Becoming a ‘Digital Bank’ More Than Lipstick on a Legacy Pig

Transforming a traditional financial institution into a digital organization goes beyond redesigned online banking or mobile apps. Tech infrastructure, legacy processes and your internal culture must all change. Despite the challenges, there really is no other option.

The digitization of banking has created new financial products, consumer channels and choice as well as improved back-office operational efficiency. At the same time, digital technology advancements have created opportunities for new players, threatening banking’s stronghold on the consumer’s portfolio of financial services.

Large technology firms such as Google, Amazon, Facebook and Apple, Chinese mega-firms Alibaba and Tencent, and hundreds of smaller fintech start-ups are challenging the traditional banking industry on all fronts. Many of these firms have vast reservoirs of consumer payment and behavior data, and have found ways to enhance the consumer experience by applying insight to simplify the banking process.

Consumers, accustomed to the application of data and digital technology to improve customization and speed of response, have pushed firms to enable the opening of new accounts on mobile devices, execute loans within minutes, accept deposits via pictures and provide automated investment advice. Beyond providing well-designed online and mobile apps, financial institutions are being challenged to completely rethink operations for the digital age.

To make matters even more difficult, banks and credit unions are faced with a quickly changing regulatory environment and the need to deliver a consistent user experience across multiple touchpoints. This game of ‘digital chess’ requires a new strategic thought process that puts future consumer trust and loyalty in the balance.

Departure from Traditional Operating Models

According to Cognizant, “Digital transformation in financial services requires a departure from traditional operating models in order to develop hyper-personalized financial products and services. This movement calls for leveraging new technologies to create more frictionless ways of interacting and transacting.” This transformation includes the use of the blockchain and the digitization of virtually all back-office processes, all within the constraints of an evolving regulatory environment.

Many organizations have turned to artificial intelligence and machine learning to help with delivering an improved consumer-centric experience and for managing risk. While at first appearing to be very disparate objectives, the ability to prevent identity theft and keep personal financial information private may be one of the most important components of a positive consumer experience.

Beyond the ability to personalize the customer journey, leading financial services organizations are using deploying AI in the following ways states Cognizant.

  • Recommendations/advice: AI and machine learning allows an organization to monitor account ownership, behaviors, preferences, social media insight and recent searches and even location to recommend best-suited products and services.
  • Alerts: Being leveraged more frequently by leading organizations, alerts can inform a consumer about potential fraud, investment opportunities in alignment with past behavior, possible negative consequences of an intended purchase or changed behavior, etc.
  • Predictions: By monitoring past financial behavior and understanding current and future activities, a financial services organization can predict future consequences as opposed to simply providing post-transaction insights. Not only does this help the consumer, but it can provide insight that can allow an organization to adjust pricing and offers to optimize relationship value.

Improving the Customer Journey Starts from Within

Many organizations believe that an improved digital experience begins with the consumer. They look at the delivery channel (online or mobile app) and believe the consumer will be satisfied if the app is well-designed and if some steps have been eliminated. Unfortunately, that is simply putting ‘lipstick on a pig’.

To digitally deliver an exceptional customer experience, an organization must build from within, engaging all functional areas and stakeholders, to ensure a seamless and easy journey from shopping to purchase to use. This includes looking at all back-office processes and data flows to make sure they are in alignment with what is required by the digital consumer.

For instance, it is virtually impossible to develop a 5-minute consumer loan product for both customers and prospects without completely revamping the process flow behind the scenes. It is obviously even more difficult to match the 30-second delivery offered by leading banks and credit unions worldwide. Beyond just changing the process, data needs to flow between legacy silos from the initiation of the process to the fruition.

The digitization is even more difficult for a home loan, where the stakeholders include the realtor, loan underwriter, regulator, builder, insurer and the end customer. To optimize the journey, all of these stakeholders must be aligned and understand the final objective … to remove all friction from the consumer journey.

The final outcome needs to be both scalable and built with future channels and expectations in mind. Remember, the expectations regarding speed and ease are changing almost daily, as are the channels of distribution. Organizations need to build for ‘digital’ as opposed to ‘mobile’ or ‘online’. Organizations also need to accommodate different demographic expectations based on age, income, digital adeptness, etc.

The Hurdles to Success

The process of digital transformation is not easy. It requires a shift from legacy IT systems and traditional business models towards integrated, agile, customer-centric processes. Possibly more importantly, this transformation requires a cultural adjustment and mindset shift in application development and data flows. All of this with a focus on quality and compliance adherence, and security protocols to ensure privacy and data integrity.

Since legacy systems are incapable of supporting the future needs of a real-time digital bank, This means that many firms will need to partner with outside organizations to facilitate the innovation and changes needed. Blockchain technologies will also aid the transformation, providing functional, domain and regulatory support.

Most organizations will not initiate the required changes all at once, but will implement digital transformation projects incrementally. In the end, the result will be a vastly improved customer experience as opposed to just better report.

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