the pandemic, the disruptions of the past 18 months has accelerated the urgency of investing in digital solutions, and created a mandate for organizations to improve the way customers are served and how business models are executed. Legacy processes and methods of delivery are no longer adequate, and there is a need to respond to customer needs and competitive opportunities in real-time.

The challenge most organizations face is to determine the prioritization of initiatives when so much needs to be done. In many cases, the technology and talent required to make the needed changes is not readily available internally. More often, the leadership and culture of the organization is not aligned with what is required to execute such a paradigm shift. In all cases, the reality is that change is happening faster than ever before, and will never happen this slowly again.

According to Mark Foster, senior vice [president of IBM Services, “The core response that an organization should have to this world is to make their workflows as intelligent as possible. By making them intelligent — that is, by applying technology strategically to solve for the most important opportunities and challenges — you also make those workflows more resilient and ready to face this patchwork world we’re living in.”

To survive in this new environment, banks and credit unions must start with the desired customer experience, and work backwards by rethinking how existing processes and operations can be reconstructed to provide the speed and resiliency needed for digital execution. In all cases, data and applied analytics must drive decision-making, with cross-functional teams created to rethink process flows.

To achieve the desired outcomes, there are six keys to digital banking transformation success.

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1. Use Data and Insight to Support Intelligent Workflows

Financial institutions must rethink how data and insights are collected and used. In the past, most data was used to create reports that management used to determine progress on annual objectives. In the future, data and applied analytics must be used much more broadly, across the organization.

According to a report from IBM on business transformation, data must be the basis for reimagined intelligent workflows that streamline processes that directly impact faster and simpler customer experiences. In addition, applied analytics must be deployed to all areas of the organization, enabling employees to provide humanized digital experiences.

In some cases, existing job functions will shift from transaction processing to customer engagement, supporting enhanced customer journeys that include proactive advice and product/service recommendations. In other cases, data and applied analytics will support new product innovations.

By combining advances in technology and intelligent workflows, not only is the customer experience enhanced, but efficiency is realized as automation, real-time decisions, the innovation process, utilization of the hybrid cloud and other enhancements work together.

2. Create a Culture of Innovation

Digital banking transformation requires more than technology upgrades. There also must be an organization-wide culture of customer-centric innovation. Most digital organizations leverage real-time data and insights in conjunction with new technologies to identify marketplace opportunities and unique solutions that reflect corporate goals.

As opposed to brand new disruptive innovations, most financial institutions will be better served to find incremental changes to current products and services that will create better experiences and support the growth and retention of customers. This form of constant and never-ending improvement is more important than ever as consumers and businesses have an increasing array of alternatives from fintech firms and big tech providers.

Behavioral Shift:

No longer does a customer close an account when they find an alternative solution that appeals to them. Instead, many simply shift their alliance to the new alternative and stop expanding their legacy relationship.

3. Start With the Customer Journey

It seems logical that a financial institution’s digital banking transformation process should begin with a customer experience perspective, but many organizations do not have a good handle on the performance gap between a superior digital experience and what is currently being delivered. When banks and credit unions ask, “Where should we start”, I always recommend starting with making the new account opening and digital borrowing process faster and simpler.

Currently, most financial institutions have a digital new account and digital loan abandonment rate of between 40% and 80% depending on the complexity of the process. When fintech competition (and some legacy financial institutions) can open new accounts or process loans in minutes using only a digital device, as opposed to a process that currently takes 15 minutes for a new account opening or days for a loan, the performance gap is massive.

Banks and credit union that have reduced the friction in new account opening and digital lending to replicate what is ‘table stakes’ for a digital-first organization have seen increases in new business from 50%-100%. Not only does this elimination of lost business pay for the engagement of a third-party solution provider, but it also improves efficiency that reduces operational costs.

4. Hire For Skills and Enhance Digital Training

The future of work is still being redefined, with many financial institutions embracing some version of hybrid work model that balances work-from-home with office-based working. A bigger factor impacting the workforce is a rethinking around how financial institutions hire, train, promote and engage with employees.

According to Amy Wright, managing partner of Talent & Transformation at IBM Services, “Two prominent shifts are hiring for skills versus previous role, and upskilling employees rather than hiring new people.” As banks and credit unions transform to being more digital-first, the skills required shift as well. This means that organizations will need to hire people prepared for where the organization is going as opposed to hiring for past positions. Most important to add are people with digital, analytics and change management backgrounds.

In addition, current employees must be reskilled and retrained for a digital future. In some cases, this may be moving responsibilities from transaction processing to customer service and/or engagement. This would include helping people use new tools that will be at their disposal.

Morale Booster:

One major benefit of retraining and reskilling employees is they realize they are part of the digital future, as opposed to potentially being outplaced due to automation.

Employees who embrace this change will be able to leverage their empathy, creative and innovation spirit to move the organization forward. This becomes part of the overall culture shift.

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5. Embrace Change

One of the biggest challenges for financial institutions wanting to transform to a digital organization is to accept the change that is needed. Research by the Digital Banking Report has found that many leaders rely on past successes – which inhibits the desire to make the changes necessary. This ranges from change as rudimentary as modifying back-office processes to moving at the speed that is needed to succeed in a digital banking ecosystem.

Banks and credit unions will look back at this period as a time when they either seized the opportunities accelerated by the pandemic or hoped old ways of doing business would continue. Unfortunately, we already see organizations that still believe that consumers prefer to conduct all business in branches, while research shows that consumers and businesses use branches when digital options are not simple and easy.

Successful financial institutions will realize that it is imperative that they meet the evolving needs of customers and prospects and provide exceptional digital experiences. Digital banking transformation is the key to accomplishing these goals.

6. Partner With Third-Party Solution Providers

Speed to market will define digital banking transformation winners. No organization should be taking the digital transformation journey by themselves, especially when there are so many banking solution providers and fintech organizations available to collaborate and/or partner for improved customer experiences and enhanced operations.

As with the overarching mission of digital banking transformation, the engagement with third-party solution providers should be driven by the following questions:

  • What is my ultimate destination as a digital banking organization?
  • What initiatives are the easiest to implement with the greatest positive impact on the customer?
  • Who are the solution providers with the most advanced skill-sets to assist with any initiative?
  • Who is willing and able to work with current solution providers as ‘partners’

The good news is that there is almost no component of digital transformation where there isn’t a number of very qualified solution providers. In addition, most solution providers have already taken the journey you want to take, have seen the same challenges that your organization may have, and have excellent case studies to share. Most importantly, most will save a bank or credit union more money (or generate more revenue) to offset the investment in the partnership.

The same is true with collaborating or partnering with fintech firms. While financial institutions used to consider all fintech firms as competition, many can make great partners when it comes to digitalization. Collaboration with a fintech provider that has already solved the problem(s) you are facing can save time and money and address issues your organization may not have considered.

The Time to Act is Now

Disruption in the financial services industry will not be ending. In fact, it will most likely increase in intensity and scope. Customer expectations around enhanced digital experiences also will not diminish with time. In fact, many believe that ‘experience’ will be the new defining factor in a customer’s decision around the selection of a financial services institution.

The speed and extent of digital banking transformation will determine who thrives in the new banking ecosystem, with the ability to leverage data, analytics, human resources, an innovation culture, and modern technology being the differentiator. “Economic adversity has always led to innovation that transforms businesses and models,” says IBM’s Mark Foster. “And, undoubtedly, this crisis has accelerated transformations. Every company should now realize that technology is fundamental in the way that the company interacts with its employees, its customers and its stakeholders.”

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