Adela Wiener, CEO at Aurachain
Change is often difficult, time-consuming and expensive. But ignore it at your peril. For years, business change of course has centred around digital transformation, what else? Here, the banking sector is not the first thing that springs to mind, nor is it the definition of cutting edge. The truth is that banks have reached a crossroads and need to seriously adapt their businesses now or, over the next few years, some brands may disappear altogether. As the old cliche says: change or die.
It’s time for action
A report from The Financial Times Focus (FT Focus) illustrates the urgency for banks to modernise their offering. Not only do two in three banks expect to lose market share unless they embrace digitisation, but 58% of respondents predict they will cease to exist completely in the next five to ten years, if they fail to change their business models. Wow, that’s a frightening prediction and one that I don’t believe exists in any other sector, making it the ultimate driver for change.
The report goes on to say that with 74% of respondents predicting that technology giants such as Amazon and Google will hold the largest market share of the banking industry within just five years, now is the time for action. I do wonder which brands will fail to achieve enough change and be lost to history.
Making change actually stick
One major obstacle as banks transform digitally is the fact that they cannot let go of their outdated legacy systems. They look even further behind when you consider the likes of Apple, Airbnb, Amazon, Google, Netflix and Uber and how they are actually transforming modern life for all of us. And that customer viewpoint is an important consideration for banks as they have many neo-banks and fintech apps snapping at their heels ready to hoover up their customers if they are perceived to have made the slightest slip.
What is still holding banks back? With constantly shifting goalposts due to changing markets and expectations, reaching that ‘digitally transformed state’ is in reality unachievable. Rather, it becomes a process of continuous evolution as new systems/projects are introduced over the short, medium and long term.
Some banks are grabbing the headlines, for example JP Morgan Chase is moving as much as 50% of its applications and data to the cloud in 2022. Given increasing customer demands and market pressures, as well as the need to respond to world events, it makes sense that banks need to start thinking like technology companies, that’s why the same bank invests $12 billion per year on technology.
Covid sped up the digital transformation process in banking ‘a great deal’ (60% according to Statista) but it is still lagging way behind other sectors with Technology (78%), perhaps predictably topping the list, but also Healthcare (74%), Retail & Ecommerce (70%), and Manufacturing (65%).
Not only do banks appear slow to react to such a crisis, but they are still just dipping their toes in the digital water, with only 27% launching a digital transformation strategy last year.
Furthermore, according to Cornerstone Advisors, seven in 10 banks don’t plan to replace their core systems as part of their digital transformation. In addition, few have deployed—or plan to deploy—core integration/middleware platforms or payment hubs. Without these platforms and without replacing the legacy systems, the promise of real digital transformation will be difficult to attain.
It paints an even bleaker picture when we consider that 70% of transformation projects within financial institutions fail altogether and deliver no meaningful return on investment. Clearly it’s time for them to up their game and use the technology shifts in the market to their advantage.
What does Digital Transformation mean for banks?
When done right, the billions being invested in digital initiatives makes good business sense and delivers a win-win for both customers and banks. Customers enjoy better experiences and the convenience of accessing services across multiple devices; while banks see improved process efficiency through automation.
With customers able to do more online safely and securely, trust in the brand grows, and they can enjoy a more personalised offering with better customer engagement.
Banks benefit in a number of ways too. Not least, increased revenue and client satisfaction due to 24/7 always-on services. Acquisition of new customers becomes cheaper and easier. Better customer engagement stems from leveraging client data. Account management and support become easier via digitised paperwork. Digital transformation enables organisations to build an environment of ongoing innovation and adaptability vital for future growth.
Ultimately, what this means operationally is a huge number of efficiencies, not least: elimination of paperwork; less time spent servicing clients; increased productivity; organisational transparency; effective teamwork; lower operational costs; and risk reduction in core activities.
The challenges facing banks
Bank CIOs and Digital Transformation Leaders clearly do not have an easy job. But with massive budgets on the table surely they can buy their way out of this?
Arguably banks are simply playing catch-up, making investments and changes that should have been made five (or more) years ago.
Not helping the matter is the significant developer skills shortage, which makes it difficult for firms to hire the right technical resources to support projects, and the fact that some projects can take up to 18 months to complete with a traditional development approach.
Furthermore, by the time one area has been tackled, the market has often moved on once again, and the ‘new’ solution is no longer quite as new.
How low-code can help
Business Process Automation is of course vital for banks to achieve any sort of digital transformation. One solution that will help banks meet current, and future, challenges is using low-code in their automation. In fact, Gartner analyst Milind Govekar predicts that 70% of new applications will be developed using low-code or no-code techniques by 2025.
A low-code platform enables organisations to achieve a rapid rate of change with minimal effort, coupled with fast delivery. This is because low-code enables the building and updating of process applications with reduced coding. The traditional hand-coding approach is replaced with an intuitive visual development style. Here, drag and drop user interfaces are used to add different types of elements, such as connection to databases, other software applications or logic elements, and even blockchain implementations.
This reduction in code requirements drastically accelerates development timelines, both for new application builds and change requirements to existing processes. The organisation becomes more agile as a result, and is able to achieve significant gains in operational efficiency without any breaks in governance. In other words, low-code makes complex automation easy and accessible, in a highly streamlined and comprehensive workflow.
CEC Bank, one of the largest financial institutions in Romania, used the Aurachain low-code platform to accelerate digital transformation in three critical areas: an integrated system for monitoring and maintenance of the bank’s ATM and POS fleet, a fully digital onboarding process for new SME customers, and the digitalization of online trade finance solutions for SMEs. Key benefits include an automated platform that achieves high reliability, availability and maintainability of key business services for ATM/POS. In addition, the new onboarding process automates complex workflows, incorporating business rules and actions; implements a single user interface across systems and processes; can be quickly tailored to incorporate internal or regulatory governance processes.
Customer-First Priority Areas
How should banks focus their considerable budgets now to ensure digital transformation success?
The first step is vital to get right: the strategy must focus first and foremost on the customer. Here, automating processes to create a seamless CX plays a major role. In addition, customer data must be used to create more personalised services and products.
Delivering an omnichannel offering is not only important, but expected by customers. Significant technology investments are required to compete with new fintech companies, online banks and challenger banks – as well as meet ever-climbing customer expectations. Not surprisingly, finding specialised business transformation talent to develop such solutions is critical.
The Future
Within financial institutions that think they’re three-quarters of the way through their digital transformation strategy (or more), just 39% implement Robotic Process Automation; and way less are using chatbots or machine learning (according to Cornerstone Advisors). Given the fact that low code is so critical to intelligent business automation, how can they seriously be moving towards a digital future without using these technologies? There seem to be some major discrepancies, implying institutions are in fact further away from their goals than they believe.
One thing is clear. With the alternative being possible death, banks need to change now.
Those that step up and put the tech and cultural foundations in place today, including using low-code to achieve process automation, will find themselves well-positioned in the future.
As opportunities arise with more emerging technologies, these organizations will be ready to forge ahead while many others will be falling further behind in the catch-up game.
