Digital transformation and digital acceleration, once trendy catchphrases, are now mantras across the business world. Substantial increases in remote workforces and consumers conducting nearly every transaction online have led to increased demand for new and better products and solutions. And according to CEOs surveyed by KPMG, the pace of digital transformation in 2020 was far more rapid than in the preceding years.
While the financial services industry has been rapidly transforming in recent years, more is to be done, particularly at smaller community and regional banking institutions. What’s at stake? A more modern, comprehensive and seamless user experience that will show your members they can count on you, whether banking in-person or virtually.
What is Digital Transformation?
Fundamentally, digital transformation refers to applying digital technologies to improve overall business performance and enhance the user experience. But there is more to it than just the implementation of new technology; instead, effective digital transformation requires developing a corporate culture of innovation and experimentation, which can be difficult for organizations solidly rooted in their existing business processes.
Most industries have already taken substantial steps on the path of digital transformation. And those that haven’t are planning to do so quickly. Indeed, nearly 50% of CEOs responding to a KPMG survey stated an intent to significantly increase spending on digital transformation efforts in the next three years. Another 34% reported plans to advance digital transformation investment at least moderately.
Why are Financial Institutions Resistant to Digital Transformation?
Digital transformation can be a delicate proposition for financial institutions such as banks and credit unions for many reasons. First and foremost are the two sticking points that killed many digital transformation efforts before they ever began: cost and inconvenience. It is too easy to stick with outdated systems employees know rather than invest money in new systems that they will have to learn from scratch.
But, just as with most other transformative efforts, the longer the project is put off, the more costly and inconvenient it becomes. These concerns are short-term and ignore not just the long-term benefits of digital transformation, but more importantly, they ignore the risks that come with failing to transform. There are all too many examples of companies that failed to adapt and no longer exist.
Beyond these more superficial issues are legitimate concerns about digital transformation, notably concerns about cybersecurity, data privacy and downtime. However, these concerns are not about digital transformation itself, but how well a specific digital transformation project is executed, something the right technology provider is equipped to handle.
How Digital Transformation Solutions Benefit Financial Institutions
Recognizing that legitimate concerns do exist, the next step is to perform a cost-benefit analysis, which will invariably resolve in favor of digital transformation. Banking institutions and their clients stand to benefit significantly from digital transformation efforts. These benefits come down to a single proposition: without digital transformation solutions, banks will not be able to effectively compete for clients, particularly younger people who are the future user base.
Keeping Up with Fintechs
Fintechs are already far up the digital transformation curve, offering clients user-friendly, anytime, anywhere services. Demand for such services has led to the implementation of new systems and regulatory structures, including the Open Banking initiative. Financial institutions and service providers involved in Open Banking are working hard to address data privacy concerns and reliability issues. But Open Banking will become the norm in the not too distant future.
Banks must apply digital transformation to allow access to their systems through APIs to expand their reach and client base. Third-party applications that access banking data, whether for transactions, payments or financial planning, are becoming more widely available and used by clients. Applications that aggregate all client financial information in one location, for example, are extremely popular, and users tend to look for financial institutions they know can easily connect to the user’s preferred applications.
Improving User Experience
Users will not stay with a banking organization whose services do not meet their performance expectations. For instance, if users cannot easily transfer money when they like, they will find a service that will let them do so. As Bill Gates famously noted nearly 30 years ago, clients need banking, not banks.
Digital transformation can help improve the overall customer experience, and happier customers and members are more likely to remain part of your community. While banking institutions are not application developers by trade, partnering with an online banking technology provider allows banks and credit unions to benefit from the laser focus organizations such as Lumin Digital have on application design and usability.
Overcoming Resistance to Digital Transformation
To be successful, IT departments cannot drive digital transformation efforts; instead, the C-suite must provide momentum for digital transformation. Without management buy-in and even some cheerleading, those lower in the chain will have no reason to alter their everyday work practices.
Proper messaging is also essential. Leaders should communicate that digital transformation will lead to happier users, and it will ease employees’ workload through greater flexibility in work hours, ability to work remotely and a more streamlined workflow. When an entire organization understands that digital transformation solutions help everyone while also building the organization’s reputation and user base, and that management will share the short-term pain of transformation efforts, digital transformation becomes a much easier sell.
Digital transformation is inevitable in the financial services industry. Users demand easy-to-use, all-hours access in their financial lives, and applications providers are lining up to give them options. Traditional banking institutions must also make the leap.
Kiara Taylor has more than 10 years of experience in finance, ranging from fixed income to emerging markets. She enjoys writing on the impact of both micro and macro trends on global finance.
KPMG – IT in the New Reality
Harvard Business Review – Digital Transformation Is Not About Technology