In the last couple of years, digital transformation in financial services has surfaced as a popular topic across business journals and analyst reports. This article is a brief overview of the factors that can help make these initiatives a success.
According to the 2021 Financial Services Digital Transformation Survey by BDO, most organizations have developed a new digital transformation strategy, and almost 50% are accelerating their existing plans. The report concludes that “Amid an increasingly competitive industry landscape, financial institutions recognize that executing on their digital strategy swiftly and effectively can deliver an impactful advantage.”
The remote working environment that followed the Covid19 pandemic proved to be both an accelerator for some agile companies and an obstacle for others that had rigid strategies in place. In addition, there are many other socio-economic, technological, and organizational factors that influence the state of digital transformation in the financial services sector. Let’s go through the main factors that will shape how these projects will work out over the following years.
Top 3 Impediments for Digital Transformation in Financial Services and How to Combat Them
1. Post-pandemic economic uncertainty
Many organizations tightened their budgets and put strategic initiatives on hold waiting until the economic effects of the pandemic became more certain. So, many digital transformation projects were put on hold in an effort to optimize costs. Ironically, however, the purpose of many of these initiatives is to optimize process and decrease costs and so many companies are and will be paying the cost of delay.
Solution: Choosing the right strategy
By accelerating the digital transformation effort despite economic uncertainty, you will achieve the improvement sooner and the actual savings from increasing efficiency will fall to the bottom line. Assess all initiatives in progress and put on hold those that are not aimed at optimization and cutting operational costs.
2. Lack of organizational agility
Banks and other financial institutions have grown to become extremely complex and functionally siloed, especially given regulatory changes and the diversity of business lines. Companies are slower to react to the fast-changing environment and without an agile mindset and processes in place, the right decisions take too much time or never get implemented.
Solution: Undertaking an Agile Transformation
According to a recent article by McKinsey, a group of agile experts outline the relevance of Agile in the banking industries as a necessary step to achieve greater resilience and customer satisfaction. They also point out that Agile is a way of simplifying and creating more accountability at the front-line level.
3. Legacy technology
According to Gartner’s State of Digital Transformation in Financial Services report, key findings were that financial firms’ approach to digital transformation is measured by their approach to technology: how do they optimize current capabilities and business models or use technology to create new business models and value for customers. Unaddressed technical debt and legacy systems lead to a substantial increase in IT spending and also mean that users are slower to complete their tasks.
Solution: Leverage ML, AI, and desktop integration
Investing in the latest technologies will allow financial enterprises to make their processes more scalable and cost effective. ML and AI prove beneficial to innovating the customer journeys within financial institutions. Tier-one banks and global investment funds have recently turned their attention to desktop integration platforms as the best strategy to modernize legacy systems without rewriting them, optimize complex processes, ensure company-wide interoperability and unify UI for all their systems.
Digital transformation is about improved customer experience, providing them with what they want, when and how they want it. Whether you are a bank, insurer, or asset manager, firms embracing digital business transformation score highly in terms of how they create value and operate. They use technology to offer new customer value beyond what is currently available in the market.
In order to achieve this, you’ll need more than new company values and cosmetic changes. You will have to change your back-end operations to support it. And you’ll need to think differently about how to solve problems. Technology itself isn’t a silver bullet. The success in digital transformation for financial institutions is a combination of a sustainable strategy, an agile mindset, and the best technology available on the market.