The Painful Challenges of Digital Transformation in Financial Services
Table of Contents
- Digital strategy is fueled by customer experience
- Battling old paradigms: digital culture vs traditionalism
- People are the force driving digital change, yet their importance if often overlooked
- Customer-focus vs process-focused approach
- No-code development is a powerful technology for driving digital transformation forward
Despite years of initiatives, the financial services industry still struggles to formulate a cohesive strategy for digital transformation. Although most financial institutions have implemented some initiatives, many watched their efforts stall or take much longer to implement because of:
- Complex infrastructures in the wake of acquisitions and mergers
- Difficult system integration of legacy systems and new technology
- Lack of qualified personnel to manage digital transformations
- Increased costs for equipment and services
With no immediate pressure to accelerate a digital transformation, institutions did not feel a sense of urgency in moving their strategies forward. What they did encounter were increasing regulatory requirements for monetary controls and reporting as a result of the Great Recession of 2008. Updating existing systems to be in compliance became an immediate priority.
As cyberattacks increased, firms had to improve their cybersecurity or face stringent financial penalties if a breach occurred. The short-term pressures were far more urgent than a long-term digital transformation.
And then the COVID-19 crisis happened. Suddenly, the initiatives that were put on the back-burner for years had been pushed forward with never seen before urgency. But despite the need for rapid digitalization of processes, financial institutions are still struggling to embrace true digital transformation, as the old obstacles needed to change didn’t disappear overnight.
Digital strategy is fueled by customer experience
For most organizations, customer experience and revenue growth are the driving forces behind a digital strategy. Yet, most initiatives are still focused on technology, legacy systems, and security. No correlation was made between why a transformation was needed — growth — and what was required– technology — to make the change happen. Without clearly articulated goals, it is difficult to see individual efforts as part of a larger plan.
The financial sector has its challenges as it tries to transform, but it is not alone. Healthcare has had to adapt complex infrastructures as a result of mergers and acquisitions. Blending legacy systems and new technology is an obstacle for manufacturing as well. All sectors suffer from a lack of IT staff and increased costs.
Although it is a highly regulated industry, the financial sector is not alone in addressing compliance concerns. So why has the financial sector found digital transformation so painful?
Battling old paradigms: digital culture vs traditionalism
Paradigms contain the fundamental concepts and practices of a group. When a paradigm shifts, it can be revolutionary. For example, Copernicus’ theory that the Earth revolved around the Sun changed the direction of astronomy. It raised theological, mathematical, and philosophical questions. His paradigm shift changed how the universe was portrayed in literature and the arts. His discovery changed the world.
The financial services sector needs a paradigm shift of the equivalent magnitude. To effect such a radical change is a multi-faceted process that touches the emotional, financial, and structural elements of an organization. If those fundamental elements are not addressed, transformational change cannot happen.
And COVID-19 crisis could be just the impetus needed for paradigm shift in financial services digital transformation. Increasingly, decision makers are realizing that transformational change requires a cultural shift in the essential elements of an organization. Companies need a digital culture to effect a digital transformation.
That means, understanding how employees and customers are influenced by, and interact, with technology. Unfortunately, many institutions have not established a digital culture, which makes efforts to transform more difficult. A recent study found that 80% of digital transformation initiatives fail because they lack a corresponding digital culture.
It takes dedication and leadership to continue the momentum to drive digital transformation forward.
People are the force driving digital change, yet their importance if often overlooked
People determine the success of digital transformation, but they are often overlooked. The focus is on infrastructure and operational processes instead of the digital culture that enables the transformation. The traditional hierarchy and decision-making processes remain as do the persistent views of employee empowerment.
Financial institutions must create a culture that encourages constant learning and accepts failures in the pursuit of innovation. By focusing on creating a digital culture, the financial sector can address one of its pain points — lack of qualified personnel. About 70% of financial services executives say that a lack of skills or insufficient training is the biggest challenge to a new digital initiative. Almost 55% of non-financial executives feel that same way.
Digital organizations provide existing employees with opportunities to expand their skill sets and acquire more digital skills. They also attract employees looking for collaborative and creative environments that offer more autonomy. They understand that a better employee experience creates a better customer experience.
Customer-focus vs process-focused approach
It’s not that the financial sector ignores processes. It’s that the focus is internal rather than external. They look at how to leverage legacy systems or minimize implementation costs instead of looking at the process from the customer’s point-of-view.
Digital companies are customer-focused. They enable employees to find solutions that meet customer expectations. Traditional methods would start with the infrastructure constraints, but digital approaches look at the customer first.
For example, critical information needs to be sent to a set of account holders. A change requires them to select from one of three options. A traditional approach would mail a letter and form to the individuals, asking them to choose an option, sign, and return. A transformational approach would use digital tools that enable customers to select an option and digitally sign the form.
Materials using the traditional approach would require time to create, print, and distribute. Then, there’s the cost of mailing plus the labor expense to manage the returned forms. The entire process could take weeks to complete. With a digital solution, the process could be completed in days.
For example, customers could be notified of the requirement through email, text, or online banking. The form created using digital tools could be available within days, and the back-end processing could be integrated, so managing the forms could be performed automatically. The time and cost to deliver would be significantly reduced.
The digital solution reflects a mindset that enables employees to create solutions that meet customer expectations quickly at a lower cost.
No-code development is a powerful technology for driving digital transformation forward
For financial institutions to successfully transform, they need a change in culture. With a digital mindset, organizations create an environment where employees are empowered to deliver solutions that focus on the customer first. When looking for answers, the financial industry should be asking how to deliver an exceptional customer experience instead of how to meet the requirement using existing systems.
No-code platforms are a digital solution that enables citizen developers to deliver solutions quickly without compromising the integrity of a system. Using an IT-sanctioned solution ensures performance and security without requiring IT resources. No-code solutions can improve the employee experience, which in turn enhances the customer’s journey. They can minimize the cost of delivering solutions by leveraging employee skills and reducing the burden on IT resources. If institutions want to lessen the pain of transformation, they should look at EasySend’s no-code solution.