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While digital transformation is critical to the long-term viability of all companies, in all industries, financial services firms in particular are feeling the heat. How can these types of firms achieve digital transformation success?
On the consumer/retail side, the shift of wealth from Baby Boomers to more tech-savvy Gen Xers and millennials has created an urgent need to replace branches and in-person interactions with more digital banking services. Although the pandemic accelerated this shift, numerous studies like this Deloitte report show that consumer appetite for digital financial services was growing as far back as 2018.
On the commercial side, businesses seeking to streamline and automate their own processes want seamless ways to incorporate banking workflows and transactions directly into their operations.
But it hasn’t been smooth sailing. Countless years after the industry turned its focus to digital transformation, many financial institutions still struggle to make it a reality.
According to a McKinsey study on digital transformation among development banks, an increase in the volume and complexity of requests and the pressure to simultaneously reduce bureaucracy and cut costs are two major obstacles financial institutions encounter when it comes to digital transformation. But these challenges are not unique to development banks – all segments of financial services find themselves facing similar issues.
It's time for financial institutions to rethink digital transformation. But how?
The Back Office Matters Too
Financial institutions, just like companies in other industries, tend to focus their digital transformation initiatives on front office processes. They devote nearly all their time and resources to customer-facing digitization – it’s a race to see who can roll out new digital banking services faster and better.
But like companies in other industries, this approach leaves a gaping hole in their strategies and puts them on a path to failure. Inefficiencies in the processes required to fulfill customer requests still has a very negative impact on customer acquisition, satisfaction and retention.
In addition to setting up digital customer-facing channels, McKinsey urges financial institutions to “standardize and professionalize processes, specifically in the back office, through increased automation in the workflow” in order to increase throughput and scale current activities.
And since financial institutions rely heavily on complex documents to do business, the automation and streamlining of back-office processes related to collaboration, generation and maintenance of these documents must be an integral part of any digital transformation strategy.
Driving Cultural and Organizational Change
Perhaps most importantly, success may require financial firms to completely restructure their digital transformation approach. “The industry must stop treating digitization merely as a process for translating branch-level tasks into digital equivalents. That time is past,” says a recent article in The Financial Brand.
McKinsey agrees that digital transformation requires changes beyond technology alone. They note the importance of support from senior and executive management, and recommend the creation of a task force to manage cultural and organizational change.
Take complex documents, for example. These processes often fall victim to the “if it ain’t broke, don’t fix it” mentality. They rarely take priority in digital transformation efforts – in spite of the fact that they are outdated and manual in nature, leading to endless delays and errors that frustrate customers. They are ripe for digitization, but overlooked in favor of flashier front-office projects.
Financial institutions must shift their view, looking at digital transformation as a way to enhance operations from end-to-end, start to finish. That means not just the customer-facing banking services, but the back-end activities that support those interactions. And, experts agree, that way of thinking must come from the top.