The pandemic accelerated digital transformation, made customer experience a greater differentiator, and added complexity to an already process-heavy, regulated, and risk-averse industry.
While banks know they need to step up their digital transformation efforts, they’re focusing on the wrong strategies and tactics to achieve them. First, to define and document processes, the old ways of working — manual sticky notes and applications such as Visio and PowerPoint — aren’t good enough. Second, the priorities banking executives set are often undermined by what they neglect.
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For example, in a recent Digital Banking Report, 88 percent of banks said they wanted to focus on customer experience, however, operations was only a focus for 18 percent of those surveyed. The missing link is that in order to obtain a great customer experience, the process starts by improving back-end operations.
To set themselves on course for sustainable recovery, banks need to ensure they’re not inhibiting their own digital transformation efforts by focusing on the wrong things. If you’re looking for a competitive edge, here are a few things to keep in mind.
Contradictory Choices Are a Balancing Act
Banking CEOs have always been asked to balance competing priorities. However, in the last year, changes driven by the global pandemic turned quick decision-making into a necessary skill, especially when it comes to short-term survival vs. long-term growth.
Reviewing top priorities for banks in 2021 in The Financial Brand’s Digital Banking Report, there’s an interesting paradox in that the lowest priorities — innovation, operational excellence and culture — are instrumental to achieving the top three priorities: digital transformation, improving customer experience, and cost management. If bank leaders do not focus on the capabilities essential to improve banking processes, their transformation efforts will be undermined in the long term.
Furthermore, according to research from Bain & Company, 85 percent of executives say that the greatest barriers to achieving their growth objectives lie inside their own four walls. In the largest companies, this rises to 94 percent of executives who believe that their most difficult challenges are internal, not external.
Why is this?
Each potential decision relies on input and cooperation from multiple stakeholders, who in turn are influenced by another set of requirements, and so on. But stakeholders aren’t always on the same page. Without a single source of truth to make data-driven decisions, leadership will be stuck between competing factions and opinions.
How to fix this?
In a word: Process. It’s the lifeblood of a business: it defines and directs how a business runs on a daily basis. How much should a service cost? What information is stored in a customer account? How are funds secured? How is credit validated?
In highly regulated, process-driven environments such as banking, financial services, and insurance, the process is the difference between making a profit and making it up as you go along. But process management is still too often an afterthought. This is where many banking leaders get into trouble because the essentials that drive processes forward are often neglected or brought in too late in a project to have strategic influence.
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Prioritizing Your Process Standardization
Even without a global pandemic, most businesses understand the need for standardized, transparent business processes. It creates a feedback loop to reveal what’s working and what’s not.
Yet many organizations see process standardization as a low-priority initiative. Why? Most think, “Well, it’s hard to fix a car while you’re driving it.” Improving active processes within a complex financial institution can seem overwhelming. However, the interconnectedness of these processes, and the data they generate, provide good guidance toward optimization.
The effect of process transparency across the business shows up in alignment across teams and business units. It also allows revised processes to be simulated before they take effect, meaning that disruption can be anticipated and avoided or minimized. Success here has a mutually reinforcing impact on processes in other areas. For example, an increase in the speed of loan approvals can lead to reduced customer complaints.
Understanding Customer Experience
COVID-19 has introduced new complexity into each of these areas.
For example, the ability to innovate in digital customer experiences is essential to banks. KPMG’s research shows that banking consumers increased their use of digital banking services by 50% since the beginning of the pandemic, with 71% using digital banking channels weekly.
Accenture also found that 79% of banking executives agree there is a need to dramatically reengineer the experiences that bring technology and people together in a more human-centric way. And, while 61% of bankers say a customer-centric business model is “very important,” only 17% say they’re “very prepared” for it, according to PwC.
Another reason for banks to worry? Digital native challenger banks can operate at 60% to 70% less cost than legacy banks, according to Bain & Company benchmark data. This is due to their digital-first approach with agile technology platforms, distribution structures, operations and lines of business. The same analysis reveals that upgrading technology alone, or fine-tuning existing processes, will not automatically make a bank more competitive. Customer experience is a critical factor in maintaining a competitive advantage.
Digital transformation is not simply how you react to change — it’s about future-proofing your business by creating the muscle for continuous adaptation so businesses can embrace new opportunities as they emerge.
[To share your insights, please write to us at sghosh@martechseries.com]
