How to be sure if your banks digitalization is going in the right direction and fast enough?

Many independent surveys in 2021, like the one conducted by BCG, are showing that the majority of organizations within the finance industry do not have a clear understanding of the benefits of digitalization or how to achieve those benefits and that many of those “digital projects” at the end fail to deliver expected ROI.

On the other side, organizations have accelerated digital business initiatives at full speed mode, with high expectations for the end result. Digital maturity continues to increase, from experimentation to scale, from investment to results becoming a continuous process.

A bit contra dictionary situation. So, what is going on in reality?

The conclusion might be that some banks and other financial institutions are running fast, but still do not have a clear idea about the direction or how to deal with the obstacles and traps they might encounter on the way.

One of the reasons why it is like that is because many banking solution providers are heavily promoting their solutions, showing only success stories, but the question is – does the promoted solution solve “our bank business problems” and create a new value for our customers or it is just a buzz word coming from “digitalize or die” approach?

How to ensure we drive digitalization in the right direction?

If we would need to describe the “why bank digitalization fails” in one sentence then it would most definitely be the quote of Mr Bernard Malamu:

“If your train is on the wrong track, every station you come to is the wrong one”

 In other words, by choosing a wrong solution that does not solve your main business problem(s) and does not create a path for new digital processes to be implemented, your bank digitalization will most probably fail to meet expectations and deliver real ROI.

That is why we should focus on a couple of very important steps before we start implementing a new solution.

Clear definition of digitalization strategy and goals

There is no one-size-fits-all solution, different banks will have different strategies depending on their current state:  culture, banks’ business strategies, existing strengths, and identified gaps.

Change isn’t all about technology, if banks are to successfully face the challenges posed by new digital competitors and changing customer expectations, they need to think beyond technology. Whatever path of change a bank undertakes, whether organic or inorganic, it must be partnered with a willingness to entirely rethink its strategy and business processes in order for its transformation to be successful.

This means objectively considering the use of channel apps, the cloud, the use of big data — and defining how any decisions will contribute to the organization’s overarching business strategy.

General approaches that banks undertake might be divided into several categories:

• Digitalization of current business models: legacy system upgrades, upgrading of digital user interfaces/channels, and digitalization of the operations
• Grow beyond core business into relevant ecosystems, which might be centralized and/or decentralized: joint offering with companies from another industry as the line between industries is constantly blurring (Insurance, Telcos, etc.), partnering with FinTechs & BigTechs/Digital giants (Amazon, Google, Alibaba …), cooperation with Aggregators, Retailers, Challenger banks & Neo banks, launching their own property, car and electricity market place, etc.
• Purchasing an existing digital bank or building one: strategy implemented by bigger banking groups, and often referred to as “lifeboat” banks

Banks that do not decide to invest in some of the mentioned options, and rely on heavy utilization people in the process and for decision making, will in the coming year’s face a revenue fall and encounter a level of costs that will put them in the position to be hardy profitable.

Let’s start with the topic on how to define, or better say re-define, the digitalization strategy and what should be included:

1. Identify all digital initiatives. While creating a digital strategy bank should include all digitalization ideas, starting from digitalization, rethinking and optimization of current business models (existing processes, products and service lines) and implementation of new “digital-only” that will generate new revenue streams in the future.
2. Identify new revenue sources. What was the main revenue source for the bank in the past decade may not be the one in upcoming years. That is why identifying new digital revenue sources, like revenues coming from the ecosystems, data monetization should be included in the strategy as well.
3. Create a concrete business case. As soon as the bank identifies business model, processes, and revenue streams, the next step should be creating a concrete business case and narrowing down the implementation steps that should be focused on solving the main challenge within the business case, delivering the real value.
4. Prioritize investments. Banks should prioritize investment on the basis of real business value generation—higher revenues and lower costs—and ROI. In many cases, this pragmatic commercial lens is missing, following the approach we have to do it, without exercising the real impact on revenues and costs.

How to measure the digitalization journey?

No matter which strategy the bank applies to their digitalization process,  appropriate KPIs should be defined as the core foundation of measuring project success. Some of the most important KPIs are mentioned below:

1. Get to know your MAU – monthly active users. This KPI presents to you how many users actively use the new solution and this number indicates the progress you make within your existing customer base. Also, metrics like daily active users, conversion rates, and abandon rates can help you get an overall view of the adoption rate which further indicates the speed of the progress you make.
2. Actively measure your Net Promoter Score – NPS represents a customer loyalty and satisfaction level that you get from asking customers how likely they are to recommend your service to others on a scale of 0-10. This metric will help you deeply understand how your customer base react to your new processes and if they are more likely to recommend your company now in comparison with the previous NPS metrics (for delivering services in a non-digital way)
3. Mesure your employee satisfaction index. Getting to know if during the bank digitalization journey employees aren’t engaging the way organizations to expect them to means that the technology is not powerful enough to make the shift from the old way of doing business to the new one. Nevertheless, you have a well-planned strategy or a great software solution at your disposal, without having proper employee engagement the project will not be successful

But this is not the end of KPIs that banks should measure during the digitalization journey, sign up here and be among the first ones that will receive new blog posts about KPIs and metrics to follow during the bank digital transformation.

How to avoid and deal with typical traps on the “Go to Digital” road?

Despite significant investment and effort, many banks struggle to make digitalization pay. There are a couple of usual challenges on the digitalization road that we could group into 3 categories:

• Organizational Resistance to Change – Despite the presence of change all around us, organizational change does not come easy, however. In fact, many organizations fail to make the changes that are necessary for their survival. In many situations, we as solution providers faced the situation where organizational resistance to change is so high that the technical aspect of implementation has not been strong enough to push the project further. That is why it is out of the most important that you create a culture inside the organization that will support the change and give the authority to the stakeholders to make decisions independently, promoting the change within the organization. To be successful long-term, a major cultural shift is required, one in which employees at all levels come to appreciate and even value a company’s transformation. While many financial institutions know they need to change, few recognize the magnitude of change required
• The pace of delivery is too slow – Many are saying today that we have only one business speed – high speed. And that is a trap on the digitalization road. In order to go for digitalization at the proper speed, the goal is not to go as fast as you can but to go at the right speed and not over digitalize but to adjust digitalization speed based on current digitalization level, customer base, and processes.
• Business impact is poor – Not even half of the respondents to BCG’s survey said that they have a clear understanding of the benefits of digitalization or that they are achieving those benefits.
• Poor prioritization of digitalization journey – One of the main “traps” many banks flow in is – to digitalize everything and digitalize all processes at the same moment. This is one of the main reasons why digitalization fails so the bank should wisely define and prioritize their own digital journey and what should be digitalized first, taking into account their current level of digitalization, customer base, and absorption level. Even though this might be seen as simple to do tasks,  there are cases when digitalization went too fast, resulting in the unexpected (negative) reaction from customers and a high negative impact on bank customer base and in the last instance, bank profits.
• Not ready to pivot – Many pieces of digitalization puzzles might be missing, as the pace of technology change is very extremely fast. That is the reason why solutions that banks chose have to be open for new technology acquisition. On the other side, the decision-making process has to be fast and pragmatic, always having in mind the goals and KPIs the bank wants to achieve.

Respondents said that programs lack delivery speed, the scale expected, or bottom-line impact and that is why it is out of the highest importance that we do not oversee where we are heading to. That is why we should always have a strategic and tactical plan that will guide the implementation process and put the customer in the focus of all digital activities.

What to look for while looking for a digital banking solution provider?

Looking for the right IT solutions provider is essential when choosing a software solution for your bank digitalization. Here we will state a couple of criteria that every bank should get through with the pre-selected banking vendors before going forward:

1. Industry expertise.

While the technical fundamentals are important, they are more or less the same across all industries but business needs are not. Every implementation needs to be tailored to specific business needs and that is why it is important that your solution provider has a strong foundation of experience in your industry. They’ll come to the task with a baseline understanding of the operational and user expectations the information technology needs to support and use that to develop solutions that meet those unstated requirements.

2. Flexible solution.

As your organization grows, so do its demands. This means you’ll need a digital solution provider & solution that can scale horizontally and vertically. In other words, solutions have to be capable of seamlessly integrating new users and scaling support whenever necessary — and on the other hand to be able to add more features without causing disruption to service delivery. If the software you’re using is not evolving with your organization, then it’s more of a liability than an asset. That is why it is out of the most important that the solution can support bank digitalization journey gradually following the bank’s pace, regulatory context, and capabilities to absorb changes on both sides, banks culture & resources as well as capability of acquiring new technologies.

3. Reputation.

Look for a solution provider that’s been around long enough to have developed a good reputation. Be sure to check references and speak to some existing clients to hear how well services were delivered, whether contract commitments were met, and how easy the business was to work with.

Conclusion

The process of selecting the right digital solutions for your organization is not a quick or straightforward one and it usually takes months (or even a year in some cases) of researching and comparing apps from different providers, and having so many options is just making the whole thing go on longer. But invest enough time, and you’ll reap the rewards in the long run. If you need preparation assistance or advice on how to start your bank digital journey send us a message and let’s build your customized digitalization journey.