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Digital Transformation in Banking

The financial industry landscape has changed significantly over the past decade. These changes in the ecosystem can have various challenges; from multifaceted and complex financial regulations, previous inhibitions of legacy systems, disruptive business model s and advancement technologies, increasing competition, and, ever demanding customer expectations for seamless and engaging customer experience.

In fact 80% of operations leaders in banks have acknowledged the fact that traditional banks are threatened if they do not adopt technology, which is more information driven, and enables rapid innovation.

Therefore, it has become fundamental for traditional banks, to acknowledge the power of information and the importance of leveraging mobile technology, data analytics and cloud based storage systems – which can result in revenue generation and maximize productivity, adding up to 7% in ROE (The Financial Brand, 2018).

Currently, most businesses are becoming technologically dependent in some of their processes if not all, as customers are digitally connected. With the aim of being strategically focused, customer centric and technologically driven, in the hopes of gaining and remaining market leaders in a fast paced environment.

Motivators for Digital Transformation


Customer Centric


Industry Disruptors


Regulatory & Risk Compliance


Technology Asset Management & Operational Agility

Customer Centric

Initially, many banks were product focused, however, after the digital disruption and increase in digital customers, banks are shifting focus towards a customer centric business model as they would have a risk of losing customers.

When we look at traditional banks, they had evolved with various systems with different technologies (like Core Bank Application (CBS), Customer relationship management system (CRM), Cards System, etc. which would be working in silos. This may not provide a 360 degree view of the customer. Therefore, with digital trans formation, banks can achieve holistic view of the customer by integrating systems. Which would help in under standing the customer better, and leverage the information for cross – selling and up- selling, or advising the customer the next best action (NBA) and next best opportunity (NBO).

Moreover, there has been an increase customer demands on exceptional customer experience. This derives from experience from other non-competing businesses, like Amazon or Netflix. Thus, customer centricity is essential for success of banks, by providing personalized effortless Omni channel experience to it s customers.

Individual Account Cost’s $325 Yearly With The Use Of E-document Process And Crm Technology, Whereas Paper Based Processes Would Cost 20 Times More For The Same Process

Digital trans formation is predominantly seen across retail sectors, whereas, wholesale banking is s till slowly picking up it space. Corporate banks are s till depending on manual processes, which is cumber some and time consuming as most of the work is paper based. In fact, the approximate cost of an individual account to set up and maintain can cost $325 yearly with the use of e-document process and CRM technology, whereas paper based processes would cost 20 times more for the same process (Kofax, 2017).

Therefore, in order for banks to compete and maintain a long-term sustainable growth, they need to change their mindset from traditional mindset of product sales to having customer as their core focus. End-to-end digital trans formation would support banks to drive that change, where they are able to discover the true potential of big data, process automation and agility. As a result, creating a digitally driven organization which brings produces exceptional customer experiences and value, as they are able to identify complex customer behavior and markets.

Industry Disruptors

Financial digital disruptors and innovation in the financial landscape has become a commonplace – over the last 5 years the competition has increased. Financial technology companies, also known as FinTech, are now changing the market behavior with the introduction of Bitcoin, Block chain, and cryptocurrency. In fact, there are some banks called “challenger banks ”, which are set up in the United Kingdom, who are offering services exclusively on digital platforms and delivering unique customer experiences. Research, has showed that in the medium term, which is the next five years, these new businesses will be acquiring 30% of the revenues from traditional model banks (Bahuguna, 2018).

Rise Of Fintech & Challenger Banks The Next Five Years, These New Businesses Will Be Acquiring 30% Of The Revenues From Traditional Model Banks

Thus, many banks must go through the process of digital trans formation as their strategy moving forward, where physical process are being digitized in order to compete and keep up with the market.

These banks are taking customer centricity to their core, as the digital bank has reduced cross border wire transfer costs. These companies are not bounded by the legacy systems and manual paper-based operational business model, which have hindered the older banks. The newer technology that they are built on has increased operational agility, as result able to have lower price structures with precision marketing and delivery of extraordinary value proposition to their customers.

Risk & Compliance Management

Banking regulatory and compliance rules are complex and dynamic, as the financial industry keeps evolving, so do the rules. Some regulations like Anit-Money Laundering (AML), Common Reporting Standard (CRS), Foreign Account Tax Compliance Act (FATCA) and Know Your Customer (KYC), cannot be supported by legacy systems.

JP Morgan Had Reported To Have Employed 13,000 Workers For Compliance And Regulatory Issues, Keeping Aside That They Had Already Paid Off More Than $2.05bn In Legal Fines.

The newer platforms enable these regulations to be real time and automated for banks to comply and maintain litigation readiness. Previously banks recruited additional staff to carry out these rigorous regulations to as sure compliance. In addition to this, banks had additional processes where they required verification of documents when processing of banks services. This had not only increased the time consumption but the cost of non-compliance had increased significantly for errors. In some cases, the fines add up to billions of dollars. An example of such an instance was when JP Morgan had reported to have employed 13,000 workers for compliance and regulatory is sues, keeping aside that they had already paid off more than $2.05bn in legal fines. Therefore, for banks to operate much more efficiently and effectively, implementation of the right digital solution is vital in order to achieve a quicker ROI. (Groenfeldt, 2018)

Technology Asset Management & Operations Agility

Traditional banks are based on a hodgepodge of systems and platforms, which are predominantly based on legacy infrastructure, this requires a lot of capital for supporting its infrastructure resources. Usually for the operations to run seamlessly and to maximize value generated, banks invest on multiple external vendors, to mitigate the internal disruption of process structure – as result this would be extremely expensive. A 2018 Gartner study showed that, the global banking industry is estimated to spend $519Bn on IT, which has raised 4.1% from the previous year, in an aim to digitally trans form.

However, with modern digital technology, banks can externalize these needs through managed services. Their quality software as set, technical and business domain expertise, banks can manage their technology and data assets efficaciously.

The externally managed services are usually for the critical processes/activities, that need expertise (technical in nature), however, are not the bank’s core competitive differentiators . The service providers who not only maintain bank data, but automate processes , that reduce labor hour s in the banks . Moreover, they provide greater value through analysis of captured data and reporting – this could be risk management, fraud prevention etc.

As of operation agility, with legacy system the processes integration takes longer and in most cases the systems are restrained to limited capabilities, which result s in expensive change process. However, with digital trans formation
banks can easily provide agile approach which can enable the organization to make changes faster.

Technology Driving Change in Banks


Big Data And Analytics

It is the technology that facilitates the capturing, accumulation and analyze surplus amounts of data to provide insights. It helps discover complex patterns within large amounts data quickly. This could be customer behavior pattern, reducing customer churn, increase customer loyalty through personalized and innovative sales techniques. Other features adopted in the banking services through this technology include; machine learning and predictive analysis capabilities.

Industry Disruptors

Internet based model for supporting storage and support of IT services. It enables the IT resources to be comprised in one location, quick provisioning and rapid deployment. Unlike legacy systems, the technology does not restrict banks on scaling. Moreover, this enables to integration of other service providers cost effectively.

Artificial Intelligence (AI) & Machine Learning (ML)

This enables smart predicting and decision making ability that is unfathomable to humans. AI used advanced analytics to learn complex information, understand it and engage – imitate human cognitive behavior. This is currently used in risk and compliance in the banking industry, however, it is not limited to this. Whereas, ML is a form of AI where there is no explicit programing when new data has been introduced. It comprises of two different features;

Predictive analysis based on historical data, this could be used in trade surveillance. Identify patterns which are anomalies, which could be used in fraud detection

Robotics Process Automation (RPA)

This technology automates the repetitive processes of capturing and interpreting data, process transaction, handles large amounts of data real-time, and in response communicate with other connected systems. It is an augmentation of task force, with the capabilities of rapid, continuous and error free processing. Few examples of this are quick client-on-boarding, Know Your Customer (KYC), Anti-Money Laundering (AML) etc. (Fintech Futures, 2018)

Distributed Ledger Technology (DLT)/ Block Chain

It is a distributed network of devices, individuals or groups of companies, that keep a chain or list of transactions between the parties involved in the network. The transactions are unchangeable – recorded and automatically updated. It is a peer-to-peer exchange of virtual currency, which came forth with the bitcoin. Albeit this is relatively new, banks are starting to look into DLT for master data management, trade/contract validation, asset/ securities issuance, and collateral management. (World Bank, 2018)

Internet of Things (IOT)

Sensor technology that is incorporated in things/devices, most cases it is undetectable, where they are put together in a network. These capture data and share it over the web to connected applications and authorized people, so that data can be tracked and measured. It is still in early adoption stage for banks, but it is being used in mobile banking, customer monitoring (customer experience over devices or on the premises) etc. (Meola, 2016)

How Banks Are Dealing With Digital Transformation

Many financial institutions who do recognize the need of going digital, start off with high hopes of achieving great results. But, their blinded by the hindsight of reducing cost through integrating digital applications with old legacy infrastructure. Boston Consultancy group produced research that 80% of the organizational effort is put in this (Joyce, 2018). As a result, many banks see slow growth and challenges in scaling of digital initiatives. Moreover, the existing talent does not have the digital expertise to manage this change. Consequently, capital expense increases and the returns do not meet expectations.

Financial institutions who are in the hopes of digital transformation, need to treat digital as a long-term strategy for achieving their corporate goals. As every bank is different, and has its own set of goals, they need to look into what works best for them to meet these expectations. Albeit, this would be a challenging process when it comes to implementation, an organization must be willing to take that risk. If digital transformation is a success,, the bank or credit union can achieve 20% increase in revenues and 30% decrease in expenses (Joyce, 2018), produce precision marketing to customer expectations and reinvent customer journey.

Conclusively, “Infusing a digital mindset into a traditional banking culture can be challenging and the need to manage two cultures during the transition can exacerbate the situation. Success depends on engaged senior leadership that is committed to radically changing the bank,” says Boston Consulting Group (Joyce, 2018).


Sunayana Reddy

An Emerging Technology Consultant with over 6 years’ experience in dealing with technologies like Hyperscalars, Internet of Things and Data and Analytics. He has aided in development of multiple solutions for customers in Middle East and Africa region enabling them in their Digital Transformation journey. A Certified AWS Cloud Practitioner, he is an AWS evangelist empowering customer adoption and expedited onboarding of different emerging technologies and services from varying industries and segments.