Factors Driving the Digital Transformation in Banking (2024)

Digital Transformation is becoming more widespread across various industries, regardless of factors such as an end-user base. This trend is driven by the growing use of smart devices, improved connectivity, and a demand for better user experiences. As a result, services are being brought directly to customers. One industry that is experiencing rapid modernization is banking, which provides ample opportunities for digital transformation in all areas of its operations.

The financial industry has undergone a significant transformation in recent years, with digital technologies leading the way. As a result, digital transformation has become a key priority for banks, with many investing heavily in new technology and processes to improve their operations and customer experience. The factors driving the digital transformation in banking are numerous, including changing customer expectations, increased competition from new fintech entrants, regulatory requirements, and the need for increased efficiency and cost savings.

This article will explore these factors in more detail, providing a technical introduction to the digital transformation in banking and the forces that are driving this shift.

What Drives Successful Digital Transformation?

Here are 5 essential factors for successful digital transformation programs in the financial services industry:

1. Customer-Centricity

Today's consumers demand seamless experiences across all channels, services, and products. Financial services firms need to provide personalized products and services that address specific customer preferences and goals. They also need robust underlying platforms, competitive pricing, educational resources, and additional tools to support customers.

2. Accelerated Time-to-Value

Banks need to double down on their value proposition within 18 months or less, similar to Moore's Law which predicts the doubling of transistors in an integrated circuit every 2 years. A smooth innovation delivery pipeline that tracks market trends tests innovative products, and uses fast feedback mechanisms to iterate for continuous improvement is necessary. This agile, on-demand innovation pipeline will help banks improve customer retention by catering to changing consumer preferences.

3. Utilize the potential of Minimum Viable Product (MVP)

According to a recent PwC report, 61% of respondents from financial services and FinTech firms feel they are good at generating ideas, but only 41% feel they are good at developing MVPs.

Achieving customer-centricity as an enterprise goal requires a consumer-driven focus among product teams, where continuous feedback is utilized to drive improvement. This necessitates strong collaboration between business and technology teams, a robust tooling ecosystem, and an incremental approach to creating MVPs. Such a strategy will enable banks to rapidly deploy necessary capabilities across digital channels and avoid becoming obsolete.

4. Upgrade the workforce

According to the Future of Jobs Report - 2023 by World Economic Forum, 56% of the workforce in the financial services industry will need to learn new skills, and 29% will be employed in new emerging roles by 2022 - up from 15% in 2023.[https://www.zippia.com/advice/financial-services-industry-statistics/]

As automation takes over routine tasks and machine learning improves process efficiency, companies must take care to manage concerns around 'automation anxiety'. To create a culture of learning that is essential for firms to thrive, companies can organize hackathons and ideation, infuse entrepreneurial thinking in the workforce, invest in cross-functional teams, and reskill employees on emerging technologies.

5. Modernize legacy systems to keep up with the digital transformation

Digital technologies like cloud, big data, and analytics can improve efficiency within firms, but they still rely on data residing on-premise and information flow across legacy systems. Therefore, a critical aspect of digital transformation is modernizing core systems using microservices, APIs, and DevOps processes for continuous integration and continuous delivery, resulting in faster release cycles.

Case Studies: Digitalization in Banking

1. Santander

Joaquim Cols, Director of Operations at Santander Technology UK, shared his digital banking approach as follows:

"Our goal was to establish an ecosystem that would enhance the organization's agility as an enterprise, connect strategy with delivery, simplify daily processes, and ensure transparency...the foundation of this ecosystem is optimized IT tooling."

With the dynamic landscape of the UK banking industry, Santander required a flexible response to market changes. Poorly integrated business and IT processes resulted in slow decision-making and inefficient resource management, creating obstacles to initiating change. Therefore, they needed an operating model and software that could evolve with the company's changing needs.

2. Natwest

Stephen Marjot, the Head of the Change Center of Excellence at NatWest (previously known as RBS), has shared his strategy for digital transformation. Instead of relying on traditional methodologies, Marjot emphasizes the importance of delivering incremental and iterative value to customers, allowing the company to quickly pivot and adapt to their evolving needs. Given NatWest's long-standing history in the financial industry, with over 70,000 employees and 700 banking locations across the globe, they recognize the necessity of a gradual transformation process. The institution was known as the Royal Bank of Scotland (RBS) until Jan 2023.

Embracing Emerging Technologies

In an ever-changing business world, banks must maintain consistent and technology-enabled growth. There are many banks experimenting with digital features such as online banking, but not all have fully adopted them. For any business to maintain a solid customer base while delivering a wide range of services via many digital channels, a strategic tech stack is essential.

Planning across the entire Financial Ecosystem

Financial services are expanding. To serve customers better in 2030, fintech companies, big tech companies, banks, and other players will need to work together. There are strengths and abilities in each bank or credit union that would be helpful to the others. Having a well-designed collaboration strategy will be crucial for companies within the ecosystem, especially one that can be adapted to changing circ*mstances. Since various firms will need to form partnerships with diverse organizations, unnecessary complexity can be avoided by avoiding excessive flexibility. Therefore, each company should strategize how to collaborate based on their respective locations.

Conclusion

Financial services companies are now implementing Key Business Indicators to monitor and report on the progress of their Digital Transformation Programs. These indicators include measures such as the percentage increase in digital customer adoption, the time it takes for an account to be opened and funded, the cost reduction in account servicing, the number of assets retained, the overall increase in customer satisfaction, and other relevant metrics.

To ensure the success of any digital transformation initiative, there are key factors that must be considered, including customer-centricity, faster time-to-value, minimum viable product releases, modernization of legacy systems, and workforce training and enablement. The adoption of enterprise agile has proven to be a vital step in achieving these outcomes. Agile methodologies have enabled financial services firms to connect each step in their transformation journey to the bigger picture, adopt a product-centric approach, drive better results, leverage DevOps for on-demand delivery, and foster a culture of responsible and consistent innovation. With these capabilities, banks can continuously transform and achieve greater efficiency in their services, higher product quality, improved consumer experience, and increased business growth.