By Pierre-Alexandre Boulay, Head of CEE at Backbase
While European banks were once considered pioneers in adopting advanced technology, today improving digital transformation is high on most banks’ agendas. Many find themselves still in the initial stages of adopting digital technologies and strategies that are at much more advanced stages in other industries.
But against the backdrop of the COVID-19 pandemic, addressing the limitations of current banking infrastructure has become even more of a necessity. In a more virtual than ever environment, factors like real-time access, flexibility, efficiency and personalisation are increasingly key. 2020 has caused both consumer and business banking customers to adopt digital more fiercely in their own day-to-day, creating increased pressure on European banks to fast-track their own technological transformations.
According to a McKinsey survey of 200,000 Europeans, during May 2020 digital adoption rose from 81% to 95% – a spike that, pre-COVID, would have taken years. Banks are finding themselves with the challenge of keeping pace with this rising demand to modernise infrastructure.
So how can banks best adapt? Let’s look at some of the ways digital strategies can be used to create seamless customer experiences with a lower cost.
Tackle the whole, not slice by slice
We are noticing two distinct groups emerge in the way that banks are approaching transformation.
Some institutions are making isolated technical fixes to their customers’ product offerings. For example, aiming to fix broken processes or upgrade a mobile app. And while this can, in some ways, start to provide a better experience for customers, it’s not a sustainable approach. Issues can arise when banks don’t make all decisions in alignment with a longer term, broader digital strategy for effective transformation. Various modifications in isolation only account for short-term thinking, they won’t create a seamless customer journey, nor improve the cost-to-income ratio.
Elsewhere though, there are institutions that adopt a holistic, platform-based strategy. As opposed to prioritising isolated fixes, this approach benefits from a more universal view of digital transformation and removes existing siloes that may exist across different geographies, channels or products. As banks continue implementing new transformation programmes year-on-year, a single underlying platform throughout this journey allows them to operate across different regions and business sectors in a seamless way. However, setting up a proper governance structure to run a multi-country operation is the holy grail of making this work effectively.
Become digital to the core
So it’s not just about the technology. It’s about how banks use it and whether their leaders can instil a truly digital culture throughout the entire organisation.
Incumbents certainly have a wealth of options to choose from when it comes to modern, cloud-based solutions. But while these can provide a quick technological refresh, banks will see limited results if they continue operating with a conventional mindset. Banks can’t view digital as simply another project, one that exists in isolation. Instead they must see digital as the core of their business model.
Banks have the challenge of ensuring a digital culture is widely embraced across their whole business, combining their banking and local market expertise with innovation and new methods of delivery.
Addressing legacy technology
Many traditional banks are plagued with legacy systems which can seem outdated in the digital age. Currently, many banks have too many point solutions like call centres, ATM machines, internet and mobile – all of which are siloed. But consumers now expect every service they engage with to be as frictionless and accessible as clicking pay-now on Amazon. Customers are used to approaching everything in their lives the way they do Netflix – accessing it all in one place, via one seamless platform.
To match these expectations, banks will need to replace their outdated systems over time using a joined-up, platform-based approach. This is the only way to bring a genuinely customer-centric approach to the banking world.
But those who do will certainly reap the rewards. A seamless, fast and easy journey will lead to more sales, increased conversion ratios and lower cost to serve because core processes are simplified and digitised.
Getting return on investment
Realising the need to improve digital processes is one thing, but the question then becomes how to ensure maximum value for the money invested in doing so. There are three key things for banks to consider when it comes to getting the crucial ROI for new digital strategies.
The first is to create a value map of the business, with all business lines like retail, SMB and corporate as columns, and then processes such as onboarding, digital sales, share of wallet and customer servicing as horizontals.
Then banks can conduct a pain point analysis to determine where most ROI can be realised. For example, a bank could decide to prioritise customer happiness. To measure this, they might create a net promoter score – a percentage of customers who are likely to recommend the bank or product or service to someone else. This score can then be tracked and would improve over time showing the tangible impact of digital transformation.
The third thing to keep in mind is to start small and remain focused. By operating in intelligent ways, banks can achieve faster ROI for their digital tactics, hitting incremental and valuable milestones along the way. We’re seeing most success from banks that prioritise improving one or two key areas at a time, using small, focused teams. Honing particular areas of friction creates a more productive feedback loop and positive momentum, which efficiently sets the scene for scaling up digitisation processes in the future. But of course, it’s crucial to do so on a single underlying platform, rather than in isolation. That way banks can reuse and repurpose their transformation strategies, using them as a blueprint for success elsewhere. More importantly, leveraging a modern technology foundation will not bottleneck your teams in creating change. Too often we see banks adopt “agile” ways but force their IT to work on COBOL or a Mainframe systems. That simply doesn’t work.
Holistic platforms continue to run the show in every industry, and banks can’t afford to miss out. The future of banking is undoubtedly trending towards having one orchestration platform, providing a single view of the customer journey.
For further digital transformation insights from other banking leaders across Europe, as well as from me, you can download The Banker’s 2020 September special report by clicking on the button below.
About the author
Pierre-Alexandre Boulay advises large and medium banking groups in Central and Easter Europe on how to make their digital ambitions a reality. Often they have many challenges, like existing legacy systems and silo-ed architectures. He helps them by designing digital transformation programs which are feasible, tailored, creative and have instant business value