6 Digital Banking Transformation Trends for 2022

In 2021, six in ten institutions surveyed indicated that digital transformation efforts were only partially deployed, with less than half indicating measurable success with their efforts. With this in mind, we look at the major digital banking transformation trends that will impact banks and credit unions in 2022.

Playing a game of catch up, banks and credit unions have accelerated their digital banking transformation efforts. They have invested increasing amounts of capital and human resources into data and advanced analytics, innovation, modern technologies, back-office automation, and a reimagined workforce with a mission to improve the customer experience while reducing the cost to serve.

Much of the impetus is because the fintech and big tech competitive landscape continues to expand, offering simple engagement and seamless experiences, causing customers to fragment existing relationships with their existing bank and credit union providers.

The good news is that there are a multitude of options available to work with third-party providers that can deploy solutions faster than can be done if developed internally. Incumbent institutions can also partner with fintech and big tech competitors while modernizing their existing systems and processes at the same time.

With every financial institution looking to become more digitally future-ready, it is more important than ever to understand the evolving financial industry landscape. This is why we are again providing our perspective on the digital transformation trends for the upcoming year.

Each organization will need to determine which trends and priorities work within the parameters of existing and desired business models. Whatever path is selected, there is definitely pressure on traditional financial institutions to act quickly and decisively. Here are the most important digital banking trends for 2022.

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1. The Pursuit of Quick Wins

Banks and credit unions must continue to invest heavily in digital banking transformation. The priorities of where to invest depend on the current state of digital maturity at each institution and what investments can impact the customer experience the most and the fastest.

Research by the Digital Banking Report found that financial institutions ranked themselves lower in digital transformation maturity this year than they did in 2020, reflecting consumer expectations that are increasing at a pace faster than most institution’s ability to deliver. The report also found that data/analytics maturity and innovation maturity in banking also fell in 2021 for the same reason.

While the essential components for digital banking transformation success have not changed, the strategies and tactics to achieve success have shifted, with a great deal of emphasis on ‘quick wins’ that can provide a strong foundation for future advances.

For instance, a great deal of attention is being placed on improving customer acquisition and retention using data, analytics, and reimagined back-office operations supplemented with process automation. The goal is to reduce the time of new digital account opening and loan application from a dismal 10-12 minutes to a much more consumer-friendly speed of under three minutes.

Another area of emphasis in 2022 will be how to increase customer engagement across all channels by introducing innovative product offerings, providing enhanced financial management tools, expanding the availability of compelling and contextual content, and increasing proactive recommendations using data and artificial intelligence (AI). As consumer and marketing technology continue to evolve, the importance of engagement will supplant basic transactions as the key determinant of loyalty.

Digital banking transformation is a long-term strategy with many short-term challenges. According to Gartner, “The transformation journey is taking most organizations at least twice as long and costing twice as much as originally anticipated.” In large part this is due to a lack of cultural readiness — “53% of the organizations surveyed remain untested in the face of digital challenge and their digital transformation readiness is therefore uncertain.”

2. Data and AI Will Differentiate Winners from Laggards

As mentioned in previous articles, data and analytics is the fuel that powers all other components of digital banking transformation. In 2022, it is expected that the combination of data and AI will be the most important differentiator between winners and losers in the marketplace. Customers expect their financial institution to know them, understand them and reward them – in real-time – based on their daily lives and changes in their financial profile. Using internal resources, and partnering with third-party solution providers, financial institutions will be able to replicate the intelligent experiences they became accustomed to during the pandemic with Netlix, Instacart, Google, Amazon and others.

These experiences will become even more ubiquitous as conversational AI makes many consumer’s basic banking interactions more proactive and human-like. Bank of America has a significant lead in this capability with their AI-powered virtual assistant, Erica, while Wells Fargo just announced the addition of an AI-powered virtual assistant next year. Beyond simple tasks like checking balances, these interactive enhancements can also complete more involved tasks like a financial concierge.

The banking industry will also take the lead from fintech and big tech organizations deploying AI to leverage data that will help make better business decisions and streamline back-office operations. As insights are democratized across the organization, the innovation process will improve as more employees are engaged. The ability to deploy insights about product performance, service levels and customer needs in close to real time will add significant value both internally and externally.

3. Shift to Mobile-First Customer Focus

Mobile-first digital banking transformation strategies are replacing legacy processes across the majority of financial institutions. Not to be confused with a mobile-only perspective, mobile-first digital transformation means improving products, delivery and experiences through a mobile lens, with other channels benefiting from this focus. The impact is to change business models to reflect changing consumer and business mobile banking trends around simplicity, speed and engagement. This is not just a UI/UX endeavor, but a rethinking of everything (internal and external) that impacts the customer.

Mobile-First Approach:

Mobile is not an additional channel to add to your digital transformation strategy, instead, it should be acknowledged as the catalyst for customer-centric applications and future development.

This simple shift to a mobile-first perspective opens up the innovation floodgates around how to deliver insight-driven solutions that can increase customer acquisition, customer engagement, relationship expansion and loyalty. Beyond this competitive edge, a mobile-first approach will help to increase efficiencies through the integration of artificial intelligence, location data, robotic process automation, biometrics, etc. These enhancements are not about the device as much as about how to leverage the capabilities the device can unlock.

Mobile-first digital banking transformation is an opportunity to ensure that your business model is aligned around the customer and that is has the ability to support digital banking products and solutions into the future. In most cases, applying the transformation across both online and physical channels is comparatively easy. In some cases, we have seen financial institutions bypass legacy branch processes, deploying digital devices to staff for improved internal and external experiences.

4. Reinventing Back-Office Processes

While consumers are increasingly focused on experiences that are driven by digital devices, far too many financial institutions are still supporting processes that rely on people, paper and severely outdated back-office processes that inhibit the deployment of fast, simple and seamless solutions. If this sounds repetitive, this trend is the combination of the previous two around data and AI and shifting to a mobile-first customer focus. In other words, digital banking transformation is both additive and complimentary.

Key Takeaway:

Instead of making existing back-office processes digital, financial institutions should ‘start from scratch’ using new technologies and automation to increase efficiency and improve experiences.

By reworking IT architecture, leveraging data and analytics, and automating repetitive processes, financial institutions can have much smaller units run value-added tasks, such as deal origination, know your customer (KYC) validation, basic collection and distribution of data, etc.

Robotic process automation (RPA) provides the benefits of cost reduction. increased efficiency, enhanced accuracy, improved customer experiences, and seamless flexibility. Similar to the movement to cloud computing, and the use of data and AI, this trend will continue to gain momentum because of the influx of external providers who have leveraged lessons learned over time to provide scalable solutions at a reasonable cost to small and large organizations.

5. Increased Emphasis on ESG and DEI

The newest digital banking transformation trend is an increased emphasis on environmental and social issues that are more important than ever. As the number of consumers, investors, and job seekers consider an organizations’ sustainability efforts as an important criteria for doing business, digital banking must be created with ESG and DEI in mind. This trend of sustainability will only increase in 2022, creating new opportunities for financial institutions to differentiate themselves and meet the needs of the community.

Data and analytics will support these initiatives, as they will allow financial institutions to get results from their ESG projects that can be reported to the public. This will keep sustainability in the forefront of digital banking transformation. As a bank or credit union realizes that ESG is more of an opportunity than a risk, the emphasis on climate change, social issues, and other components of sustainability will only increase..

Demands for greater gender and racial diversity at management and board levels resulted in many financial institutions pledging to report on their diversity, equity and inclusion (DEI) figures as well in an effort to increase transparency. The change in tone from many governments also sets the stage for continued private sector efforts, led by investors and asset managers, to call on financial institutions to expand and enhance their ESG disclosures and continue efforts to address DEI challenges.

6. An Evolving Workforce Model

According to Gartner, nearly three-quarters of jobs had more than 40% of their required skills change between 2016 and 2019. While the shift to digital banking and the use of new technologies are driving the need for new skills, many of the new careers will require soft skills, not just hard skills. “Financial institutions need employees who can collaborate, innovate, adapt, and persevere through business disruption,” Gartner states.

At the same time, close to three-quarters of financial service employees increased their work-from-home status since the beginning of 2020, with 60% of financial service employees continuing to work in a hybrid or remote environment. As indicative of the term “The Great Resignation”, millions of workers are abandoning the traditional work environment in favor of either a hybrid working option, becoming part of the gig economy, or leaving the active workforce altogether.

As part of the digital banking transformation evolution, financial institutions will need to recognize that more than two-thirds of employees in all industries will consider flexible working arrangements to be a differentiator when selecting an employer. For many banks and credit unions, this will require a complete rethinking of existing workforce models.

More of the Same … With Increased Urgency

If you go back and review our digital banking transformation trends over the last few years, there are definitely some recurring themes, even if they are not highlighted in this year’s edition. The use of data and AI, the importance of an improved customer experience and streamlined back-office processes, and the changing dynamics of today’s workforce are still at the top of most bank and credit union priorities. The difference in 2022 is the urgency to move forward and the imperative of speed.

As we look back, while some organizations have kept pace with the changing marketplace, many others have fallen further behind despite taking action on many of the issues mentioned. The problem remains that many organizations continue to evaluate and deploy solutions at the pace they have done traditionally. This is no longer acceptable. Annual plans need to be deployed in a quarter. Monthly updates need to be done in days.

To remain competitive, the financial services industry must embrace digital banking transformation at digital speed. Internal and external modernization provides banks and credit unions with advantages that are broader and respond to defined marketplace needs.

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