Digital Transformation in the Financial Industry: 7 Keys to Success

Digital Transformation in the Financial Industry- 7 Keys to Success

Financial executives face a fractured digital landscape

As financial institutions pursue digital transformation initiatives, many struggle to balance consumer demands for more personalized, always-on services with regulatory requirements that place a premium on consumer privacy. According to Ovum Research, banks spent close to $10 billion ($9.74 b) in 2018 on front-office digital banking initiative alone.

Yet, Ovum’s data also shows that spending was fractured and not always directed at the biggest problems that can be mitigated or even solved through digital transformation initiatives.

 Similarly, a Boston Consulting Group survey of banking executives found the vast majority of financial executives (86%) believe that digital tools will “change both the competitive landscape and the economics of the business.” The problem is that fewer than half (43%) stated that they have an explicit digital strategy in place in their own organizations. 

Consumers demand digital services, but are banks keeping up with risks?

Having no plan is a problem because changes are coming, whether you’re prepared or not. According to Bank of America, mobile deposits surpassed in-branch ones in 2018. In his Q2 2018 earning call, B of A CEO Brian Moynihan noted that the bank now processes 76% of its transactions through ATMs or mobile.

That’s a massive digital transformation in just a few short years.

First-wave financial digitization efforts were uncoordinated, therefore many financial executives now face mini-fiefdoms, competing agendas, and organizational discontinuity. In other words, each project is a one-off, and scalability is just a buzzword, not a reality.

However, once reviewed with a ruthlessly clear vision, those first-wave digital transformation efforts taught us important lessons, some of which may be bitter to swallow, including the need to defend against zero-day mobile banking malware, adapt to more stringent data privacy regulations, and game out how regulators are likely to approach new technologies like cryptocurrency.

 The sooner financial organizations in all segments of the market take that medicine, the better off the market will be for consumers and financial organizations alike.

How to chart a clear digital path: 7 steps to success

While earlier digital transformation efforts were uncoordinated and difficult to scale, banks shouldn’t view that as an indictment of digital change, but rather as the natural result of a pioneering technologies disrupting a highly regulated, legacy-bound market sector.

To remain competitive, banks must pursue a more focused, unified, goal-oriented digital transformation push, and they would be wise to utilize tools like AI, Big Data analytics, and software automation that the earlier digital pioneers did not have.

In order to ensure that your digital transformation initiatives accommodate everything from mobile banking to micro-payments to cryptocurrency, you’ll need a plan that is agile, data-driven and scalable. 

To help you build that foundation, here are 7 digital transformation steps to follow that will help ensure that your digital transformation efforts is a success:

1. Create a plan that secures buy-in from key stakeholders. Choose leaders who have the reputation and organizational buy-in to drive digital transformation across your organization, but also be sure to draw clear lines of responsibility and accountability for each step of the process.

2. Move away from legacy anchors, so your technological infrastructure serves each line of business with pinpoint precision. Outdated legacy systems all too often force you to pound square pegs into round holes, since their designs are one-size-fits-all. The modern financial landscape is anything but one-size-fits-all, and both customers and regulators will demand more precision from your products and services.

As you shed legacy anchors, be careful not to trade one problem for another. Instead, investigate best-in-class solutions that are tailor-made not just for your industry, but also for each line of business.

3. Digitize both cost centers (improving efficiencies and limiting costs) and profit centers (increasing revenues through optimization). Too often, financial institutions (and everyone else for that matter) focus on the low-hanging fruit, such as bare-bones mobile banking initiatives. Offering mobile deposits and other basic banking services is a good start, since mobile banking decreases the reliance on expensive branch services, but as mobile banking accelerates, explore ways to leverage mobile apps to boost profits.

Can you design mobile apps in a way that helps you increase customer stickiness? Can you offer better, but also cheaper, customer service through the app? Can you use mobile banking as a bridge to related services, such as micropayments? Do you have a plan to move other expensive activities to more cost-effective digital channels?

4. Automate, automate, and automate some more. One of the major advantages of digitization is the ability to eliminate time-consuming, tedious, error-prone manual processes. For instance, on the regulatory front, a Thomson Reuters survey found that the typical financial compliance officer spends more thirty percent of each week manually tracking and reacting to Enforcement Actions – a process that can be substantially automated through RegTech software.

5. Break down data silos – both consumer-facing and internal ones. As consumers embrace new devices, mobile banking may mean more than just mobile phones, but could also include digital assistants and other devices. Consumers should find a consistent look and feel across all channels.

At the same time, data from branch activities, ATMs, websites, mobile, and call centers all needs to be unified and instantly available to internal decision makers who must act on that information, both to achieve business goals and to maintain compliance.

6. Collect, measure, and test key metrics to turn your financial institution into a data-driven business. Freeing data from siloes is only the first step. Once data is accessible across the best-in-class apps used throughout the organization, your company can then track such important metrics as consumer demand and usage patterns in real time. You can also act on important regulatory changes automatically, while delivering data-driven insights to the executives that will be responsible for keeping your institutions competitive in a cutthroat market.

Modern FinTech and RegTech software, with open APIs, can handle much of the heavy lifting for you, while also mitigating risks since AI- and machine-learning enhanced tools will serve as regulatory GPS, keeping you on track and up-to-date with the current environment.

7. Map your progress, so future digital transformation initiatives start on a solid foundation and can scale. While the lack of continuity of first-wave digital transformation initiatives held financial institutions back, current digital transformation efforts have the advantage of experience, data and better tools (AI, machine learning, Big Data, etc.).

Be sure to consolidate your wins, learn from your mistakes, and build a digital transformation template that will help your organization scale its efforts across the organization, while also providing a solid foundation that will also scale up as your organization grows.

In today’s highly regulated, tech-driven, complex financial market, keeping up with new technologies and services, the risks they create, and the evolving regulatory requirements that try to tame the chaos is a job too big for compliance officers alone.

However, if you follow the 7 steps outlined above, your organization will be able to modernize everything from mobile banking to back-office systems to regulatory compliance in a way that balances business goals with consumer protections. At each step of the process, you should find that your digital transformation efforts will make your bank more competitive, consumer-focused, and data-driven, all while meeting – often with little human input – the regulatory requirements that keep compliance officers up at night. 

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