Banking Transformation

Banks that are digital transformation leaders could establish a new digital entity focused on acquiring customers who are more digital savvy. This entity would have their own Budgeting, Accounting and Finance, HR and Information Technology departments. This approach allows the bank the greatest speed in the execution of the digital transformation, with accountability and authority completely residing with the new digital entity. The new entity is not burdened with legacy systems and processes and has the autonomy to make its own decisions by leveraging state of the art solutions and building new capabilities. This will increase the overall costs for the bank and will need to migrate existing customers to the digital platforms.

Banks have to flexible and adopt the model most suited to different markets, regions and business lines. Added complexities and increasing costs could pose challenges that will require banks to continuously manage the changing requirements and expectations.

Banks that have a significant market share in core product areas and are faced with demand saturation, could leverage their digital entity to grow into relevant ecosystems that provide the services customers want at a lower cost and with greater convenience. For example, a commercial bank could extend its offerings to include services like accounts-receivable management, factoring, accounting and cash-flow analysis to small and medium enterprise (SME) customers. This can provide additional revenue for banks and protect against customer erosion by finTech start-ups and digital giants.

Digital transformation is a journey, not a destination. Banks need to commit to a long-term vision by embarking on the digital journey, even when the end goal is not clearly defined. Banks have to adopt an incremental approach of test-and-learn and frequently review plans and priorities to stay competitive.

Leverage Data Analytics

Banks have a huge amount of customer data and this data should be leveraged to understand customer behaviors and provide real time feedback. This will help the bank in identifying opportunities, optimizing products and services and automating solutions.

Leveraging customer information allows the creation of targeted marketing campaigns. Customers do not want to be bombarded with ads for products and services that have no relevance to them. For example, using data analytics banks can predict when a customer might need a loan or an insurance product, providing opportunities to cross-sell and up-sell other offerings. 

This same data can be used to provide special offers leveraging promotions and discounts from the banks’ partners. This will help with customer retention. Based on payment patterns, analytics can predict when a customer might default on a loan, allowing the bank to extend a personalized offer to that customer, thereby enhancing the customer’s experience.

Bank can also analyze payment networks to identify potential customers who are affiliated with their current customers. The bank can then contact these potential customers and market the benefits of being on the same platform as their business partners. Banks can use data mining to create profiles of their best customers and use reverse-lookup to find prospects with similar profiles and market relevant products and services to them.

Data mining can also help banks develop customized pricing models based on how much a customer may be willing to pay for a specific service. This would lead to the development of customer-centric pricing bundles leading to increased revenues.

Data is growing exponentially, and most of this growth has been in big unstructured (non-relational) data. This requires investments in new IT capabilities to analyze and store this data and use it for a variety of offerings for customers, as well as manage risks for the banks. 

Agile IT Platforms

Digital Transformation requires an ongoing state of agility and responsiveness, so that digital assets including technology, functionality and data, can be securely leveraged, reused, combined and shared, with little friction across the company and ecosystem, so that the bank is always ready to evolve for whatever the customers may want next.  

Banks need a fundamentally flexible three-tiered architecture IT platform:

• At the base is the core banking system, which forms the backend of the architecture, and is characterized by its ability to support fast resilient transactions.
• The middle tier comprises the customer intelligence kernel where the business logic resides and is built on top of the core system. This is where the bank creates a single 360-degree view of the customer based on robust data management capabilities. This is where dynamic pricing models, loyalty programs and the like are built and managed.
• Branches, call centers, web and mobile applications and other third-party apps form the front-end tier that connect to the middle tier through Application Program Interfaces (APIs).

The above requires a decoupling of traditional infrastructure, services and teams, and the creation of a loosely coupled architecture around cloud, containers, APIs and microservices. Instead of monolithic applications, banks need to build numerous small single function microservices, which are assembled together to create applications and digital experiences. Microservices use APIs (Application Performance Interfaces), which decouple back-end complexity from front-end development. Microservices are associated with Containers, which decouple applications from both hardware and operating systems. Management tools are used to manage the resulting complexity and security, reducing human intervention. There is a shift to smaller and faster independent teams doing parallel development, that can more quickly, deliver new features and experiences, learn from them, and rapidly iterate, increasing the pace of innovation.

Governance

Digital Transformation has impacted every aspect of the banking and financial services industry, and more change is on the horizon. Digital transformation is imperative for banks and financial services companies to continue to stay alive and operate profitably.

Digital Transformation always starts at the top due to its massive impact. Leadership capabilities are the key to implementing successful transformations. Bank leaders define a transformative vision, with clear intent and outcome. Vision sets the direction and may evolve over time. Bank employees are engaged at scale to make the vision into a reality. Employee engagement includes connecting (through wikis, microblogs, social networks, video conferencing), adopting (using executive involvement, digital champions, mentoring, use cases) and scaling (new ways of working together).

Digital transformations are enabled by IT, so IT and business need to collaborate closely for success. Digital Transformation governance is managed through a Digital Transformation Office (DTO), led by a Chief Digital Officer (DTO). DTO coordinates across business units and geographies. Digital Transformation Roadmap is established to drive the delivery timelines for various transformation initiatives.  Delivery Cadence of weekly transformation meetings and monthly steering committee meetings are an indispensable part of an effective performance infrastructure. Tools and Systems to monitor performance include metric dashboards that track initiatives by departments, owners, projects and delivery status, to easily spot delays, observe trends and monitor impacts.

By making customer centricity a priority, continuously communicating the vision and strategic plan, seeking employee buy-in, operating with an agile mindset that focuses on efficiencies and innovation through state-of-the-art technology, banks can succeed in their mission of digital transformation.