The Age of Digital Transformation – How Should Banks Adapt?

Banking is rapidly going digital—and you need to figure out how to compete with digital-first fintech challengers. Here’s what you need to know to stay competitive.

In the following interview, Michael Haney, Head of Digital Core for Technisys, discusses the evolution of banking’s digital transformation and how banks can maintain market share amid stiff competition from new entrants.

How has the concept of digital transformation in banking changed over the years?

Initially, banks thought that launching new digital self-service channels such as internet banking portals or mobile applications was sufficient. This helped eliminate the need for branches or equipment such as ATMs, while accelerating the move toward anytime, anywhere banking.

Then the focus shifted to digitizing the physical world of paper and plastic. Everything from monthly statements to debit cards to cash became targets as the cost of managing and processing these items ate into banks’ earnings.

Finally, existing banks shifted their focus to automation of business processes. The goal was to remove bank employees from the process to eliminate human error, reduce costs, and improve scalability.

Why has it proved insufficient to truly transform the industry?

The common theme in those examples is cost reduction, either by eliminating labor, real estate, or physical items, such as checks. The focus was on the productivity of existing business models, so it was a very bank-centric approach to the adoption of digital technologies. Improving the operational efficiency of the bank was a challenge that was being addressed.

These days the industry is focused on completely changing its business model by keeping the goals of the customer first. Banks and their fintech challengers are now using technology to create new digital-first products and services. they are embed them No longer limiting their distribution to their own closed ecosystem of channels, at the point of customer need.

What are some examples of these new digital-first products and services?

Customers are demanding more than just the ability to transact. They are seeking help managing their finances in ways that meet their goals, such as a better ability to manage cash flow. starting salary access And buy now pay later The solutions help customers access funds when they need them, and repay these advances over time, without having to access credit. Personal financial management (PFM) solutions help customers understand how their money is being spent and address ways to prevent unwanted spending or account balance shortfalls.

Customers are also searching for solutions that help them optimize their savings and align their savings for future goals. data analysis These same PFM solutions can help in uncovering savings opportunities, automating savings and thereby reducing the overall effort required by the customer to save and invest.

What’s stopping existing banks from being the first to launch these capabilities?

Banks that invested solely in front-end customer engagement platforms eventually hit a wall. As they try to move beyond providing transactional services across their digital channels, they realize that their middleware and back-end solutions cannot change in the ways they need to, or at least not much. Can’t do this without much effort and cost. Their middleware should include customer journeys that are not only agnostic to the bank’s own channels, but also allow the bank to embed these journeys into external brands where the customer really needs them.

Bank’s back-end platform Need to be configurable in ways that break down traditional system silos and allow for combinations of products and services that help solve unique customer pain points. Back-end systems also need the agility to change at the same pace as new front-end systems, which many older platforms have been unable to do.

How can banks enable this change to keep up with fintech challengers?

The ability to adopt agile methodologies and the concept of continuous development and deployment requires not only retraining and reorganizing your workforce, but also shifting budgets from a capital expenditure to an operating expenditure model.

Finally, they need to adopt tools and platforms that enable rapid-test and model learning, involve the customer in the design process, and most importantly allow employees to focus on customer problems. Today, banks are still focused on challenges that are not important customer centric banking, Such as running a data center. This can be accomplished by taking a cloudy environmentAdopting a low-code development platform, and using collaborative tools to bring together in-house themes as well as the customers themselves.

What other advice would you give to banks to secure their businesses in the future?

We cannot underestimate the impact that has gone data analysis Customer experience has to be improved and opportunities have to be highlighted for the banks. Banks have historically used data analytics extensively for marketing purposes and more recently to help fight financial crimes Danger or money laundering. New business intelligence tools are allowing banks to react to events in real time and move from models that were only predictive to ones that are adaptive and self-learning.

Again, we will see a shift in the application of these technologies from simply helping banks to increase revenue or reduce risk, to helping their customers reach new levels of financial health and well-being. The scalability of these technologies in a cost-effective manner will allow banks to apply these AI technologies to all customer segments, not just affluent customers.

Click here for Haney’s Top 3 Technology Priorities for Financial Institutions Entering 2023,

Click here to learn more about how banks can compete with Fintech.

Note: This article was originally published on technisys.com which was acquired by SoFi Technologies in February 2022 and is the parent company of Galileo.