Digital transformation in banking is a top goal, but obstacles limit adoption rates. Transformation roadblocks include legacy systems and implementation costs. Likewise, leadership may question the timing of digital initiatives. While these concerns are valid, forgoing digital expansion may pose a greater threat. Learn about the challenges banks and credit unions face, then discover how a digital transformation partner can ease the process.
1. High Cost of Technology and Implementation
Many banks and credit unions have limited technology budgets and resources. The costs associated with digital transformation in banking can feel prohibitive. Therefore, allocating funds to digital initiatives often falls by the wayside.
The costs stem from:
- Technology platforms and software
- Infrastructure improvements
- Information technology (IT) experts to manage and deploy services
- Staff training on new systems and processes
On the other hand, organizations that identify technologies with the highest return on investment (ROI) can focus on quick wins. They lessen strains on their IT teams by partnering with digital transformation consultants. Doing so lets banks and credit unions take a strategic approach with their budget.
2. A Culture Resistant to Change
Traditionally, top-down hierarchies resulted in siloed decision-making. Rigid cultures also resist changes, not only from employees but also from leadership. That’s why a digital transformation in banking involves more than technologies. It’s a cultural journey.
Banks and credit unions can overcome resistance by helping staff move towards a digital culture mindset. The Boston Consulting Group (BCG) reports, “the proportion of companies reporting breakthrough or strong financial performance was five times greater among those that focused on culture than it was among those that neglected culture.”
3. Unclear Project Scope and Leadership Tasks
The lack of defined project scope or simply not knowing where to start is a huge digital transformation challenge. Add in the fact that senior leadership isn’t always on board, and it’s even more difficult to move forward.
The 2019 BDO Middle Market Digital Transformation Survey finds “53% of financial services organizations cite poor communication and project management as a top barrier to successful digital implementation.” Additionally, 33% “face a lack of leadership or vision by senior management.”
However, a digital transformation partner help banks and credit unions by:
- Gaining quick wins via bite-size digital improvements
- Building a detailed digital transformation plan
- Highlighting project milestones
- Setting performance metrics for each phase
- Working with IT and human resource leaders
- Forming clear leadership roles
- Finding staff advocates to support the roll-out
4. Concerns About Compliance and Security
Finding the right balance between customer experience and risk management is difficult. The BDO Middle Market Digital Transformation Survey notes that 15% of leaders cite “cyber concerns as their biggest challenge in moving forward with a new digital initiative.” Partnering with a third party for digital transformation helps institutions govern IT architectures properly. We can suggest data management practices for monitoring online interactions.
5. Complex Legacy Applications and Processes
Many core processors were built three or four decades ago using older programming languages. Replacing complex frameworks entails an upfront investment and across-the-board changes. According to the BDO Middle Market Digital Transformation Survey, 49% of executives “state that interoperability with legacy technology is their biggest barrier to successfully implementing digital initiatives,”
These concerns are well-founded considering that 61% rate their IT system as fair or poor. But, building digital architecture has several advantages. The benefits include data centralization, fintech integrations and advanced security.
6. Updating Employee Skills
The BDO Middle Market Digital Transformation Survey also found that a lack of skills is “the biggest challenge to moving forward with a new digital initiative for 73% of financial services executives.” Indeed, finding and retaining qualified personnel is a challenge. It’s even tougher when undergoing a digital transformation in banking. Staff may feel uncertain about using new tools or adapting to different systems. Fortunately, fintech partnerships help banks and credit unions assess skill sets. Moreover, they can suggest digital platforms to hasten onboarding efforts.
A Digital Transformation Partner Helps You Overcome Barriers
Few banks and credit unions can afford to wait on digital transformation efforts, especially as customers demand digital or contactless touchpoints. Although the challenges are significant, you’re not alone. Deloitte says, “nearly nine out of 10 banks experience issues related to digital transformation.”
A partner like Lumin Digital can help financial institutions visualize outcomes. We work with you to find the best path forward. Contact Lumin Digital today to learn more.
Jessica Elliott is a business writer and communications consultant who develops insights from data collection, observation and analysis to enable clients to envision their future while taking immediate action. With 24 years in public-facing roles, she understands how to connect the dots so that professionals can develop their billion-dollar idea into total market visibility.
Boston Consulting Group – It’s Not a Digital Transformation Without a Digital Culture
Deloitte – Digital Banking Redefined in 2021