How the Banking Industry Can Avoid Being Disrupted

In financial services, digital disruptors are coming, impacting traditional banks and credit unions as well as consumers. With the promise of personalized solutions and improved experiences delivered on digital channels, the potential for major changes to the banking ecosystem appears imminent. Despite this, few organizations are prepared for these changes based on research done this year by the Digital Banking Report.

Not only are banking organizations faced with legacy bank office technology, but they are also impacted by outdated regulations, disparate data sources, internal silos, increasing external cyberthreats and a culture that has not changed in decades. To embrace the digital transformation necessary for the future, organizations must rethink how they use technology, people and processes to dramatically change business models and innovate for the future. This transformation must be led by the top of the organization, leveraging cross-departmental collaboration.

Done well, this transformation will have the opportunity to increase revenues and decrease costs, positively impacting the customer experience and providing differentiation in the marketplace. Delaying this transformation will result in an organization that falls further behind what consumers expect, increasing the cost of playing catch up.

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Broad Impact of Digital Banking Transformation

Digital banking transformation can be viewed from many perspectives. This can include changes in competition, the pace of innovation, the deployment of technology, new ways of distribution and the introduction of new services. All of these changes have been driven by the consumer, who uses their digital engagement in other industries as the barometer to determine if their bank or credit union is making their daily life easier.

Payments in banking have been completely disrupted by a wide variety of fintech and big tech organizations that found an opportunity to make P2P payments more seamless through digital technology and innovative design. The same is beginning to occur in lending and other areas of banking that had been the foundation for the banking industry since the beginning. In response, many financial institutions, fearful of being rendered irrelevant by more tech-savvy fintech and big tech brands, are experimenting with new digital options.

Traditional financial institutions are also working on delivering more personalized solutions through the use of data and advanced analytics. Previously only used in the determination of risk, artificial intelligence (AI) is now increasingly being used to provide improved advice and recommendations based on transaction and behavioral data.

The fintech firms that were once considered as threats are now also being viewed as potential collaboration partners for financial institutions’ transformation strategies. As opposed to believing all innovation must be built internally, many financial organizations are finding solutions that have been built on the outside that can be used to enhance a current solution or represent a brand new solution as part of an open banking platform.

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What’s Required to Embrace Digital Disruption

With so much going on – so fast – how can a traditional bank or credit union keep pace with the technology, innovation, channel shift, regulations and opportunities presented by digital transformation? And where should organizations start to ensure they don’t fall further behind the very agile competition? It is more than just writing a check for new technology or financing an innovation lab. Business processes must change and cultures must shift away from the norm.

Before a firm starts on the journey to digital transformation, a major step must be taken by the board of directors, CEO, president and the entire senior management team – there must be a recognition that change is occurring in the marketplace and that new competitors can be a source of learning. Until management embraces the change that is taking place, nothing substantive will occur.

Next, management must state their objectives to transform the organization to be competitive in the future. The intentions need to be clear to investors, but also to employees, suppliers, distributors and all other members of your ecosystem. Without everyone moving in the same direction, change will not occur at scale and with speed.

Once change is embraced and declarations of intent are made, the priorities for digital transformation must focus on enhancing the digital user experience. If the changes made are only internal or are focused only on cost savings, the scope of opportunity will never materialize. Using new technologies, combined with leveraging data and AI, needs to create safe and seamless digital banking experiences that will increase engagement and enhance customer satisfaction and loyalty.

To effectively deliver exceptional digital experiences to customers and members will require re-designing operations to automate and streamline workflows. As opposed to simply taking current processes and making these digital, the entire business model needs to be analyzed as if your organization was starting a digital bank from scratch. Ask yourself, “If we were to rebuild our organization to compete with a fintech or big tech firm, how would we build it? What steps or processes would we disrupt to deliver a better experience?”

Part of this digital rebuilding will require a nurturing digital innovation that includes partnering with outside organizations to meet the needs of a digital consumer … as quickly as possible. Look to suppliers, fintech organizations and even organizations outside the traditional ecosystem to find ways to move your organization forward leveraging platform-based strategies. Making innovation part of the corporate culture, with the consumer at the center, will deliver digital transformation synergies.

All of the changes required must be done using adaptive design, where regular tweaks to digital transformation strategies are encouraged. This may result in reallocation of talent, restructuring the organization and even the dismantling of legacy process. Gone are the days of quarterly or annual updates to design. Agile organizations will need to make changes immediately when deemed necessary.

Why Digital Transformation Fails

According to a report from Capgemini’s Digital Transformation Institute and MIT Sloan School of Management, digital transformations can be stalled or fail for several reasons, including poor leadership, disconnects between IT and the business, lagging employee engagement and substandard operations.

The inability to move fast can be caused by not getting employees on board with the changes in the first place or because management only supports the transformation halfheartedly. Another pitfall can be the focus on cost-cutting as opposed to a focus on the customer. While finance will not stop looking for numbers on digitalization ROI, value-creating objectives and KPIs should also be analyzed. And, by sharing early customer success stories, funding of initiatives can continue.