The future of banking: Preparing for a digital world

The banking industry is undergoing a period of significant change, as various internal and external pressures threaten profitability and customer acquisition. Financial institutions (FIs) must evolve and revolutionize both their front-end and back-end functions in order to tackle these challenges.

So what hurdles must banks overcome? Well, an EY report highlighted the key issues that pose problems for the industry. Let’s examine some of these in more detail.

Regulatory environment: Banks often face an onerous regulatory burden. EY figures showed FIs paid $270 billion in conduct costs and conduct-related provisions between 2009 and 2013.

Discerning consumers: Today’s customers expect high levels of service and tailored products. Nearly three-quarters of people are signed up with more than one bank, showing they are willing to shop around for the best deals.

Staff exodus: EY noted that talented graduates are increasingly moving away from financial services jobs. Only one-quarter of people who graduated from Ivy League school Wharton chose the industry in 2013, compared with 48 per cent five years previously.

Digital change: Technology is reshaping almost every sector, and banking is no exception. Organizations face pressure from customers to provide the latest digital innovations, while also being required to update legacy back-end systems to streamline cumbersome processes. The growing sophistication of cybersecurity attacks is also an ongoing concern.

Clearly, FIs need to make changes to remain competitive, and digitalization could hold the key for businesses that want to improve customer satisfaction, make processes more efficient and boost revenues.

Tackling digitalization issues

Going digital is often easier said than done. Most banks have traditionally concentrated their digital growth on the customer-facing side of the business. However, FIs must focus on both front-end and back-end processes if they want to achieve optimal services.

The Accenture Banking 2016 report said there are three areas where organizations can focus their digital efforts for maximum effect:

  • Enhanced multichannel experiences
  • Social engagement
  • The delivery of a financial/non-financial ecosystem through mobile technology

According to the organization, FIs that aggressively approach all three models can double annual revenue growth in developed markets, while reducing service costs by one-fifth.

Nevertheless, replacing legacy systems is both expensive and time-consuming. The potential disruptions mean many bank leaders are hesitant to take the plunge, despite the advantages of modernization. Many of these systems also exist in disparate silos across the organization, making omnichannel service integration difficult.

A Capgemini report revealed legacy technologies consume 90 per cent of budgets at FIs. Meanwhile, 60 per cent of customer dissatisfaction originates in the back-office and only 30 per cent of bank executives feel their processes can swiftly adapt to meet market changes.

Moving towards digitalization 

The banks that are successfully driving digital transformation projects are those that can address multiple business-wide issues. Not only do they consider the operational, technological and compliance challenges that arise but also any training and cultural obstacles.

Key factors in the pursuit of digital transformation include:

  • Management buy-in
  • Technological readiness
  • Self-service and automation solutions
  • Training and support regimes
  • Fraud identification and prevention measures

With the right combination of omnichannel solutions, strong leadership, staff development and overarching digital strategies, FIs can embark on transformation projects that bring success both now and in the future.

Written by Andy Brown

Andy is marketing director for payments at NCR. He has nearly 30 years' experience in e-payment systems from the delivery and support of systems in the Far East and Europe, from both the product management and marketing perspectives. Based in the UK, Andy is responsible for marketing NCR payment solutions.

Read more articles from Andy Brown