Bank Digitalization: Prepare for Liftoff

According to George Westerman, research scientist with the MIT Sloan Initiative on the Digital Economy: “When digital transformation is done right, it’s like a caterpillar turning into a butterfly, but when done wrong, all you have is a really fast caterpillar.” The worldwide upheaval from the coronavirus unceremoniously revealed which banks float like butterflies, which crawl like caterpillars, and which have yet to emerge from their pupae.

The global pandemic is exposing which sectors and companies are genuinely digitalized, and which are not. Generally, the financial services industry has fared well; for the most part, customers have been able to access and move their money when needed. Truly digitalized banks didn’t skip a beat when the crisis hit. But banks at various stages of their digitalization journeys had visible shortcomings, some have serious work to do.

Bank digitalization is essential, and it involves much more than the digital replication of existing analog processes:

In succinct terms, digitalization means doing different things AND doing things differently.

Digitalization is synonymous with digital transformation, a term which suggests doing things differently, with an intent to do better. We’re talking about a fundamental shift in how the bank’s business operates and delivers value to customers. A true digitalization strategy involves technology, people, processes and how things get done.

There’s always a tech element to digitalization, but the journey also requires transforming the bank’s organizational culture. With digital transformation, people are expected to adopt new technology and adapt to new ways of working. This can be tricky, humans are notoriously resistant to change. To be successful, the reasons and benefits of transformation must be made clear throughout the organization, the “roadmap” communicated, and the necessary training and coaching provided.

Digital Drivers: Why Banks Need to Transform

Disruptive forces are redefining global banking on multiple fronts. Compelling reasons to transform include:

• Customers. Customer expectations keep rising, and tech giants like Google continually redefine the digital customer experience; in comparison the banking industry has fallen behind – the gap is evident. Worse still, legacy technology (and methods) can be a major impediment to vital change and advancement. Transformation to digitalized banking gives customers what they want:

         −  A consistent unified experience across all channels
         −  Seamless account opening, funding, money movement
         −  Simple user journeys that eliminate unnecessary hurdles
         −  Productive assistance when desired
         −  Real-time and round-the-clock account access

• Digital banks fuel deposit growth. Digital banks offer the speed to market, reduced overhead, lower acquisition costs and expedited onboarding that enables banks to fast-track deposit acquisition, and expand their market and customer base.

• Costs and competition. All banks need sustained cost reductions. Digitalization offers cost-effective options and significant opportunities. Fintechs have an edge being unimpeded by legacy technology. For incumbents, transforming away from legacy technology to digitalized banking affords greater business agility and promotes innovation at lower cost.

• Mobile banking in real time. The global pandemic accelerated the adoption and use of mobile banking, which means real-time processing. Many banks have addressed the real-time challenge in a piecemeal fashion, and now need to strategize how to embrace mobile without a wholesale “rip and replace” of their core platform.

• Digital banks support financial inclusion. Digitalized banks give financial institutions the ability to present a new brand identity to an untapped portion of the market, and to reach customers who are outside of the branch footprint – including the underbanked and the unbanked.

• Regulations. Regulatory compliance is a major cost of doing business and legislation is growing in complexity and volume. Shifting to a digitalized RegTech approach can reduce these costs and mitigate compliance risk.

Digitally Nimble: Microservices and Agile Methods

Google and Amazon show that software development is a journey and not a destination. These companies build brand loyalty by consistently exceeding customer expectations and continually innovating. Agile principles and continuous delivery using microservices enables smaller, frequent software changes, delivering customer benefits faster via a stable platform.

Moving to microservices empowers a bank to move away from its traditional siloed, product-led approach to one that is customer-focused. With the right combination of modern methods and technologies, bank transformation can be componentized. Each component performs a specific function; seamlessly integrating a collection of components creates a slimmed-down, nimble, flexible core that addresses business objectives and customer expectations. Each component can be upgraded or replaced individually without disrupting other bank functions or data. Agility arrives.

Digitally Different: Paradigm Shifts

As technology moves from the back office to all that a bank does, from end-to-end, IT no longer “supports” the business, it is the business – essential, integral, agile. Agile principles and continuous delivery transcend the technology. The business of IT can – and should - bring a cultural shift to a bank. In a digitalized culture DevOps teams don’t work in isolation, they are tightly woven into the fabric of bank operations and strategy.

Digitally Yours: The Cloud

A microservices environment has far fewer dependencies than monolithic cores built with a traditional waterfall development model. Continuous development and microservices simplify and facilitate migration to the cloud. With the power of cloud computing, a bank can gain the business benefits of lower costs, elasticity, scale, and resilience. Advances in microservices, continuous development and cloud herald a new dawn in technology which strengthens and fortifies the bank’s transformation program.

The new normal in banking is already emerging as a fully digitalized financial ecosystem, choreographed in real time by open application program interfaces (APIs). The age of the digital bank has arrived. Jeff Bezos of Amazon offers this valuable advice, “There is no alternative to digital transformation. Visionary companies will carve out new strategic options for themselves — those that don’t adapt, will fail.”