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Digital transformation: the next generation of financial services

We had the pleasure of hosting a discussion focussing on Digital Transformation of Financial Services - Read the summar or watch the replay.

Napier AI
March 11, 2021
“Digitisation  …  it’s the process of seamlessly moving from old irrelevant processes to new and relevant processes.”
Dom Braun, Episode Six

Yesterday we had the pleasure of hosting a discussion focussing on Digital Transformation of Financial Services.  Robin Lee, the webinar’s moderator and Napier’s Head of APAC was joined by:

Robin led a lively and informative discussion drilling down into some of the key factors that are both driving and hindering digitisation.

The key points raised were:

  • The need for digitisation is prevalent
  • The journey is still in its infancy
  • Barriers are aplenty but addressable
  • The human mindset is equally as important as the technology itself

If you missed it or wish to refresh, here’s your summary:

Digitisation of the finance industry has been fairly recent but since it’s here to stay, what exactly is it?

Andreas: Digital transformation is the integration of technology into all business areas, which changes how you operate and interact with customers. The transformation covers the adoption of new technologies, like the cloud, as well as cultural changes, including the ability to experiment and be comfortable with failure. Understanding what digital means for your business is essential.

Dom: For financial services, it’s the process of seamlessly moving from old irrelevant processes to new and relevant processes. The objectives should be to improve end user experience, to enhance competitiveness and gain/retain clients.

Greg: Digital transformation is about using automation to improve client experience, operational efficiencies and create new revenue models. It’s about redeploying human intelligence to allow humans to do what they are good at, and machines to do what they are good at.

What’s driving digital transformation?

Ravi: If you put aside the push factors like Covid and competitive threats, and look at the pull factors (what’s happening in the industry) then there are three main drivers:

a) A reduction in the cost of transforming banks

This is largely enabled by the advent of new technologies, particularly application programming interface (API) technologies, which enable seamless integration.

b) A reduction in the scale of transformation

Transformation has historically necessitated significant investment with substantial inherited risk, particularly for large monolithic systems. However, modern technologies like cloud infrastructure have made a smaller-scale, piecemeal approach possible.

c) Good availability of better tools and platforms that enable safe, secure migrations

There are now an amazing number of platforms available to help banks de-risk their transformation from legacy to modern technologies.

Is digital transformation an expensive and arduous task for legacy players?

Andreas: While digital transformation may sound scary because it brings change, it doesn’t mean you have to transform your entire business model to achieve higher revenue or cost reduction. Focus on one part of your organisation and start with small steps.

Greg: If you start small, you will gain both traction and confidence.

Ravi: All banks have to transform if they want to remain competitive, even the challenger banks.

Dom: Transformation isn’t about ripping everything out. It’s a phased, consistent and ongoing journey.

Are there any other factors that you can name, specifically around banking and financial institutions, that are driving digital transformation?

Greg: For the wholesale side of banking, transformation is necessary to achieve a sustainable state for compliance. The cost of compliance is currently unsustainable so the driver and task centres around how to automate laborious tasks.

For retail banking, there are all sorts of things happening, from cryptocurrencies to challenger banks like Starling. These are transforming how things are done and we’re actually in “digitalise or die” territory.

Dom: The regulator has very crucial role. If they are breathing digital transformation, then that will influence decisions.

What are the barriers to digital transformation?

Dom: When thinking about barriers we need to consider human nature, since people are the biggest barrier. Humans, and this includes decision makers and other stakeholders, often don’t like change. Legacy systems are a barrier to change but instead of driving the reason to transform, they are often paradoxically used as the excuse not to change.

Ravi: People and politics are the biggest barriers but front to back digitisation with full automation and intelligence also necessitates significant upfront investment. Yet instead, banks are choosing to make smaller upgrades every 2-3 years. This is why we haven’t seen modernisation as quickly as we would have liked. That said, now is the time to shift. Banks are leveraging digitisation as a competitive advantage.

Andreas: There are barriers to experimenting quickly. Change can be slow since many financial organisations are so large. You also need to have dedicated human resources and knowledge to drive transformation and the adoption of new technologies. This includes close collaboration with IT to enable swift changes. IT must be an enabler of digital transformation rather than just executing requests.

Greg: Large offices are in themselves a barrier. A large bank, for example, will be making around 60,000 KYC file checks a year at 10-20 hours to complete. If you automated with technology, then you can reduce that by 90%. There are massive opportunities for digitisation.

Taking all factors into consideration, is it fair to say fintechs are simply piling new technology on top of legacy tech? And is this sustainable?

Greg: All financial institutions should draw up and put in place an ecosystem comprising core building blocks and enablers for digital transformation. This should include software and internal and external teams.

Ravi: Legacy banks are dealing with the status quo. Building tech on top of that will give improvements but we need to see the full unblocking of bottle necks, including the whole backend. Without this, the application of high performance platforms will be limited. Real-time technology should no longer be an idea but pervasive.

What does good digitisation look like?

Greg: Developing an ecosystem to support digitisation is important. IT needs to embrace change and not block it. While you can start with small steps, the reality is that digital investment is required on an ongoing basis. A yearly programme of iteration needs to be in place to keep it up.

Andreas: You need to establish what your target state infrastructure looks like. What should be there as the foundation? Creating a best practice ecosystem will ensure you can continually iterate digital transformation. Fintechs are supplementing this ecosystem.

Dom: We’re seeing many financial institutions moving away from on-prem to cloud-based technology, which is still able to fulfil their need to maintain control.

What advice would you give to those beginning their digital transformation journey?

Ravi: You need to identify how digital technologies can give you a very clear client proposition. Use them to gain a competitive advantage by focusing on doing one thing supremely well.

Greg: Don’t overcomplicate things. Don’t reinvent the wheel. There is a lot of good practice already out there. Be sure that whatever you invest in will add value.

Dom: You have to start somewhere. Start small and consider what impact it will have on the consumer.

Andreas: My advice would be to…

  • Decide where to focus on your digital transformation journey. Determine what processes are most important.
  • Enhance user experience. This has to be an objective of any digital transformation programme.
  • Develop a culture of adoption. Embrace change, testing and experimentation.
  • Realise digital transformation is an ongoing process.

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