This is the 2nd article in the blog series on Digital Transformation and Business Strategy for Financial Institutions, written by the Q-Lana Team. We have conducted our observations and analyses of prevalent trends, integrated with our experience, to shape the series’ structure and content. Our approach is grounded in common sense and a steadfast belief in evolutionary development.
We kick off the series with insights into effectively navigating the realm of Digital Transformation. From there, we delve into compelling ideas for crafting a dynamic Business Strategy, tailored specifically for financial institutions. While our work so far focused on financial markets in lower and middle-income countries, it’s worth noting that the overarching concepts we present are universally applicable across all financial markets.
In this article, we introduce seven steps that we consider important to prepare for Digital Transformation.
Areas Impacted by Digital Transformation
Digital transformation is a profound shift in how a financial institution operates and delivers value to its customers. It’s about leveraging digital technologies and innovative strategies to improve operational efficiency, enhance customer experiences, and adapt to the evolving market landscape. Digital Transformation in financial services encompasses six key areas where the impact is most obvious:
- Omnichannel Banking: Providing integrated, seamless experiences across various channels, including online banking, mobile apps, ATMs, agents, and physical branches.
- Personalization: Leveraging data analytics, Artificial Intelligence (AI), and Machine Learning (ML) to customize products and services to individual customer needs. This is a shift from product-centric to customer-centric solutions.
- Automation and Process Optimization: Implementing technology to automate processes, streamline operations, reduce costs, and enhance efficiency, with a focus on flexibility.
- Advanced Security Measures: Utilizing modern digital infrastructure to adopt innovative cybersecurity solutions, protect customer data, prevent fraud, and ensure regulatory compliance in an era of growing complexity.
- Data-driven Decision-making: Employing big data analytics and advanced algorithms for strategic decision-making, improved risk management, and innovation, requiring a well-defined Data Analytics Strategy.
- Collaboration with Fintech and Open Banking: Partnering with fintech startups and embracing open banking initiatives to drive innovation, enhance customer experiences, and expand service offerings, while adhering to local regulations..
While customers expect a revolution in financial services, it’s unclear whether traditional financial institutions need to be part of this transformation. This is in line with the famous phrase of Bill Gates who said, “Banking is Necessary, Banks are Not”
FinTech companies appeared to outperform traditional banks, thanks to their technology focus, specialized services, agility, and flat organizational structure. However, recent events, including the pandemic, global politics, and economic shifts, have shifted the playing field a little. There seem to be advantages in traditional institutions that were neglected.
These institutions have access to cheaper funding, regulatory credibility, an existing customer base, and valuable customer data. Despite being perceived as bureaucratic, their risk management procedures and compliance systems provide advantages. This presents an opportunity for traditional financial institutions to re-enter the competition.
However, these institutions must use this opportunity and progress at an accelerated pace on their path of digital transformation. So, let’s not waste more time. What are the steps for a financial institution to prepare for Digital Transformation? We have collected seven:
Seven Steps to Prepare for Digital Transformation
1. Establish the objectives
Transformation teams must be created to establish the business objectives they wish to achieve with digital transformation. What do you want to accomplish? Do you want to implement a digital-first mindset and improve legacy systems and processes? Do you want to attract and retain new customers and members with digital services? Is your goal to leverage digital assets, specifically to grow your deposits or loan portfolio? It also must be clear: Digital Transformation must be based on an overall Business Strategy. We will discuss the components of the Business Strategy separately! Just remember for now the Transformation itself cannot be a strategy.
2. Contrast your products against competitors and international best practice
Where does your business rank in terms of its online presence? Do you utilize digital platforms to teach your team and customers more about what you offer? A few things to think about when comparing your product offerings to those of your competitors are: How do you inform customers of your products? What is your current online and digital presence? How does your financial institution compare in digital services against traditional and non-traditional competitors?
3. Evaluate your technology and your processes
Assess your current stock of systems and products, as this is your set of tools to complete your business processes pre-transformation. Are there abilities that you haven’t utilized yet? Do you set up annual product planning that agrees with your budget and strategic plan? A comprehensive review will show you what you need to work on and what improvements you can make. You’ll also understand how to use what you already have and what new digital tools or capabilities you should introduce to improve your Digital Transformation.
4. Assess your culture
In business, culture is everything, and a transformation will challenge the status quo as it often leads to radical cultural change. You need to assess the characteristics of your company’s culture to ensure the transformation improves the weaker elements and the changes do not destroy the positive aspects of your culture. Assume that company-wide change places emotional strain on the individuals. Digital transformation can be incredibly challenging for an established culture. You have to consider the right organizational structure that works best for digital optimization. Do you have digital experts on staff, who can help with communication to create acceptance? Do you need external support?
5. Define customer needs
Data aggregation can be challenging, but you need it to understand your target audience. Take a close look at how you’re doing it now. Are you segmenting your consumers by demographics, lifecycle, and product mix? How do your digital services align with customer segments? As you create your segmentation strategy, review, and assess products, services, and data collection these key points. Understand the value drivers and the cost factors.
6. Prioritize resources
A practical and realistic mindset is essential when working towards your objectives from step one. Consider that digital transformation can happen gradually by starting with just a few key projects, creating quick wins. You can improve them later. Stakeholders need to be aware of this attitude.
7. Promote Buy-In at every level
After you establish your digital transformation goals, implementation follows next. This requires effort from everyone–not only those mentioned in our prior discussion about culture but also enthusiastic buy-in from your staff and customers. Develop a clear internal communications plan that sets out specific roles and responsibilities to make your digital program successful and continue promoting it internally. Create an external marketing plan and establish a well-structured change management program.
Those are important steps when preparing for digital transformation. Obviously, the planning needs to be very thorough and involves numerous tricky components but most importantly, as mentioned before, a digital transformation will only be successful if it is based on a clear strategic business plan.
In the next chapter, we will look at an institution’s readiness for digital transformation. Before diving into the aspects of a strategic business plan for a digitally focused institution in the later chapters of the blog.
Below, you can also find the video version of this article
