Leading Digital Transformation: How to Future-Proof Your Bank By Prioritising Key Transformation Decisions

Authors: Utkarsh Sinha and Samir Sultan

Banks waste billions every year as they attempt the transformation to a digital model, depressing returns on equity and to shareholders. Of the USD 1.3 trillion financial institutions spent on digital initiatives in 2019, it is estimated that USD 900 billion went to waste [1].

Corporate and Investment Banks can avoid this fate by optimising their spending in key areas of digital transformation. As these organisations navigate through the COVID-19 pandemic and the new world economy, the need to transform digitally has been accelerated to respond to changes in client behaviour and market risks. Over 83% of respondents in a recent survey by Human Resources Executive said that their organisation had become more focused on digital transformation during COVID-19, and more than 80% believed their organisation would continue to accelerate their digital transformation post-COVID [2].

Cut waste and lift returns

Against the backdrop of digital adoption accelerated by the COVID-19 pandemic, the rationale for spending on technology is indisputable but success is predicated on making the right strategic choices. Technology will give customers what they want more easily and bring costs in line with those enjoyed by the newer challenger banks.

But how well equipped are they for such comprehensive change? In most instances, the transformation will be vast. Essentially, they’re trying to move to a digital model without disrupting their business. It is like trying to change the engine of a plane in mid-flight. Yes, some have been successful and gone on to become industry leaders in digital services. But others are finding it challenging.

Digital transformation is difficult and the challenges are many. The speed of change within the market is astonishing, both in terms of the technology available and what customers want. The choice of transformation routes is also perplexing — rip and replace, launch a parallel bank with a different name, or incremental transformation — to name a few. And it is important to remember that the banks with the highest return on investment have started their transformation from scratch.

From our market study, we have found that Corporate and Investment Banks focusing their IT investment on six key areas — i.e., improving client focus, intelligent automation, open banking, big data and data analytics, cybersecurity, and the benchmark interbank-offered interest rate (IBOR) transition — are well-placed to future proof themselves from the winds of change from not only the constantly evolving consumer behaviour, but also the changing technology and regulatory landscape in banking.

For incumbents, the risk of wasted spend is dramatically reduced by optimising these six key areas of digital transformation investment, as doing so ensures that the investment is aligned with digital objectives, preventing cost blowouts and helping a bank reduce wasted spend.

Here’s how to make sure that the bank gets the most bang for its buck in each and every one of these areas.

Optimising the six key areas of digital transformation investment

Improving client focus

The first area, client focus, is all about addressing the pain points. Long turnaround times during onboarding, manual and on-paper application processes, non-user friendly account access, and so on, add to a dissatisfactory customer journey across various touchpoints with the Bank, diluting the customer experience.

These pain points have been accentuated during the height of the COVID-19 pandemic, with face-to-face onboardings not being possible and many front-office, Excel-based operations have proved to be a major challenge when working remotely.

So, how do we address these pain points? Banks can start by redesigning a digital targeting operating model that is tailored to their core value proposition for their customers, and partner with established FinTechs that provide bespoke capabilities to deliver long-term return on investment for the Bank.

Intelligent automation

Intelligent automation has been as much of a buzzword as digital transformation in the recent years, and for good reason. Intelligent automation combines artificial intelligence — or AI — with digital processing to identify and automate tasks and processes. A number of new cognitive technologies, such as machine learning, natural language processing, speech recognition and human-computer interaction, can be combined to improve client services and internal processes, for example, by spotting fraud in real time.

In this instance, it is about understanding where the technology can best be utilised within the bank and how to make the most of it. Is trade surveillance and monitoring a significant enough part of the bank’s processes to warrant investment? Know your customer (KYC) is certainly one area that should be looked at, with the technology being able to collate many sources of information into a single report such as reducing costs and increasing efficiency.

Open banking

Open banking is the system of allowing access and control of consumer banking and financial accounts through third-party applications. It allows the integration of more banking (and also non-banking) services into the client touchpoints upon the client’s consent.

Success depends on the bank making sure it has the right operating model [3] of open banking services, taking into account its business goals, client needs and the evolving regulatory landscape. Banks also need to understand where FinTechs can help them cut costs and improve processes [4].

Big Data and data analytics

Banks have a competitive advantage because of the quantity and quality of the data they hold. In contrast to the big tech firms, banks have the coveted information regarding their client identity. This makes it easier for banks to perform more reliable and long-term risk and asset assessments.

However, just having access to this data does not add much value. The key to creating value is to use this data appropriately. The investment into Big Data and data analytics should be directed squarely at making such data accessible. Its value will only be unlocked when databases are consolidated across the business and data made visible or readable to aid decision-making and advice.

Off-the-shelf tools can be used or the bank can turn to a core-banking solution provider, but it is likely that these solutions will need to be customised and improved to provide KYC screening, for instance.

Cybersecurity

Harnessing the vast amounts of client data leads to obvious concerns regarding data safety, i.e., cybersecurity. Possessing a comprehensive understanding of the cyber tools and techniques, as well as latest regulatory guidance, is essential. Particular attention should be paid to processes that can highlight incorrect digital identification and verification attempts, fraud prevention and data leaks.

Training and communicating cybersecurity rules also play an important role in ensuring that employees are brought up to speed on the latest regulatory technology change. Against the backdrop of the COVID-19 pandemic, the financial services industry is expected to see budget increases in the next 12 months for security controls for cloudbased business functions5. Here, the stakes are high as getting it wrong can lead to enormous fines and reputational damage.

IBOR

Finally, we have come to IBOR, the benchmark for interest rates. From December 2021, IBOR — the rate banks charge each other — will be scrapped by the US and UK. This is a major change that will affect all banks’ operating models and products and — given the series of fraudulent actions and resulting investigation connected to the Libor (London Inter-bank Offered Rate) scandals6 that provoked the shift — how they deal with the change will be closely scrutinised by the authorities.

To implement this change, a comprehensive approach is necessary, looking at products, operations, accounting and treasury risk, IT systems and processes, and legal7. The ideal way to implement change is to adopt an agile approach and this includes:

• Assessing the impact of the shift on a bank’s operating model and products, and thus the underlying applications

• Creating a roadmap based on achievable timelines

• Analysing exposure to assess open positions and the impact on contracts

• Establishing effective communication methods and training staff on how the change will affect them

Why Work with Us

Synpulse has been at the forefront of transformation topics under three Competence Centres in Regulatory Compliance & Risk, Business Innovation & Growth, and Operational Excellence for our Corporate & Investment Banking (CIB) clients. As part of our offerings, we leverage on our end-to-end project delivery methodologies such as BANKINABOX®, target operating model implementation approach, process re-engineering based on Lean Principles, and Training Solutions for change management to accelerate your digital transformation.

Within CIB, some of our key offerings are on core transformation topics such as Client Lifecycle Management (CLM), Digital Treasury Management and Payments Solutions. Having built strong relationships with innovative ecosystem partners in the FinTech and RegTech space, Synpulse can identify the most suitable technological solution tailored to your specific business needs.

References:

1 Harvard Business Review. Digital Transformation Is Not About Technology. March 13, 2019
2 Human Resources Executive. Averbook: COVID accelerated HR's digital transformation. June 15, 2020
3 Synpulse. The Open Banking Operating Model. October 30, 2019
4 Synpulse. What Regulatory Equivalence in Open Banking Means for Your Bank’s Organization and Architecture. August 12, 2019