From online transactions to mobile payment apps like Venmo, today's consumers increasingly look for digital access to funds — and they expect a seamless experience. As customer expectations and the economy continue to evolve, digital transformation in finance and banking needs to keep pace.
Banking culture hasn’t always kept up with what digital customers are actually looking for. The World Banking Report 2021 reported that, “Despite being vocal about improving the customer experience, the banking industry’s delivery of the key components of a strong customer experience, such as improving transparency and social responsibility, improving customer support, and reducing the cost of services, falls far short of customer expectations.”
Three common barriers to digital transformation in banking
There are several common challenges to digital transformation that keep banks from pivoting quickly to meet customer expectations.
Roadblock #1: Technical debt
As a highly regulated industry, traditional banking relies on complex and siloed legacy technologies that are often expensive to maintain. Over time, technical investments compound, making it increasingly difficult to find time or resources to shift to more modern or scalable platforms. When banks grow through mergers and acquisitions, attempting to integrate additional legacy systems adds to that technical debt.
At the same time, banks face increasing competition from the fintech sector — online-first financial institutions that aren’t encumbered by aging platforms. Traditional banks saddled with technical debt may feel that they lack the time or resources to fully integrate, modernize, or replace their legacy technologies. But the longer this debt persists, the harder it is to compete with digital natives, leaving banks less agile in the marketplace.
Roadblock #2: Organization size
Like many enterprise-level organizations, larger banks often create internal digital teams that combine business, IT, and marketing capabilities and develop expertise in their own technologies, systems, and processes. Faced with competing internal priorities and hampered by regulatory constraints, these internal teams may struggle to get alignment and prioritization for a banking digital transformation strategy and may lack the breadth of expertise necessary to implement a comprehensive modernization effort.
Smaller banks, on the other hand, may be more nimble and successful at shifting internal priorities, but they may not have the resources to staff dedicated teams.
While organization size is often called out as a hindrance to effective digital transformation in banking, the underlying problem may not actually be a headcount issue. Regardless of size or industry, most companies miss their digital transformation goals due to lack of clarity and strategy.
“Digital transformation” in finance or any sector can be hard to define, implement, and measure. A more strategic approach starts with identifying concrete problems or issues, understanding customer needs, and developing solutions that bridge the gap with action steps that are clear, dynamic, and measurable.
Roadblock #3: Relying on assumptions about customer needs and wants
Understanding customers’ needs, pain points, and experiences can be difficult, and as users adapt to technology their preferences continue to change. This makes audience research even more critical when defining your bank’s digital transformation strategy.
After a surge in remote work due to Covid, comfort levels with technology are at an all-time high. Research from McKinsey found that 75% of people using digital channels for the first time during the pandemic indicate that they will continue to use them when things return to “normal.”
Not only are customers more comfortable with banking technology, but it has also become an important factor in choosing which bank to use. According to Mobiquity’s 2021 digital banking report, 40% of respondents agreed that they are likely to switch accounts to get better digital tools.
Investing in both qualitative and quantitative data can dispel assumptions about your audience, while also revealing specific ways to improve the customer experience. As those opportunities are identified, banks can prioritize technology and services that will have the biggest impact.
How to approach a digital transformation strategy in banking
Given these challenges and the continuous evolution of customer expectations, several technologies offer significant potential gains and can help financial institutions stay competitive.
Mobile app enhancements
Mobile banking apps typically offer the ability to check balances, transfer funds, pay bills, and chat online with a bank representative. By building applications that go beyond these basic services, banks can increase their new customer base while improving customer retention and lifetime value.
Leaders in the banking space now include peer-to-peer payments, lending inquiries, and chatbots as part of their applications. However, in addition to monitoring what competitors are doing, it’s important to implement a robust discovery process to see what the target audience wants from a banking app. This could include developing target personas and performing pain point analysis to find unique solutions and services that will better appeal to customers’ needs.
From there, financial institutions are better poised to tackle the next layer of technology for the app space — personalization. Many banks are investing in personal financial management tools and customized product offerings in their apps, making banking more accessible and valuable than before. These user-friendly applications and their customization capabilities are an integral part of digital transformation in banking.
Historically, machine learning engagements have required substantial data science and model training investments. But major ML platforms have evolved, lowering the barrier of entry for these projects.
Now, midsize and even smaller banks can use machine learning models to better understand their customers and drive a more personalized experience. And machine learning isn’t just valuable for deepening current relationships; it can also help banks target and acquire new business by identifying trends and opportunities. This means higher quality leads, improved retention, and an increase in business with more potential for high lifetime value.
Data management strategy
Traditional lending institutions underwrite loans by using a system of credit reporting. Banks that process loan applications evaluate the risk by looking at credit scores, homeownership status, and debt-to-income ratios.
Today, three major credit bureaus provide this information. But these reports can sometimes contain erroneous information, and the information comes at a high cost since it can only be found in three places. And while banks often collect their own internal data, if that data is incomplete or disorganized it cannot offer useful insight.
With structured data management strategies, financial institutions can mitigate losses by generating more data and using it to recognize trends and potential liabilities.
Robotic Process Automation (RPA)
Some banking processes are still highly manual. Consider routine tasks like opening an account or reporting a stolen credit card — it takes time to get through the questions, and usually requires a phone call from the customer.
With robotic process automation (RPA), in the case of a stolen credit card, the workflow process can automatically cancel the old card, issue a new card, and confirm the mailing address of the new card. RPA can also identify bots or theft with greater accuracy than a human analyst. RPA even has the potential to assist with workload transformation. In addition to streamlining and automating internal processes, RPA can be used to manage the cloud technologies that institutions rely on for their everyday tasks. This leads to more refined workload placement — and therefore a more productive workforce.
The bottom line on digital transformation in banking
From highly-personalized service offerings to easy-to-use applications, consumer expectations are high in the banking sphere. To keep up with these expectations, banks must position themselves to adapt quickly.
Traditional banks are often at a disadvantage to digital-only competitors. Newcomers operate without the burden of legacy systems and outdated business models. But a digital-first attitude can help financial companies effectively implement technologies that enable digital transformation in banking.
Ready to boost your productivity and customer engagement? Let us know your questions and find out how a strategic approach to digital transformation can help your bank thrive in a digital-first world.