Digital transformation is not new to banks. 83 percent have a clear digital transformation strategy on their hands, according to Publicis Sapient’s Global Banking Benchmark Study.
Still, it’s not exactly ancient history for them, either. The majority of banks that have already launched their digital transformation plans didn’t do so until 2019 and 2020, according to this year’s Cornerstone’s Advisors’ report, What’s Up in Banking. Overall, most banks are planning on launching their digital transformation plans this year.
Then there’s the success rate. 60 percent of the digital transformation plans that have been executed have failed.
As it turns out, banks may need to take an inside-out approach to their digital transformation plans, squeezing out of legacy systems, appealing to new engineering talent, and prioritizing everything.
“There’s a recognition that banks continue to need to simplify and digitize. But there’s also a recognition that they have to think about the innovation on the top line. And so what the survey has confirmed more than anything else is there’s a lot to be done for both those areas,” said David Murphy, head of financial services, EMEA & APAC at Publicis Sapient. “Some of our clients will look to try to do them sequentially. I think what the pandemic has brought out is that it may no longer be a sequential move.”
Covid has been the biggest motivator among banks for digital transformation
Almost half of the banks surveyed in the study named Covid-19 as the biggest influence on their digital transformation priorities.
Customers came in at a close second. But then again, that could have to do with customers wanting more personalized services from their banks as a result of the pandemic.
Ultimately, Covid seems to have catalyzed the rush for digital transformation among banks.
“During the pandemic, top line revenues have dropped significantly. And so now the conversation is not only how can I simplify and digitize to become a true digital bank, but also, once I do that, how do I drive top line growth?” said Murphy. “And what we’re seeing is that today these are actually two equal imperatives, whereas one may have followed the other in the past.”
Optimization priorities among banks even out
In terms of knowing what to optimize, opinions are quite varied, spreading pretty evenly across better intelligent tech and cloud technologies, customer centric innovation, products and services, and onboarding more tech talent.
But even if banks’ priorities are in the right place, they may not be acting on them. That could be because taking action to change these things is pretty complex.
Moving a bank’s core to the Cloud is complicated because of the movement from legacy systems, for example. Often, the people who know these legacy systems intimately enough to successfully migrate customers’ accounts are no longer working. That significantly slows down the digitization process.
“These legacy systems have been around for 30 years,” said Murphy. “And the people who actually know how to extract data from them and move them into a new solution are already retired.”
Onboarding more tech savvy employees is also a challenge for incumbent banks. Skilled engineers may not necessarily be so interested in the work environment of a traditional bank, and may instead migrate to a tech-dense industry.
“Until the bank can show that it truly has changed, and it operates more like a digital native, it’s going to be hard to attract the type of talent that it wants,” said Murphy.
Most banks are planning to launch their digital transformation strategies this year
Most banks are far from digital transformation experts. Over a quarter of the banks surveyed are planning to launch their digital transformation plans this year. Only 18 percent launched their strategies prior to 2019. 12 percent neither have nor plan on developing a strategy, whereas 13 percent plan on developing one this year.
The low percentages in the years before 2019 seem to point to banks treating digital transformation as an afterthought rather than anything urgent. Only 7 percent started their digital transformation strategies before 2017.
Banks that have launched their digital transformation strategies still have a ways to go
As for the banks that have launched their strategies, the progress remains pretty slow. In terms of strategies launched before 2017, for example, only 16 percent reported being almost done. Only 5 percent of the banks launched in 2019 saw any completion at all.
And while the pandemic may have pushed banks into digital strategies, it didn’t do much in terms of speeding up their process. The majority of the banks that launched their digital transformation plans in 2020 reported being 10 percent or less through with their plans.
Based on these stats, most banking institutions have a six-to-eight year timeframe to complete their digital transformation plans, according to Cornerstone Advisors.