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Digital-First Heralds Start of Nonstop Transformation

by internationalbanker

By Tim Hood, Associate Vice President, Hyland


If further evidence was needed, the successful £322m fundraising by UK’s Starling Bank is a clear signal that digital-first newcomers will continue to force change in the banking industry, impacting long-established banking brands.

To find their way back to the surface of this maelstrom of change, a step-change in traditional banks’ revamping of legacy technologies must be a priority. However, the cost of maintaining obsolete systems is considerable: In some cases it’s estimated to be as high as 80 percent of total IT budgets. This is unsustainable and an issue that senior leadership teams must grasp, even if it involves write-offs in the short-term.

What is your digital vision?

The uniqueness of each bank means there’s no universal blueprint for bringing about a successful digital transformation. However, a series of best practices are emerging to help transformative programmes run that much more smoothly.

First: This is not an incidental project that can be implemented exclusively by the IT department; creating the bank of tomorrow requires a profound shift in business and operating models. Some financial institutions have headed down this path already. For example, BBVA, the multinational banking-to-insurance, indicated that “in a few years” it will effectively be a software firm and, more recently, reinforced its vision of personalising the customer experience with the help of artificial intelligence.

Where is your point of arrival?

Unfortunately, many CEOs don’t have a pin-sharp picture of what digital transformation means for their organisation, often because they are waiting to see the direction of the wider marketplace. So, a bank’s leaders must lead by staking out the future shape of the financial services sector as well as the core customer proposition of their own business.

Once you have a view about this point of arrival, you’ll better understand the scope of the transformation. The leadership team will also be in a stronger position to decide whether this requires a fundamental repositioning of the entire business or focus or the rolling out of automation across the organisation, function by function.

Understanding where you are

Against this backdrop, evaluate your market and your organisation’s current competencies and capacities to acquire a sense of how well equipped it is for the journey ahead. This will also help reveal points of strategic exposure and competitive weaknesses across the portfolio, lines of business and geographies.

Benchmarking against competitors and the industry is a useful exercise and will provide a means to measure progress. However, seeing what others are doing shouldn’t be taken as a green light to replicate their strategies. It’s hardly going to create distinctiveness for you in a marketplace that is increasingly crowded with technology-led fintechs.

Know the ‘why’ behind the technology

Digital transformation isn’t about replacing legacy systems just for the sake of replacing them. It’s about delivering tangible, immediate benefits to customers. Therefore, it’s important to prioritise those technologies that drive the most impactful changes or efficiencies. This could, for instance, mean looking at systems specifically aimed at improving customer experience and engagement, addressing operational inefficiencies, increasing speed to market, accelerating the rate of innovation or developing new products and services.

Once you know the task ahead, you can start making core IT changes. Content services is a logical starting point as it helps create a strong foundation for the next stages of your digital transformation. A cloud-based content services platform (CSP) will help banks avoid having data trapped in silos created by vertical business lines. CSPs have the capacity to capture and manage not just scanned documents and a multitude of back-office files, but also video, audio and social media. By coupling this with advanced data analytics, you will start to develop a 360-degree view of your customers. Without this view, you can’t offer the highly personalised and seamless service consumers want.

Technology for the seamless experience

Robotic process automation, artificial intelligence and machine learning can be the next steps in accelerating and streamlining processes. Consumers now expect fast and frictionless interactions from those companies with which they do business; when it comes to transactions, you’ll be measured not against other banks but big-tech companies such as Google, Amazon and others.

In the future, a bank’s leaders must develop a ‘technology radar’ that enables them to identify new applications that might offer a competitive edge. But don’t assume the latest technology is what’s called for. As Charlotte Branfield, head of operational resilience at Citi puts it: “There are so many shiny new tech toys and it’s easy to think a bank has to have the latest gadgets and be deploying the latest piece of AI but without actually understanding why.”

Create new ecosystems

One way to ensure you are maximising the potential of technology is to work with others to create and develop new financial ecosystems that better serve customers. It’s a path taken by Cynergy Bank, which has partnered with Google Cloud and Wipro to develop a new digital banking model that offers a personal relationship experience. The strategy is underpinned by the infrastructure and software of a fully digital bank, including the implementation of a market-leading cloud-based content services platform. And by focusing on specific market segments, such as professionals and SMEs with the ambition to scale and what it describes as mass affluent individuals, Cynergy is aiming to gain a competitive advantage by occupying the middle ground between neobanks — which are focused on app-based delivery — and larger banks that are losing the ‘human touch’ as they look to digitise.

Ensure proper resourcing

Whatever IT your organisation chooses, it’s essential that digital transformation efforts are properly funded so they’re not compromised or even fail — only 17 percent of banks succeed in digitally transforming at scale. Even those leaders wholly committed to a digital transformation frequently underestimate the impact it will have not just on budgets but also on other components of the business, like an organisation’s internal culture.

In fact, a transformation programme will only succeed when there is an accompanying cultural change, so powerful is its influence. As a result, if the culture is neither right nor aligned with a bank’s ambitions, there will be conflicting agendas that create an invisible but disruptive layer within the business.

Rinse and repeat

Even after a successful digital transformation, you must continually adapt and optimise your digital roadmap. It’s a process of ongoing and continuous strategic adjustment to ensure a close alignment with the expectations of the marketplace, something that can happen all too quickly.

Banks can only ever say that they are digitally transforming because there will always be some new hurdle to overcome, some new threat to be avoided, some new opportunity to be exploited. How your bank handles this ongoing challenge will determine its future.


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