A successful digital transformation strategy should establish an advantage over competitors while improving consumer experience and reducing costs through technology. However, when it comes to implementing digital transformation, banks and financial services are falling behind.
Despite one of the more positive, lasting legacies of the pandemic being the greater adoption of digital technologies,
71% of business decision-makers believe their company has not delivered on the promise of digital transformation. But why have they fallen behind?
The rise of fintechs over the past decade has seen customer expectations rise, habits evolve and patience wane when it comes to more traditional banks, resulting in pressure to adapt to retain customers. However, the majority of financial services companies have failed to master the digital transformation required to meet these needs.
While the saying that ‘people are more likely to get divorced than change their banks’ might still ring true, banks can’t afford to rest on their laurels. Banks simply have to rethink their approach to digital transformation in order to succeed. So, how can they make this a reality?
Embracing an open innovation mindset
If banks want to successfully transform and implement new digital products and services in order to defend against or challenge nimble new technology-native competitors, they need to fully grasp the potential of emerging science and technology in development today and the roadmap into the future, rather than just focussing on present needs and known technology capabilities provided by current market players.
While industry veteran technology vendors will remain the go-to option for many banks, it is important to understand that the typical sales team inside a large incumbent provider often don’t have the knowledge, mandate or incentive to present and promote the next generation of tools or services in development. Many of the large, established technology players also have an unfortunate reputation of taking months, if not years, to fully roll-out new solutions before delivering meaningful impact. We have first-hand experience in and have witnessed how top performing technology leaders invest in ways to regularly check and challenge existing technology procurement and adoption strategies through harnessing the insights and capabilities available in the emerging technology market. Digital transformation success, we believe, depends on first establishing the right organisational mindset. Embracing open innovation as a concept is a pre-requisite for sustainable and successful digital transformation.
Adopting an open innovation mindset practically leads to investment of time and resources in establishing or connecting into a global start-up ecosystem. Such an ecosystem or network of emerging technology firms, investors, academics and innovators is often positioned as a shared resource of insight and capability to draw from, supporting digital transformation efforts across more than just one company office, business unit or geography. Internal technology teams are often best placed to mobilise and maintain these new open-innovation networks and in many cases, technology leaders take on an additional new role as ‘technology innovation ecosystem managers’, leading the charge for digital transformation through practising and promoting access to open innovation.
By fully embracing the power of open innovation firms can successfully tap into innovative banking and payment technology that’s on the horizon. Banks that embrace and partner with external technology disruptors will be in a stronger position to modernise and keep pace with consumer demands.
Innovating at pace
A recent
Salesforce study found that 88% of banks and lenders are planning to rebuild customer trust via digital transformation during this current period of uncertainty, while 63% are committed to sustained investment in new digital technologies. However, large corporate banks often lack the agility required to make digital rollouts happen quickly and efficiently. To implement a successful digital transformation strategy across the business, banks need to invest in ways to accelerate execution.
For modern fintechs, releasing new product features every few weeks is a standard part of their offering and competitive advantage. However, for most heritage banks, feature rollouts can take months and even years in the case of developing disruptive new offerings. This slow pace of execution often contributes to banks abandoning their change efforts due to fast-changing market needs and technology developments, changing internal priorities, lack of continued leadership support and runaway cost estimates, leaving many benefits unrealised and a whole lot of technical debt to carry. Despite having the right strategy and many good intentions, most digital transformation programmes fail in execution, and banks are no different.
Unfortunately, the market doesn’t value intent, it values action. Banks need to learn how to innovate quickly before competitors learn how to scale and find distribution in the market.
For many of the world’s top banking and technology leaders, execution excellence involves re-wiring the way change is conceived, designed and deployed. The digital product and service experience design, test, build and launch cycle is centred around the customer with modern prototyping techniques and extensive customer testing employed to validate and justify the decision to move to the next stage of investment. Shorter delivery sprints are now favoured over longer gated software development lifecycles. In addition, by taking a portfolio approach to managing change, banks are able to spread the risk of failure and evaluate several, often competing, concepts and technologies at any one time, rather than ‘betting the farm’ on a handful of signature projects.
The democratisation of data
With the introduction of Open Banking and similar API market initiatives across many global banking markets, banks now have the ability to create entirely new data assets, combining internal data records with those of 3rd party data providers and alternative data sources not considered before.
Many financial services organisations have also recently invested heavily in new, large enterprise data platforms, analytical tools and data governance organisations. Despite the recognition that data truly is the new gold, it’s surprising to see how many banks are still focussed on developing and deploying data services through highly centralised data organisations, systems and processes. The unfortunate impact of many centralised data organisations is the failure to deliver transformational benefits, such as timely and relevant customer insights, personalised recommendations and brilliant new solutions to where they are needed most, the last mile of customer interaction, the front-line of the bank and in the hands of bankers, advisors and relationship managers, in combination with a smart digital channel experience that seeks to integrate with, support and/or augment human interactions.
Sustainable digital transformation must seek to balance the need for central investment in enterprise technology platforms and capabilities, whilst also adequately democratising the access to and use of data across the business, in particular the front-line customer facing channels.
Digital transformation is crucial to the longevity of every organisation today and despite the lingering belief that most consumers don’t vote with their feet when it comes to bad banking experiences, banks are not immune to the changing needs and wants of the market. The banking challengers have proven this point. Banks need to quicky embrace a new mindset, skillset and toolkit with new ways of work and the power of data as two key ingredients in digital transformation success.
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- Source: https://www.finextra.com/blogposting/24694/why-digital-transformation-risks-becoming-a-broken-promise-for-financial-services-companies?utm_medium=rssfinextra&utm_source=finextrablogs
