Consumers increasingly expect on-demand services, yet the digital transformation needed to meet this expectation remains a challenge for large financial institutions, particularly if their core banking systems continue to run on legacy technology.
“Large institutions that have been around for years are carrying so much technical debt,” says Jeremy Donaldson, managing director of banking and capital markets for EMEA at DXC Technology. “Their challenge is trying to figure out how to digitise in a way that fits within their current technology environment. They might have a strategic direction, but the execution of those strategies can take time because of the environmental complexities in which these transformations need to take place.”
For example, most banks are working on giving customers the ability to self-serve and allow transactions to take place across all channels, with digital assets being developed at pace. “These digital assets increasingly trigger digital transactions,” says Andy Haigh, head of banking and capital markets for EMEA at DXC Technology. “It also requires having the operational agility and capacity to respond quickly to shifts in consumer demand and being able to formulate and launch new products instantly.”
These digitisation efforts are increasing both customer data volumes and the number of access points to that data, making banks prime targets for cyberattacks. “The financial risk of losing the data is one thing, but the reputational risk of data compromise is something completely different from a brand value perspective, so a focus on securing the data throughout the digital transformation remains of paramount importance,” Donaldson adds.
In a digital ecosystem, banks need to be certain of their customers’ identities and that interactions are fully verified and secure across channels. Best-in-class financial institutions will leverage this imperative to build a more holistic view of their customers and understand how they are interacting across all business lines. The upswing for digital leaders is the opportunity to provide more personalised experiences to outcompete the laggards.
“The biggest problem for banks is how to get a centralised view of a customer that is current, doesn’t go stale and can drive business decision-making,” says Haigh. “Once banks get that right, they can quickly start to put relevant products in front of customers.”
As customers become more digitally savvy, banks have a responsibility to ensure their employees speak the same language and possess the skills to meet future banking needs. “These institutions have to change their view of the skills they’re looking to recruit and swing the pendulum towards people who are much more analytical and conversant with the use of new technologies,” says Donaldson.
To achieve true transformation, the process needs to be broken down into two phases — the ‘essential’ steps financial institutions need to take and then the ‘evolution’ stage, where they can start to rethink how their services are delivered, he explains. While some aspects of these two phases can be run in parallel, in many cases the results have been suboptimal because many large banks struggle to implement elements of their evolutionary phase without first having the essential transformation elements in place.
The ‘essential’ phase includes steps like optimising the ability to transact, mitigate risk, manage regulatory change, focus on best practices, and reduce inefficiencies. For example, by modernising core platforms, banks can rationalise, standardise, save costs and be ready to scale transactions to deal with the bigger data footprint that digitisation both creates and demands, Haigh points out. Getting “cloud right” rather than “cloud first” is key to right-sizing and enabling a springboard for new technology toolkits that will later help business thinking.
“Without customer data centralisation, product formation will be limited. Without a modern core platform, the ability to onboard products will be limited. Without real-time risk, the ability to zero-time onboard customers will be impossible,” Haigh continues.
“It is an arms race,” he says. “It’s equally about tightening up operational risk because the more time they spend fighting fires and dealing with compliance issues, the greater the distraction in providing the next level of service their customers expect.”
Accommodating the rapid pace of regulatory change creates additional complexities for banks running on a legacy core. Changes to regulatory requirements drive a great deal of development and testing effort across multiple systems to remain compliant. By modernising their fundamental systems, banks can streamline their technology and adapt to regulatory change much faster. In turn, this ensures a higher degree of compliance and pivots focus towards leveraging AI to better understand the potential impact where non-compliant areas are identified.
As customer data centralisation becomes more successful, the overlay of technology will undoubtedly open new areas of analytics and analytical bias, which can challenge banks’ moral obligations and force new types of business trade-offs. For example, analytics performed on client behaviours and transactions can easily spot gambling habits; while approaching the customer early to highlight this will be cheaper for the bank to mitigate, it will likely damage customer intimacy
Haigh argues that getting digital foundations right via essential transformations empowers banks to innovate at speed through evolutionary transformations, rapidly changing product time-to-market and increasing the scope for cross-selling.
“It needs to be executed in very short-step gains that are very tangible and for which the business can see outcomes. This will keep the momentum going on what will be a multi-year journey,” Haigh suggests.
The need to advance is pressing. However, a failure to move with the times can mean customers simply switching to competitors who are digitising faster to meet their rapidly changing needs. Donaldson warns: “The large banks have the competitive advantage regarding long-term customers: they have a wealth of customer data. Those banks must accelerate the execution of essential transformations to leverage that data in order to unlock the benefits of evolutionary transformations. If this is not a priority now, the advantage will be lost.”
Learn how DXC deploys its services to drive new levels of performance, competitiveness, and customer experience at dxc.com/banking