While banks continue to modernize, so do their competitors—traditional banks, startups, and even unexpected rivals like Amazon launching new digital brands. Banks are investigating, and some are even testing, advanced technologies like intelligent automation, blockchain, robo-advisers, and chat bots, and embedding them into business processes to deliver new and optimized services that help customers manage their finances and financial futures. The challenge is to successfully employ these new technologies amidst an IT environment that typically has thousands of systems and interfaces across a variety of both legacy and newer technologies.
Banks are already planning for and indeed pursuing digital transformations. In fact, according to a 2018 Boston Consulting Group survey, a large majority of banks surveyed said that digital will impact both the "competitive landscape and the economics of the business." But less than half actually have a solid strategy to digitally transform, according to the study.
A lack of strategy could be troublesome. A Harvard Business Review Analytic Services (HBR) briefing paper, "Reassessing Digital Transformation: The Change Imperative for Financial Services," sponsored by Red Hat, says the digital transformation imperative requires financial services organizations to improve—and often completely overhaul—their technical capabilities. And it’s not just technical capabilities that need revamping. So too, do their strategic processes, corporate cultures and leadership commitments.
The HBR paper details a 2018 survey of 734 business leaders conducted by HBR Analytic Services that echoes some of the conclusions in the Boston Consulting Group survey. While many organizations believe that digitization will disrupt the financial industry and competitive environment, fewer believe their organizations are ready for that disruption.
In the HBR study, 83% said that having a combination of the right technology, processes, and culture in place was very important. But when asked about challenges, nearly six out of 10 respondents pointed to culture as a significant challenge, 47% said process is a significant challenge, and more than a third pointed to technology.
So how do banks move the needle? Decisive leadership is important. As Red Hat’s Alessandro Petroni, global head of strategy for financial services, points out in the paper, "Six Steps to Digital Transformation for Financial Services," there can be a "lack of bold leadership by people who understand the need to transform." He also warns that organizations may not have the right skills on hand to transform. Starting with a strategy can help determine the skills, expertise, and partners you’ll need to embark on and successfully execute a digital transformation journey.
6 steps to transformation
Build for competitive advantage
To stay competitive, you want to be able to rapidly innovate, and that often requires a dynamic, scalable infrastructure that’s adaptable and can connect to a variety of devices, data and systems. Customer focus should be at the center.
Exploit the cloud for continuous delivery
Providing DevOps teams with cloud means they’ll have a more agile platform that can help accelerate application delivery cycles.
Use APIs to your advantage
Application programming interfaces (APIs) will play a significant role in your transformation so you can leverage mobile and cloud as well as more easily collaborate with partners and third parties to offer new services. In addition, APIs are key to open banking, which is a system that enables customers to access financial data from a multitude of institutions where they do business.
Establish open identity
Customers want to easily access a variety of solutions from different providers, using different digital channels. To help meet their expectations, consider establishing open identity practices that enable applications to access APIs in a federated fashion.
Adopt DevOps to transform your IT department
By implementing DevOps practices, you can be in a better position to more quickly respond to market shifts and changing customer expectations. DevOps practices can encourage experimentation and collaboration, boost ROI through automation, and help facilitate cultural and process changes.
Use microservices to reinvent your software
Digital transformations will likely require you to re-architect existing apps and develop new ones. By breaking applications down into independent microservices it can be easier to deliver quality software faster.
To succeed in a digital era, banks need to modernize and transform their operations. Not doing so may mean losing ground – and customers – to competitors. Learn how to digitally transform by reading our paper, "Six Steps to Digital Transformation for Financial Services."