Banking and Digital Transformation: 3 Challenges You Should Overcome

It is difficult to imagine financial institutions (FIs) that have not been affected by modern technologies. A recent study by Accenture found that almost 85% of global bankers believe that digitalization in the banking industry will continue to increase.

According to the research, 55% of jobs in banking and financial industries have a digital component and this number is expected to rise to 61% by 2019.


Innovate or die.

This mantra applies to the financial industry more than anywhere else.

Each company sets a goal to better operate with customers and improve customer experience. But today’s customers are demanding digital engagement. Noone wants to visit a branch to open an account, for example.

We can’t say that traditional banking has completely died. Signing a service agreement with a new customer is still happening at local bank branches. A Gallup study reports that 75% of customers still prefer face-to-face communication when they sign a service agreement.

But most services, such as transferring funds, opening new accounts or getting general customer service, are easily performed from a laptop or smartphone. In a 2016 survey, 40% of Americans reported that they hadn’t visited their local bank branches in the previous six months.

Digital transformation is the key challenge for FIs. Updating technology while maintaining business processes, as usual, is always difficult. Take, for example, systems like transaction processing.

Not long ago, we started to cooperate with the IT department of a large European bank. Let’s walk through the challenges and pain points our client encountered during the digital transformation process.

1. Banking Payment Challenges

Banks and other financial institutions should understand that many of their customers are still making transactions through physical channels. That’s not only due to age or ignorance, but because the bank is not in a position to provide another option.

The 2017 World Payments Report (WPR) claims that worldwide digital payments are predicted to reach 726 billion transactions by 2020. Payments technology is evolving at an unprecedented pace due to emerging markets. Keeping pace with such technologies will require certain investments from banks. They will also need to reconcile themselves to the fact that their new competitors, such as PayPal and Apple, also have an interest in digital payment technologies.

Contactless cards and online and mobile payments are all becoming more prevalent. The era of Facebook and Twitter has ushered in a new desire: customers now want to use their smartphones for both communications and conducting business wherever and whenever they want.

Accenture reports that 20% of people have already turned into digital-only consumers. The percentage is even higher among young people aged between 18 and 34. The report also noted that older consumers are also likely to experiment with digital channels.

It all boils down to reducing the role of physical payment channels.

The survey done by Capgemini and BNP Paribas found that banking executives were most concerned about cybersecurity (65%) and data privacy (55%).


Solution: Develop Product(s) to Address Customer Pain Points

In the past five years, customer activity on mobile banking apps has skyrocketed by 354%, with apps now an increasingly popular way to access current accounts, rising from 21% in 2012 to 61% by the start of 2017, according to the British Bankers’ Association, now known as UK Finance.

We live in a world where consumers expect a high-quality user experience from digital applications, and they expect to derive personal benefit from using them. One of the biggest reasons digital initiatives sometimes fail is that banks neglect to really understand what customers want. So before embarking on significant changes, banks should take the time to talk with customers to understand their wants and needs, explore the types of digital services they are interested in and learn how they would use these services in their daily lives.

2. Legacy Platforms and Technology Systems

“If services fail or customer expectations are not met, regardless of whether the root cause is system or process generated, then a savvy customer is likely to switch,” says David Poulton, head of client engagement at eg Solutions, a software company specializing in the back office.

There are too many legacy platforms, applications, and technologies in the banking industry. According to research conducted by Deloitte, many of the systems that are currently in use were developed and implemented in the 1970s and 1980s. That’s why more and more banks are thinking about replacing their core IT systems.

This is also true for cybersecurity and data privacy. These are among the most important issues in the banking industry. If your bank can’t provide security, how can you entrust it with your money?

Solution: Keep Up to Date and Start Upgrading Your Systems

Long ago, a process then called “fast and iterative development” would take several years and cost millions of dollars. But today, new software tools and agile methodology grant FIs advantages that enable them to go from concept to commercial deployment in a matter of months, not years.

For example, we developed a custom fraud management system to protect bank transactions for one of our clients within 5 months.

This is quite challenging for banks and FIs, whose systems must work 24/7 without failure. Which leads directly to the next issue: a lack of technology skills.

3. Lack of Technology Skills

Financial institutions need not just the latest technology, but also people with the right skills to improve the functionality of new platforms and systems. A limited pool of specialists in specific areas becomes an obstacle. Other difficulties associated with technological personnel include:

  • A lack of in-depth knowledge of products, processes, domains or systems
  • The increasing cost of hiring and retaining good people
  • Too much dependency on core staff

“The key challenge financial services chief executives globally are faced with is how to attract, train and retrain people who, for example, combine digital and industry-specific skills – few as yet possess such hybrid capabilities,” says Jon Terry, PwC’s global financial services human resources consulting leader.

Solution: Outsource?

Microsoft employed 1,000 developers to produce Windows 7, and a mid-sized regional bank is employing more than double this number while a major global bank is employing over ten times this amount.

Danske Bank employs 19,000 people in 15 countries, of which 2,200 are developers.

Some bank technology departments are bigger than Microsoft. But should they be?

Chris Skinner wrote in his “Banking’s IT Pain Points”:

“Why would a bank bother with all this pain? Isn’t it all too difficult? Are banks banks, or are they technology firms? I then realised the answer to the question: outsource! Of course, it is.”