How to Make Your Financial Institution Digital-First

Transforming a traditional bank or credit union into an innovative digital competitor requires shifts in thinking and planning practices. Approving major budget allocations to fund rapid digital updates plays a key role. But the most important point is knowing where the institution should be heading and how it is going to get there — and then staying on course.

One financial institution bankrolled a road trip for its entire leadership team to visit fintech startups over the course of a week. The company took this bold step to immerse all decisionmakers in the digital mindset, according to Mark Vipond, General Manager of Digital Banking at NCR/D3, which worked with the institution. That way, he said, the institution’s senior leaders could better work together to turn the company into a digital-first financial powerhouse.

Not every bank or credit union setting out to be a “digital first” financial institution can afford such an excursion. But an essential all must have is a commitment to making significant changes to the way they operate and serve consumers and businesses.

Both Vipond and Doug Brown, SVP and General Manager at NCR, have seen organizations that devote themselves to change and others that don’t seem to get the point of going digital. The two executives spoke during a webinar hosted by The Financial Brand.

A common obstacle to going digital that they addressed entails getting stuck in old ways.

“I can’t count how many times I’ve heard people say they want to begin digital transformation, and the next thing they say is, the new system has to do exactly what the old one did,” said Vipond. “I’d wonder, ‘So what are we doing here?’ If all you’re doing is looking to replace a legacy website or update a mobile app, and that’s all you’re thinking of, I would suggest there’s not been enough thought.”

Equally lacking in commitment are institutions that engage in what Brown calls “innovation as a hobby.”

You Must be Ready to ‘Eat the Whole Elephant’

Brown said that institutions have to have a willingness to embrace change and “rethink the whole journey that customers have across the enterprise of your bank or credit union.”

“Sometimes you will have to deviate from your overarching plan to do something expedient, but at least you’ll be doing it with the mindset of where you are going.”

Part of that rethinking requires having the discipline to make definitive choices for how the organization will proceed with digitization. Both speakers cautioned against thinking that institutions can devise approaches that will please every consumer or business.

A key to making the transition is being methodical and keeping the institution’s eye on the overall goal while it transforms piece by piece. Brown says it helps to know where you are heading, instead of “inventing it as you go.”

There will be course corrections. “Sometimes you will have to deviate from your overarching plan to do something expedient, but at least you’ll be doing it with the mindset of where you are going,” said Vipond.

Vipond said that successful institutions “don’t try to eat the elephant in one bite. But they do have the intention to eat the elephant.”

Deciding what the elephant consists of is also important. Vipond noted that generally banks and credit unions have targeted much of their transformation efforts on consumer banking services. He believes that more institutions will address digital transformation of commercial services as well. Brown pointed out that part of what’s driving this is the growth of the gig economy. He said that the line between personal financial service and small business banking has been blurring.

Read More: The Top 7 Digital Transformation Trends in Banking

Go Beyond ‘Cool Faucets’ and Consider Hidden Plumbing

One of the common misconceptions about going digital is what it really means, the speakers advised. Frequently bankers and credit union executives think digitization consists solely of devising a pleasing user experience through design of a new user interface.

“User experience ultimately is where the rubber meets the road in terms of your customer’s view of your organization and your brand,” said Vipond. “But this doesn’t solely mean what’s on the screen. Absolutely, that’s important. But providing a really wonderful experience requires that you have a user interface that manifests the technology and services underneath the experience.”

Vipond used kitchen remodeling as an analogy. He explained that designing only the user interface is like basing a new kitchen on having a “cool faucet.” If turning on the cool faucet doesn’t result in flowing water, then the project is a failure, no matter how cool it looks. In the same way, digitization must go beyond the screen to the guts of the systems and the products that will produce the positive changes that the screen will display. Vipond calls this “the plumbing” of digitization.

“The plumbing is more challenging,” said Vipond.

“If you abdicate control of the user experience to a third party, you begin to look like Frankenstein.”
— Mark Vipond, NCR/D3

End to end redesign means removing the pain points and sticky parts of the processes behind the screen, such as setting up digital account opening. A frustration for Vipond is the institution that fixates on maintaining old plumbing — that is, branch systems, processes and procedures — when digitization begins. It’s like re-piping a house while leaving the old pipes in place and functioning as well.

“Digital transformation requires a holistic view in order for your effort to succeed,” said Vipond.

However, the user interface remains very important, and Vipond stressed that banks and credit unions whose systems come together from multiple vendors need to be sure that they retain control of what the interface will look like.

“You have to intentionally start out to control that,” said Vipond. “If you abdicate control of the user experience to a third party, you begin to look like Frankenstein. You want to reduce the number of people who are influencing the user experience.”

Read More:

Budgeting Decisions Institutions Must Make When Going Digital

Staying ahead of the pack takes speed and agility, and both of these factors can increase the riskiness of product development and delivery. This runs counter to the anti-risk DNA that goes into financial institution executives, but it’s an adjustment that sometimes has to be made.

Vipond says that institutions that would become more agile need to rethink how they budget for transformation. Banks and credit unions typically devise technology budgets project by project, such as implementation of card controls or investing in connecting the bank to Zelle. Each step is proposed, reviewed, debated, revised and finalized.

By contrast to traditional tech development, “digital transformation moves at the speed of light,” said Vipond. “So better institutions are starting to say, ‘I’m going to allocate this much budget to this list of 100 digital tasks I need to get done’.”

This means that transformation managers and their teams can concentrate on moving forward on multiple fronts once their funding has been approved, instead of treating each step as a discrete project, according to Vipond.

“This is a very tactical step to take and progressive financial institutions are taking it,” said Vipond.

In a related vein, the speakers warned that traditional attitudes that business investments should be able to demonstrate a payoff to move forward aren’t appropriate in the area of transformation, at least not within typical timeframes.

Vipond said that conversational banking — providing voice-enabled interaction with consumers — is one example.

“There’s no business case for this investment in the next year or two,” said Vipond. “But it is like having a mobile app. It’s an expectation for interacting and providing services in a way that delights your customers.”

Another change from traditional practice that can help speed up transformation is combining functions that were formally separate. Vipond said that one of his larger client institutions united its tech groups and its product development groups in order to make its overall effort more agile. This not only helped the two functions cooperate better, but accelerated the institution’s working relationship with the vendor.

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