Reimaginging the bank: why financial services need digital transformation

'Firms that fail to get ahead risk being left behind by hungry challenger banks and nimble new entrants'

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The financial services industry is evolving at an exponential rate. Shifting customer expectations, disruptive technology and increasing regulatory requirements are continuously reshaping the sector.

The key to successfully navigating this landscape lies in making better choices in response to change. To achieve this, banks must simplify their decision-making processes so that they can operate with the agility that their shifting landscape requires. Technology – and cloud computing in particular – will have a central role to play in this.

Significantly, the scale of change in today’s financial climate determines that a superficial makeover may not be enough to stay relevant. Innovation and transformation are set to be the key differentiators, and the banks that thrive over the next decade will look very different to the success stories of 10 years ago. However, according to research from PwC, when looking to the future less than 20% of executives claim to feel well-prepared.

Technology laggards

Indeed, while the Financial Conduct Authority’s 2015/2016 Business Plan identified technology as a top-four priority area, banks have traditionally been slow adopters on this front. According to industry research, by 2014 only 16% of UK banks had deployed cloud technologies across their businesses, while almost half had no plans to invest in a customer-facing mobile strategy.

If banks are to adapt to the new demands of the marketplace, this trend must change. One of the challenges holding the industry back in particular is that posed by legacy IT infrastructure. Simply ‘bolting on’ new offerings to existing core systems is unsustainable, as they are no longer reliable enough to support the innovative solutions that will enable banks to remain competitive.

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Rather, significant remodelling may be required to simplify cumbersome systems and ensure that new technologies can be deployed effectively. It is crucial, then, that incumbent banks view the changing industry landscape not as a challenge, but as an opportunity to drive much-needed modernisation and transformation.

An example can be found in the response made by forward-thinking banks to the increasing regulatory burden that has followed the global financial crisis of 2008. These firms are exploiting this opportunity by looking beyond the regulatory requirements; they recognise that solutions are available that will not only ensure their compliance, but enable them to run better across their business too.

To the cloud

The Senior Managers and Certification Regime, for instance, dictates that from May next year senior managers will be held accountable not only for their own shortcomings, but also for those of employees involved in regulated activity under their management.

Significantly, the regulations will also reverse the ‘burden of proof’, meaning that senior managers will be presumed responsible until the regulators have been satisfied that all reasonable steps were taken to avoid a breach.

As a consequence, banks must now take primary responsibility for regulating their workforce and be much stricter in the way they track and report, so that accurate data is available on demand to satisfy the regulators. In this way, the regulations are set to impact the fundamental operations of banks.

Smart banks are seizing the initiative by shifting their operations to the cloud in response. By taking this step, these banks are not only ensuring their compliance with reporting requirements, but exploiting an opportunity to improve their employees’ decision-making in the first instance.

Cloud HR applications can deliver a single view of employees and their actions throughout their lifecycle with a bank. Data can be captured across recruitment, performance and goal management solutions, which record decisions made and communicate goals to those responsible for delivery, and learning and assessment tools, which record proof and provide certification.

Furthermore, cloud-based social software platforms can be deployed to drive collaboration, build consensus and enhance problem solving across organisations, and big data analytics – enabled by the cloud – can facilitate better-informed decisions based on insights available in real-time.

In this way, the cloud – which is enabling banks to work around the limitations of their own systems, with the technology burden being carried by the service provider – offers the means to make better decisions quicker. This is crucial in an environment in which it is imperative that businesses can respond to changing conditions in real time.

Making the complex simple

Crucially, the cloud also offers simplicity. Banks deploying a single in-memory platform across all their business operations can eliminate the challenge caused by storing data in individual silos. As such, they are able to access the totality of the data they have stored across all their applications, enabling them to base business decisions – and subsequent reporting – on a single, reliable source.

This simplicity is of equal importance in the context of growing customer expectations. Customers now wish to do business at any time and through any channel. As omnichannel banking becomes the norm, cloud-based and mobile systems are enabling banks to communicate with customers in ways that were not previously available, meeting the expectation that customer service should be ‘always-on’.

>See also: The end of the branch: Ushering in the next generation of banking

Mobile banking has become a very important channel, already accounting for 60% of all digital traffic at some large banks. Consumers' expectations of mobile banking services are growing as technology becomes increasingly consumerised. But banking investments are depressed by the constant focus on cost-containment and efficiency, even though industry research has found that 82% of retail bankers agree that mobile will become the number one channel for millennials and younger consumers over the next five years.

Importantly, by coupling individual channels to sophisticated analytics solutions, banks are able to harvest data-driven insights across channels and learn to fully understand their customer. This ensures they address them in the most relevant way across all channels. Put simply, digital technology is quickly turning money into the ultimate digital service.

Ultimately, banks’ success will depend on how they to respond to their evolving landscape in the long-term. This requires not a quick fix, but a reimagination of their businesses in order to meet the needs imposed by the competitive forces in the marketplace. Firms that fail to get ahead risk being left behind by hungry challenger banks and nimble new entrants.


Sourced from Jane Tweddle, financial services industry principal at SAP UKI

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