Digital banking transformation: ins and outs

by | Dec 28, 2022

What is digital banking transformation

Digital transformation in banking is the shift towards the integration of digital technology into all areas, optimizing operations and delivery to customers. As consumers around the globe expect their banks to act and interact more and more like top technology brands, digital transformation proves to be a great asset to increase the bank’s competitive advantage over new entrants in the market.

Deloitte’s report on digital banking reveals a poor banking app to be the first attrition driver in digital transformation, all while showing that there was a 35% decline in branch usage in the last 5 years and that 70% consumers declare they want to switch from cash/check to digital payments. If deployed properly, banking transformation can unleash a true revolution in customer experience. And not just that.

Industry trends and the advantage of new entrants

There are 4 main elements that traditional banks struggle in competing with the rise of neobanks and fintechs, which prove why digital banking transformation is not just an option anymore.

  • Open banking – Consumers look for greater insights into their personal finances and features that provide an improved ability to interconnect multiple accounts.
  • Legacy systems – Major banks feel the burden of legacy technology systems that are too slow and incompatible with modern technology. 
  • Flexibility – Neobanks have small, nimble teams enabling them to respond faster to market evolution, making it difficult for traditional banks to outdo the competition.
  • Specialization – Most traditional banks make their products and services for the average consumer. On the other hand, smaller businesses are more effective at targeting smaller segments of the market. 

Undergoing effective banking transformation with the right strategy and implementation is key to keeping up with the latest changes and entrants. 

Applications & benefits of digital transformation

Of course, technology is key in digital banking transformation, but it isn’t enough on its own. Banks need to be smart about which technologies they choose and how to deploy them. In fact, many digital transformations fail, when technology is the only element considered. Digital banking transformation also entails cultural challenges. Timing for example is crucial, and immediate action could make the difference between survival and failure of a firm over the next decade. With the right process, however, banking transformation can lead to great benefits:

  • Increased productivity
  • Organizational transparency
  • Lower operational costs
  • Risk reduction in core activities
  • More revenue
  • Elimination of paperwork
  • Less time spent servicing clients, with transactions and settlements

The road to optimizing customer experience

As tech-savvy fintechs enter the market, big banks are beginning to reap the benefits of adopting technology. Bank of America now receives more deposits via mobile than its brick-and-mortar branches, for instance. Banks must use technology to transform products, attract customers, empower employees and optimize operations. 

Contrary to common misconceptions, the digital transformation in financial services won’t make traditional banking institutions go extinct. Instead, it is an opportunity to reimagine them, making banks customer-centric, innovation-driven and future-ready.

At Strands, we pay careful attention to placing the end user at the core of all we do. With our solutions, you can empower customers with personalized insights tailored to their real-time behavior, giving them a better understanding of their finances and a broader sense of control. Just like a traditional bank would have done in the past, with us you can provide smart advice, but 100% digital. Ready to undergo a digital transformation with us?

What to avoid to get core banking transformation right

An article by McKinsey outlines the mistakes that should be avoided in core banking transformation, which are usually rooted in missteps around people, processes and technology, by analyzing more than 50 examples of transformations over the past 7 years.

  • Failing to align stakeholders on the function and scope of the new system: CIOs and CTOs want to modernize the system architecture to enable more capabilities, such as quick product releases, whilst business heads want to increase revenue through shorter time to market, and CFOs want to reduce overall costs. To achieve solid stakeholder alignment, an organization should find an implementation partner with a similar level of interest in the banking transformation.
  • Continuing to use legacy components excluding a broader system revamp: some banks don’t have a decommissioning plan for legacy applications, processes, and products at the start of the transformation. Unfortunately, this approach significantly increases spending in the long run, as legacy components are not cheap to maintain.
  • Failing to integrate the core banking transformation with the broader platform: to enable digitization, some banks are pursuing core-banking-system transformations. But over the past decade, only about 30 percent of CBS transformations succeeded in carrying out a complete migration of products to a new system, suggesting that banks have not yet cracked the code on full implementation.

COVID and the resulting acceleration of digital transformation has forced radical changes in customer behavior, moved the economy online and increased customers’ comfort and willingness to engage digitally. Banks now face the challenge to deliver compelling, emotive digital propositions that elevate human experience to meet growing expectations, all while avoiding to fall into major pitfalls. Will they be successful in doing so?

Related Fintech Pulse