Financial institutions are facing an unprecedented shift as they try to bring their customer relationships into the digital age. Data from American Banker says nearly half (49%) of banks are still in the planning and development stage of large-scale digital transformation. In fact, 8% are only in the nascent stages of building a business case.
This presents the industry with an opportunity. A 2020 study by Boston Consulting Group found that a staggering 70% of digital transformation projects fall short of their goals. Often the reason is because the plan hasn’t been thought through enough. With banks still at the beginning of this journey, they have a chance to get this right before modernization projects kick off.
So where do I think banks should be focused? There are lots of lessons that banking can take from the tech sector, where I worked for 25 years before coming to Temenos.
The most important thing is to be uncompromisingly committed to what customers want. Consumers now expect the same digital convenience from their banks that they receive from retail and tech companies. In the B2C world, think how many services integrate right into social media platforms like Instagram so you don’t need to come off the platform to use them; or how the iPhone brings lots of different capabilities into one machine, so there’s no need to carry a camera, wallet or a map.
Banks need to offer a seamless and intuitive experience at all stages of the customer journey. Whether it’s opening an account, applying for a loan, checking your credit score, initiating a payment, or querying a transaction, it must be convenient and feel like part of the same experience. In other words, products and services that seamlessly integrate in an interface the customer wants to use.
Data is key to achieving customer-centricity. Data insights should be used to inform product roadmaps, engage and land new customers, and drive continuous innovation and improvement. I’m preaching to the choir here. According to that same American Banker report I referred to at the start, bankers believe that using data to make decisions is the second most important factor for banks that are successfully leveraging technology for a digital transformation.
The big question is ‘how’? Don’t underestimate what’s involved in being a data-driven organization. It starts with the architecture, through to data processing, includes automation that drives smart decisions in real-time, and analysis software that educates and informs new innovations. Data is the brain that directs the rest of the body to do its job.
Go Composable, Not Big Bang
Many banks think of digital transformation as this massive overhaul; time consuming, costly, and risky. No doubt that is why some put off trying. But with the right technology, banks can start small and modernize incrementally. A composable platform enables this.
Some of the world’s leading technology companies achieved their success with the concept of composability; starting with a business function and building it into an entire suite of software capabilities, accessed through a single platform. Think Salesforce for CRM, Oracle for ERP, Microsoft 365 for office functions and collaboration, or ServiceNow for workflow management. Once a business is plugged into these platforms, they have everything they need, whether they choose to enable all the modules at once, or gradually over time.
A composable banking platform offers this same flexibility. It allows banks to adopt specific capabilities or a suite of pre-composed complementary services, and then ‘turn on’ other modules over time. Some will only ever decide to leverage a few services and double-down on those, such as BNPL, digital mortgages or cash management. Others will gradually extend their offering over time. Some will choose to go all-in with everything they need to provide banking to a segment, such as Islamic banking, SMEs, corporate or wealth management.
The bank of the future will be assembled piece by piece, not built as a monolith. Compare this composable approach with ‘old’ banking, where disparate systems procured from multiple vendors require complex and costly integrations that took years.
Always be Agile
Composable banking enables banks to bring new services to market much faster and more cost-effectivelythan before. That cultivates innovation. The old way — the 10-15 year transformation project — is replaced by an agile approach. New ideas are easy to test, and are easily replaced if they don’t meet the needs of the business, or quickly scaled if they do. It means banks can start at the edge, with their non-critical operations, while legacy investments and core banking systems are maintained. In the end, these mission critical elements will need to come under focus too. But taking a bite of the elephant instead of trying to eat the whole thing at once, so to speak, enables a bank to make progress faster.
A Fresh Perspective
I am very aware that technology on its own is not the whole answer. Banking is a very complex sector, especially when done at scale. The unique way that big banks organize themselves into different entities, the eye-watering amount of regulations they must comply with, and the rise of fintechs, big techs and non-banks that can now offer embedded banking services are just some of the challenges banks face.
This is why I’m so excited to join Temenos. We have a great group of people, Temenosians, who understand what banks need in order to give their customers what they need. When combined with our market-leading solutions which are used successfully by thousands of banks and credit unions around the world, we know we are a partner that can deliver at today’s rapid pace. Together we are breaking down the barriers that have gridlocked transformation programs.
It’s always been an exciting time to be in technology. Now, it’s an even more exciting time to be in banking.