Digital Transformation in the Banking Sector: the Keys of a Successful Launch

According to a survey by IBM Institute of Business Value, 60% of representatives of world banks believe that the boundaries between various industries are gradually blurring. This means that banks have new competitors. Among them are both promising FinTech startups and ecosystems that unite financial and non-financial players. 

In such conditions, digital transformation becomes necessary for those who want to strengthen their position in the market.

What is digital transformation in banking? 

Digital transformation in banking is not only about using modern equipment and software but also about revising approaches to management, communications, and corporate culture. 

Digitalization, as a phenomenon, arose as a result of the development of information and communication technologies. The economic sector was one of the first to feel its influence, with the active development of the FinTech industry beginning back in 2008. As a result of the economic crisis, financial structures were forced to look for new ways to reduce costs while maintaining the quality of services. 

At the same time, the growth of the mobile technology market began, as well as the promotion of the concept of the Internet of Things and the blockchain, which accelerated the process. That’s where digital transformation in banking began to take hold.

What does digital transformation mean for modern banks? 

It is, first of all, a rethinking of the customer experience, which underlies a customer-oriented strategy. It is necessary to automate and personalize the entire customer journey to purchase to ensure client retention, satisfaction, and business sustainability.

For a bank, digital transformation may mean revising the operating model, creating new directions, and uniting into a partner ecosystem that will take service to a fundamentally new level.

Customer retention strategy: the core goal at the heart of digital transformation in the banking sector

Leading experts in consulting and analytics, such as McKinsey, Deloitte, Accenture, Gartner, and Forrester, recommend banks to operate a customer-centric approach in doing business to improve efficiency.

Maintaining a solid customer retention strategy helps to reduce the cost of attracting new clients by more than 30%, speed up the process by about 1.5 times, and increase revenue by more than 80% in an 18-24 months period. 

Repeated customers already trust the company, and therefore their conversion is at least 60%, but for new customers, this may be 5-20%. 

The importance of digitalization in customer retention is highlighted by the DBS experience. It was likely the first bank to position itself as a technology company offering banking products. According to The Banker, Euromoney, and Global Finance, it has been a digital leader among the world's banks for the past 3 years. 

DBS executives say that digital business has made the customer experience “invisible” and even “joyful”. “Making banking joyful” focused on customers and keeping them at the heart of the business. It all started with the digitalization of internal processes, which optimized staffing by up to 50% reduced (!) and grew into the expansion of opportunities for seamless customer service. 

Task #1 for a bank: develop a practical customer retention strategy.

Key components of digital transformation services for banking

Digital transformation involves the transition from traditional methods of working to completely new ones, built on the basis of modern technological solutions. 

According to Blake Morgan, author of The Customer of the Future, this process affects many essential aspects of the business, including customer service, organizational structure, data integration, privacy, logistics, and sales.

The components of digital transformation can be grouped into 3 categories:

1. Customer relationships

Improving the customer experience is the most visible result of the transformation. With the introduction of digital technologies, not only are external communications simplified, analytics, marketing, and sales also reach new levels. 

This allows the organization to know what is happening with their clients at any time, to contact them at the right moment, and make their offerings more personalized. A deeper understanding of the audience helps build an effective marketing strategy and adjust prices based on demand. What this all leads up to is improving customer relationships both quantitatively and qualitatively.

2. Processes within the organization

Changes in the company's infrastructure are expected to lead to the emergence of new processes. For example, exchanging data via email is not a new process but just a more modern way of doing everyday tasks. Another thing is the introduction of an EDI system for the exchange of digital information. 

In doing so, the bank receives colossal benefits: acceleration of communications with partners, increased productivity, and the elimination of paperwork. And all this is due to a change in the data exchange model, that is, the digitalization of workflow. 

As a result of digitalization, the level of awareness also increases. It changes the planning and decision-making process, allowing the company to allocate resources and delegate tasks smartly - saving on resources and budget. 

The introduction of networking and knowledge exchange tools virtualizes the workflow, and can even simplify the transition to a home-office format, which is a modern must for any organization. 

The outcome of the transformation of customer relationships and internal processes can be so strong that it can dramatically change the life of an organization and its positioning in the market.

 3. The political will of the leadership 

The investigation of BCG shows that digital transformation fails in 70% of cases. But why does this happen and more importantly what can an organization do to achieve success? 

One of the main reasons for the failure is management's fear of change. This brings us to the next component - the political will of the leadership.

The "let's try and see what happens" approach is fundamentally wrong. The goal should always be clear and concise. 

The effect of innovation depends on the readiness of the leadership team to rethink the business management style and processes, and, in particular, the customer experience. By being self-aware, the team will be able to establish a clear pathway to digital transformation and be more likely to work toward its success.

Digital banking transformation strategy: 2 ways of implementation

Financial business can be transformed in different ways: radically from scratch or gradually by gaining momentum.

The methods for introducing digital technologies into financial business include:

1. Radical. Creating a business model from scratch.

Cons: high risk and no guarantee that the plans will come true. 

Pros: high speed and attracts younger and more ambitious employees to the team. This option is suitable for banks with minor divisions ready for significant investments, including expertise and consulting. 

2. Consistent. Creating a separate business line. 

Cons: low speed of technology implementation. 

Pros: optimization of management, the ability to test the approach for more global innovations. This type of digital transformation is a trend for banks, regardless of size and capital, as it involves a gradual increase in turnover and, accordingly, investments.

For banks, the moral of digital transformation is "think big, but start small."

Digital transformation in banking and corporate culture 

From the point of view of the business development department, digital transformation in organizations means more than just a chatbot. Standardization and automation of work processes consider fundamental changes in employee behavior. Digitalization cannot completely replace manual labor but it can transform the model of corporate interactions. 

Often in a bank, incomprehensible calculations go to the risk department. Or in many non-bank organizations with poorly defined processes, the IT department receives all non-business tasks. 

What happens after digital transformation? The IT department moves to the forefront because the improvement of digital resources, automation, and technical support of loan management software becomes a constant and essential task. 

The area of risk management expands to profit enhancement. 

If earlier there were 3 important links: IT, risks, business; now the boundaries are blurring. Risk managers take care of business; the business development department aids IT; and IT supports the entire performance of the bank. 

The digital transformation of the organization is not only about corporate design modernization but also about establishing relationships between people which may lead to the acceleration of the development in the future.

Digital transformation impact on the organization

After analyzing the experience of large financial corporations, we suggest that a bank that is digital is the bank of the future. Business-wide digitalization can increase customer loyalty which affects other business processes with a positive correlation. 

How digital transformation solves business issues:

1. Issue: fragmentation in decision-making. 

Solution: planning based on up-to-date analytical data on the market situation and the needs of the audience.

2. Issue: passivity and irregular communication with clients. 

Solution: transferring contacts to an online system, where the bank is able to stay in touch 24/7, including through the introduction of chatbots.

3. Issue: a standard approach to services. 

Solution: creating personal offers based on the client's needs and their history of interaction with the bank.

4. Issue: static communication. 

Solution: engaging several digital channels for dynamic communication with the client exactly where it is convenient for them at the moment.

5. Issue: late delivery of reports.

Solution: Automatic calculation of sales and marketing metrics to instantly create and send digital reports.

6. Problem: Lack of clear objectives and goals. 

Solution: introduction of tools for corporate communications and planning, differentiation of access to data for each department.

Conclusion

Transformation expands beyond the boundaries of the business. During the pandemic, this became more important than ever before, and with remote working showing no signs of going away, it remains at the forefront of business decisions. 

BCG research confirms this: in 2020, 80% of C-suite leaders planned to intensify their digital transformation efforts, and 65% expressed an intention to increase investments despite the financial crisis. 

Saying "yes" to innovation is worth it, at least to become one of those 30% of companies that have managed to achieve the goal, don’t you agree?