‘Digital Transformation is the buzzword of the banking industry, the Achilles heel of incumbents, and perhaps the most misunderstood process of a bank’s ascension to regional dominance. However, managing digital transformation can be the most crucial factor in moving into the new age of technology and doing business. In this article we’ll explore how banks should manage digital transformation for success.

Before addressing how banks can pivot and embrace digitalization, it is critical to understand what ‘digital transformation’ means. This lack of clarity is the primary reason why many digital executives fumble their objectives and the reason why up to 70% of digital transformations fail, according to a Boston Consulting Group report. 

What is Digital Transformation

Digital transformation is akin to organizational culture. However, everyone has some sense of the concept, and there isn’t a well-defined line that demarcates it.  

In its simplest form, Digital Transformation is a holistic, integrated process that intersects Process Transformation, Business Model Transformation, Domain Transformation, and Cultural Transformation. With engagement required from multiple departments of an organization, ownership must simultaneously be taken by numerous stakeholders, and not just the Chief Information Officer or Chief Digital Officer. In addition, success in digital transformation requires clarity of purpose and a solid team to reach a common goal. 

The need for digital transformation has never been more apparent than during the pandemic. Financial institutions have had to redesign and accelerate the shift to digital to serve their customers better. However, a recent FT Focus report has found that less than a third of banks describe their digital transformation strategy as mature or advanced. While it is widely understood that an actionable roadmap is a key to a bank’s digital transformation strategy, we must first understand why the challenge daunts organizations.  

Here’s Where Banks and Financial Institutions Fail

Focusing on the business rather than customer

First, banks and financial institutions approach digital transformation from the vantage point of a business, not a customer. Regardless of the amount of capital investment in tech suites, the flashy cards, crisp UI/CX experiences, the gamified reward schemes you introduce, the basic business fundamentals hold true and will trump all other factors; the customer is king.

A successful digital transformation should prioritize improving your company’s services and products for customers, rather than blindly imitating competitors. If your digital transformation is motivated by Fear of Missing Out (FOMO) or a rushed attempt to outperform rivals, it will result in a misaligned team and inevitable failure. 

Inconsistency

Incumbents treat digital transformation as a finite game; essentially, just another task on a to-do list. However, the reality is that digital transformation is a journey, not a destination. Therefore, banks must not only relentlessly update their tech portfolio but consistently harness it to launch newer, seamless digital financial products and solutions for their customers. With this comes a dedication to innovation and ensuring that your bank has not only the latest technology solutions but also a team trained and capable of making the most of it. 

What’s the Roadmap to Digital Transformation?

Below we outline a simple roadmap that can be leveraged to help banks deliver on the promise of digital transformation for their internal teams and customers. 

Evaluation

First, aspiring digital leaders must appraise existing tech suites and audit internal product propositions. Once existing products are evaluated, they must be benchmarked against the kinds of products and solutions customers expect. At this point, institutions must ask themselves a critical question – “Do we have the capability to deliver on what our customers expect?” 

If the answer is no, then digital transformation should be pursued. However, even before a digital transformation is initiated, the bank must assess its current strengths and weaknesses and the gaps in reaching its desired business state. 

Strategy & needs

In the next phase in the roadmap, digital leaders must work backward. Instead of developing technology capabilities haphazardly, institutions must be laser-precise in pinpointing what fronts to focus on. For example, is the digital transformation aimed at building the bank’s innovation capabilities, or is it an internal optimization initiative? What technology will the bank need to incorporate, and what type of training will the team need to make the most of it? 

Internal or external development?

Third, the bank must assess whether the digital transformation can be done internally or will a partner be required to help. In many instances, such as developing new digital financial services, taking on a strategic partner is advisable. Leveraging a technology partner’s experience with past transformations and having ready-made solutions that can be customized for a bank’s digital transformation can benefit the bank in conducting a smooth transformation. 

The second side to this transformation is another stumble-block that executives tend to overlook; grassroots cultural change. What is important is that transformation is a process, and leaders must help guide their teams through the milestones of creating awareness about the transformation. They should help create acceptance, and ultimately empower teams to anchor the transformation and champion it.  

Conclusion

What is critical for any digital transformation is understanding this simple rule; transformations are an extension of the customer. Therefore, the prime mover for any digital transformation should always start by asking this simple question, “how will this benefit our customer?” Once this question is answered, everything else falls into place.