Digitalizing the bank: Challenges, opportunities and strategies

Many believe that digitalizing the bank is all about transforming the customer journey and experience. Others think it involves primarily the back office. It’s really about both, with some product re-engineering thrown in, too. Digitalizing involves redesigning how customers interact with the bank, changing product design, as well as simplifying and bundling back-end processes. However, it’s important to start with the customer journey. This is what should drive an enterprise-wide digital agenda.

Insight from this year’s CGI Client Global Insights reveals some of the biggest digitalization challenges facing banks are managing the necessary cultural change, finding the right talent and technologies, and dealing with legacy constraints. Banks realize that certain segments of their customer base are very willing to try out other providers. Customers may have been sticky in the past, but the digital world makes it all too easy to switch. However, it’s perfectly feasible for banks to effectively compete against both new players and re-invigorated traditional banks. The key is to understand what makes a bank unique and how it remains relevant.

Progressing in digitalization maturity

Digitalization lowers the barriers to entry in any market, and banking is not immune. Modernization of the customer journey, better data analysis, automation and operating at scale are necessary, but insufficient for the digital future. Agility, innovation (product and customer) and trust also are key.

In terms of assessing a bank’s progress toward digitalization, it’s more helpful to talk about its digitalization maturity stage rather than whether it has or ever will fully transform. The question then is whether the bank has achieved a specific maturity level based on its objectives. The new norm is continuous, low-level change, as there will always be new customer demands, new technologies and new competitors to address.

A key milestone in the transformation journey is agility—the ability to respond quickly to new demands. One manifestation of this is the adoption of a DevOps methodology that supports the release of new software every three months. Agility doesn’t stop at IT, however; it’s also needed in the business sense, too. For example, how quickly can we launch a new type of account in response to a market change? How can we treat customers based on their demographics by, for example, providing different services to younger and older people? In addition, how can we do all of this faster and for less cost?

Importance of the employee experience

The customer experience shouldn’t be the only focus when it comes to digitalizing. When a bank transforms its organization, the employee experience also has to be a part of it. How will employees fit into the new organization? How will their work change? What new tools do they need? What will they need to embrace the change? Communication plays a vital role, here, too.

The employee experience, in fact, is critical. Digitalization enables your employees to perform fewer manual tasks and concentrate on more collaborative and productive activities. This changes the employee journey, just as it changes the customer journey. Digitalization also extends to how and where you recruit employees, as well as to internal practices, processes and cultures. One large bank, for example, opened a new office in a smaller city with a local university to attract graduating students who didn’t want to move to its main office in a much larger city.

Strategies to become agile digital businesses

There can be a “pick-and-mix” approach to selecting a strategy to deliver the digital bank. Setting up a new digital bank within a traditional bank is one road, while setting up an innovation group within the bank is another. You also can re-orient your organization so that running the bank and changing the bank no longer are separate functions. Instead, you can embed your “change” function within the business lines to help drive agility and faster delivery. Of course, thanks to open banking, you can team up with third parties such as FinTechs to drive innovation, too. Product re-design from a customer journey perspective is essential.

Whatever path you choose, consider these critical success factors for your digital journey.

Align business and IT. Some banks develop strategies from a business perspective. They evaluate how the business is organized and implement business transformation strategies and programs that align with IT. Other banks view transformation from a technology perspective, focusing on modernization and new technologies. Whichever perspective is embraced, it’s important for business and IT to be aligned.

Pilot and prove new technology. Harnessing emerging technologies in effective ways is key to success. Start small and target specific areas and processes. Invest in proofs-of-concept. Most banks realize large-scale investments create unnecessary risks. It’s also important to focus on technologies and solutions that will advance your overall business objectives and strategy, not just support digitalization. Digitalization is not the end, but the means to an end.

Automate intelligently. Artificial intelligence and machine learning, in particular, offer huge potential to better understand the customer and protect the bank. With these technologies, you can customize offers, recommend products and better identify customers. Think, for example, of a virtual assistant that identifies a customer and his/her preferences, helps the customer choose the best products, and navigates the customer through the bank’s processes all within a regulatory auditable and compliant framework.

Take an enterprise view. Overall, be sure to have an enterprise-wide digitalization strategy, and keep in mind that digitalization can’t be done all at once—it’s a journey. Move beyond improving the customer experience to tackle the more costly back-office transformation. Legacy IT will limit how far banks can go, so it’s important to tackle it.

Continue to build trust. Customers, even young customers, say they trust traditional banks and want to rely on them as their key service provider. This is the banking sweet spot. Focus not only on taking care of customers’ money but also their personal data.

If you’d like to learn more about CGI’s work in this area or discuss your organization’s digitalization challenges, feel free to contact me.