Banking Transformation Challenges – The top pitfalls in the digital transformation of a bank

Banking Transformation ChallengesHolistic banking transformation is a strategic game plan to digitally transform a bank and reinvent the core areas of banking.

As most top bankers realize, the digital transformation of banking is not a cake walk or a one-quarter affair.  Among the larger banking institutions, true digital transformation takes years and often involves painful reinvention.

While the need for transformation is crystal clear – antiquated infrastructure, convoluted processes, disruptive technologies, dynamic and new generation competitors, and a customer base whose loyalties shift rather rapidly.

Banks need to act before the great unbundling of the banking services reaches its zenith.  And many banks are embarking on transformation endeavors.  But here are the typical challenges of the bank transformation roadmaps and plans.

Banking Transformation Challenges:

Let’s examine the most common and critical banking transformation challenges that we’ve seen in the world of banking.

Big Plans without Strategic Vision, Intent, and Commitment:

The digital transformation of a bank is intense, invasive and involved. Paying lip service to a transformation endeavor is a sure-fire reason for failure. For a bank’s digital transformation plan to be viable and successful, it should be led by the CEO (Chief Executive Officer) in conjunction with the C-Suite and with the full support of the board of directors.  In many banks, the C-Suite is playing to the short-term demands of Wall Street, and while there is always a Vision 2020 or Plan 2025, it is nothing but a PowerPoint deck and not a compass guiding the true transformation.

Band-aid projects masquerading as transformation:

Changing the direction of an aircraft carrier in a stormy ocean is not easy. And so is the case with large banks. So, instead of painful reinvention, some banks projects look, feel, smell, and act like incremental approaches.  Please don’t get us wrong – we are all believers in Kaizen, the art of constant improvements across a million things. But to continue the ships and stormy sea analogy, a bubble gum cannot fix a massive leak, at least not for the long-term to safely reach the shores.

“Digital account opening … is a pretty good success story. And we are seeing a lot more accounts opened digitally across the channels, and we’re seeing, of those, a decent chunk of net new to bank.” – Marianne Lake, CFO of Chase Bank.

Silo’ed Approaches to Banking Transformation: Banks are still looking at the digital revolution as a way to build yet another app or make the website responsive. Of course, both apps and responsive websites are important, but if they are not part of a holistic banking transformation, the impact will be minimal. Bank Transformation Challenges

For example, with fanfare, a bank releases a mobile app for customers to view balances and maybe do a mobile capture of a check. Great. But then comes another app for payments, which is separate.  And in both of these cases – there is no provision to serve the commercial and corporate banking clients.  Given the scarcity of real estate on a mobile phone or the mindshare online, a bank cannot expect a user to use five apps based on which product or service they are using.

Let’s take the example of Mary Customer: She is a professional and has a corporate credit card, a side business which necessitates a business card and a separate checking account, a mortgage, savings, and retirement accounts. If she cannot get all the things done thru a single app (or online), the experience is disjointed and broken. Furthermore, a channel cannot be a silo of its own as a customer may want to talk to a banker while perusing the web site or an app.

“Any time we have a client in a digital channel, if they want to stay there, that’s great; but sometimes they need to speak to a person, and we want to let them use their channel of choice,” Mary Kate Loftus, the head of multichannel for ‎retail banking and wealth management at HSBC’s U.S. unit. Read More.

Visual Design is not a User Experience:

Bankers look at the slick application interfaces of Fintech startups and tend to hire visual designers by the dozen to transform the staid and complex banking interfaces.

Most of the time, the redesign of how the bank workflows and screens look is not preceded by re-engineering of underlying processes, which is where the bulk of the problem lies, the resulting experience is nothing more than lipstick on a pig.

Bank online interactions are fraught with frustration because of arcane jargon, repetitive data entry, the reason the information being sought is necessary, and not knowing what comes next.  So, in essence revamping the customer journey and the workflows are far more important than just visual design.

Compliance is an Afterthought:

We live in an era of complex regulations that diverge from regulator to regulator, jurisdiction to jurisdiction, and the pendulum swings based on who is in charge. While embarking on a comprehensive outside in and inside out transformation of a bank, it is essential to account for the myriad regulations and compliance mandates and incorporate them into the core banking processes. If not, the compliance function will become an appendage at best and an unsolvable burden at worst.

Buy a Tank to Kill an Ant:

Among the banking transformation challenges, this one could be an expensive and complex boondoggle. Banks buy expensive software systems and barely use 1/25th of the available features and functions. Of course, if there is a rollout plan or a clear rationale to use the rest, it may be a worthy buy. However, in most cases given the heavy footprint, the software is generally not easy to learn, has too many features that confuse the end users as well as internal users, and of course, costs the bank an arm and a leg.banking transformation challenges

If a bank designed an built an iPhone, it would have come with ten other ports and 100 other buttons and weighed 10-pounds. This penchant for covering every base is a cause for the complexity spiral.   The corollary is true of other banks. Purchasing hundreds of fragmented solutions with interoperability causes the challenge of application proliferation, replication of functionality, and dozens of piecemeal applications that don’t talk to one another.

Revolution without Participation:

The digital revolution is never successful without the foot soldiers of the bank – the operations folks, the tellers, the call center employees being on board.  Digital transformation often involves role and position rationalization consequently leading to a reduction in workforce.  While this is inevitable, it behooves the bank to be transparent and honest about the repercussions, while also discussing the rationale and the rewards.

Employees will be on board if they know the motivation of the top management is aligned with the customers and employees and the changes are meant for the greatest common good.  For example, there is a lot of fear of cognitive technologies such as machine learning and artificial intelligence. Allaying the fears by presenting the facts, discussing the future possibilities, and the risks are always the best strategy.

Playing the Game without the consideration of the Opponents:

Last but not the least, many banks create a strategy and plan for a transformation as though the rest of the world is sitting still or does not matter.Banking transformation challenges - competition

If Bank A acquires a Fintech firm, it may not be a competitive advantage as Bank B may acquire another Fintech, and Bank C may launch the same concept by way of an internal incubation lab. These counteractions and counter strategies negate or lessen the benefits. It is like a football team may have hundreds of plays in the playbook and opponents also have their defensive schemes to counter many.

So, it is not a question of how many plays you have, but it is about how you read the situation and executing the strategy.  For banks, techniques such as scenario planning and wargaming will help in understanding the dynamic competitive landscape and moves and plan for a battlefield with real opponents and the moves and countermoves.

Are there other banking transformation challenges that we did not address? And how did your bank deal with these challenges during your bank’s transformation journey? Please feel free to share your thoughts.

Please look check out our banking business capabilities model and other banking transformation deliverables.  Please also review a sample case study outlining the digital transformation of a retail bank.