In EY’s “Global Banking Outlook 2018: Pivoting Toward an Innovation-Led Strategy,” 85 percent of banks named implementation of a digital transformation program a top priority.
But financial institutions face legacy hurdles in transforming their internal processes. By contrast, banks have focused a great deal on their customer-facing interfaces, transforming them to conform with consumer expectations. Yet those efforts may be falling behind in comparison to rival upstarts.
The EY report identifies the successful mix of elements required for internal transformation. “Leading organizations will seek internal simplification aggressively and increase their use of external utilities, platforms and managed services where possible,” according to the report. “We believe that a component-based architecture, resembling a set of interoperable building blocks, will be most efficient. A banking ecosystem — a network utility, managed service and innovation partners — will be more important than ever.”
But an organization’s legacy operations and internal culture may stymie these efforts from within, experts warn.
“Arguably, one of the biggest hurdles to change that the banks face are their entrenched legacy operating systems, so hardwired into their DNA that any talk of change is often dismissed or postponed. These systems are complex and high-risk, with some running more than 600 inter-connected software applications at a time, resulting in siloed data and enormous operating costs,” says Pat Patel in Payment Week.
Those entrenched legacy systems account for 15 to 25 percent of a bank’s IT budget, Patel says. Much of that goes toward maintenance costs. These systems also prevent banks from moving quickly to benefit from digital transformation and enhance user experiences.
Innovation Required for Improved Customer Experience
Meanwhile, some agile new banking institutions have excelled at digital transformation that improves customer service. In one example, three credit unions recently moved to a self-service model using NCR Digital Insight to bolster digital transformation.
Branch transformation benefits from “a combination of hardware, software and services to achieve the correct strategic mix of personnel-assisted and self-service channels to evolve the branch environment and deliver an exceptional customer experience,” according to NCR, reports Credit Union Times.
Ray Crouse, president and CEO of Parsons Federal Credit Union, touts his virtual online credit union’s flexibility. “Credit unions like us can now compete toe-to-toe and seize market share that wasn’t possible before, opening doors to endless opportunities,” he says.
“For banks, the consumer’s expectation around digital fueled by the constant innovation of big tech companies has exposed the inability of many institutions to keep pace,” states a column in Banking Exchange. “To compete in the digital age, banks must broaden their view of what is keeping them from being able to respond in a timely manner with modern technology of their own. Digital should no longer be seen as an extra, but rather than an integral part of business.”
Peter Ku, vice president, head of industry consulting and a financial services strategist for Informatica, notes four things to keep in mind when assessing digital transformation:
- Simplify data management. Make all data seamlessly available across all systems.
- Invest in advanced analytics and data lakes to improve risk control. Monitor and fix data quality.
- Centralize a “single source of truth.” “A single source of truth is a trusted data source that gives a complete picture of the data object as a whole,” Ku says.
- Treat and govern data as a business asset. Tie data to business outcomes.