Digital transformation can be a bumpy road for banks. In the past few years, I’ve seen hundreds of attempts at going digital. Many projects end in failure but even if not, most financial institutions have a hard time getting real results. So why
do they fall short of their goals? Here are some of the key obstacles to overcome.
There are several factors at play but what really makes or breaks any digital transformation process is understanding customer needs. The problem is that many banks still believe that digital transformation is about systems and workflows rather than customers.
But if they want to achieve the desired results, it’s time they changed this attitude.
As a matter of fact, digital transformation should be all about satisfying fast-changing customer requirements. In the brave new world of segments of one, banks simply can’t afford not to digitise their business model and offering. Why? Consider this: according
personalisation can boost product sales by 30-40% in some retail banking areas, cut customer churn by 10-30% and double or triple customer engagement scores.
But that’s not all. Here are the top five challenges financial institutions are grappling with:
- Many traditional banks still operate hard-to-transform legacy systems, making both changing the existing IT architecture and implementing new systems painful, slow and expensive. Legacy systems don’t necessarily have to be replaced but they should never
dictate how workflows are carried out and banks shouldn’t need to adjust processes to them.
- Financial institutions tend to be risk-averse when selecting IT vendors. Banks should be open to new approaches as there are plenty of new players in the startup arena who could help them make digital transformation easier.
- Although cultural adaptation should be the step zero of digital transformation, many banks simply lack agility to make far-reaching changes in their culture or their operations. Being agile does not only mean adopting a new method, but also adopting the
right mindset. That’s why cultural adaptation often remains incomplete: financial institutions keep using outdated patterns and business models to serve customers.
- Innovation might have been everyone’s favourite buzzword for quite some time now, but financial institutions often fail to encourage entrepreneurship within their organisation. Banks should have dedicated units or groups of experts to find new solutions
and keep their products competitive. It’s also key to assign these teams responsibility for their innovation projects.
- Improving customer interactions is also of the essence. Financial institutions should use the wealth of data they have to better serve their clients’ needs, instead of pushing products that customers ignore. Big tech companies already offer services tailored
to user needs based on customer data and behavioural insights. Digital transformation projects should help banks to follow in their footsteps and start interacting with customers better.
I have no doubt that improving digital sales capabilities will be the single most important task for banks if they want to stay competitive in the coming years. Digital transformation should not only help them increase customer satisfaction and prepare for
the new age of banking, but also to generate more profits. Today, the question is not whether the financial sector needs to go digital but who will sell more products and services digitally.
According to McKinsey,
origination and sales generate 65% of global banking profits, totalling about $1,152 billion in 2016. These profit drivers are threatened by increased competition from digital-only challenger banks and tech giants like Amazon and Google. Banks need to act
urgently to maintain profitability and get ahead in the digital sales game, or they risk becoming mere commodity providers with very thin margins in just a few years.