A roadmap: Digital transformation for banks and credit unions

June 20, 2022 Windstream Enterprise 6 min
Summary
A primary benefit of digital transformation in banking is the ability to attract and retain a new generation of customers. Other wins range from heightened productivity to lower operational costs, better risk reduction and increased revenues.

Digital transformation in banking: No longer optional

If you’re still just considering full-scale digital transformation for your financial institution or approaching it as a series of one-off technology upgrades, it’s time to catch up. 

Per Cornerstone Advisors’ 2022 What’s Going On in Banking study, three-quarters of banks and credit unions, to date, have launched a digital transformation initiative. Another 15% plan to develop a digital transformation strategy in 2022.

One of the primary benefits of digital transformation is the ability to attract and retain customers. The evolving fintech marketplace has raised the competitive stakes for banks. Digital transformation is your chance to embrace how a new generation of banking customers does business, and it will help you become more customer-centric in the long run. Organizational wins also include heightened productivity, increased transparency, lower operational costs, risk reduction in core activities and increased revenue.

Understanding the risks involved in digital transformation 

Despite the many benefits, increased interconnectivity comes with heightened cybersecurity risks. Potential for data leakage and unauthorized access to data are part of the challenge of digital transformation.

For reasons that include miscalculations and a lack of organization buy-in, 70% of digital transformation projects fail to realize ROI. 

While many organizations are investing millions into transformation initiatives, 70% of digital transformation projects fail to realize ROI. Reasons include miscalculation of up-front and maintenance costs for hardware and software, lack of employee training (thus low technology adoption) and lack of organization-wide buy-in. Whether you’re just starting the transformation journey or you’re in the thick of it, consider how to avoid these mistakes.

Tips for fostering cultural change

The banking industry was not built on a culture of collaboration and innovation but rather on routines and redundancy, which can naturally foster a “because we’ve always done it this way” mentality. But it is possible to make change and adaptability the new normal for employees. Here’s how: 

  • Encourage a culture of innovation that starts at the top of your organization. Get staff involved in digital transformation early and often, starting with the planning phase.
  • Embrace technology that will move employees to become more customer-centric, such as responding to customer queries in real-time and using visibility into their behavior to personalize customer conversations and provide better service. 
  • Educate employees on the Why by explaining the reasons behind change and showing your team the vision of the future state.
  • Outline the benefits of digital transformation for their specific role or department—show what’s in it for them.
  • Consider everyone’s needs. The CTO will see it one way, while the CCO and CRO will undoubtedly see it from different perspectives—and all will perceive different levels of risk and advantage. Examples of disparate viewpoints might include: How will this serve my customers? How will this affect the bottom line? Or how will this make my job more enjoyable? 
  • Establish and maintain open lines for communication, questions, feedback and suggestions from all departments and employee levels. Show mutual respect by being inclusive throughout project implementation. Provide frequent status updates on progress, so employees have shared expectations. 
  • Introduce the concept of design thinking, which encourages a pattern of test-feedback-iterate at each project stage. 
  • Set and communicate measurable goals, objectives and milestones. What does “complete” look like?

Everybody fares better when there are shared expectations. There will be bumps in the road, but as Mary Poppins aptly stated, “well-begun is half-done.” 

Plan your journey 

Before you begin, you need to understand the answers to three critical questions:

  1. What role does your network and technology infrastructure play in your business strategy?
  2. What are the timeframes, budgets and resources committed?
  3. What are your current and future security risks and vulnerabilities?

Know where you are today 

Start with your customer. Do you already offer a flexible framework consisting of APIs and mobile apps that can be tailored to customer needs? Do you know what those needs are and whether you are meeting them? Look for actionable insights to determine what your customers really want and need. 

Learn directly from your customers through surveys or other research. Poll employees for customer feedback on what they hear in the branches. For example, 91% of financial institutions claim to offer a “100% digital loan application process.” However, many of those still require follow-up phone calls or face-to-face meetings, which many consumers find inconvenient and surprising, given the myriad digital options in the marketplace today.

Analyze your tech stack. Do you understand which areas need urgent attention, which are adequate for the short-term and which are future-ready? Determine which aspects of your tech stack will be retained and how they will integrate with your core platform moving forward. 

80% of ABA survey respondents would consider moving to a cloud-based core. 

To achieve digital transformation, core systems must be able to integrate with APIs. A 2020 survey by the American Bankers Association (ABA) revealed that 25% of banks will probably leave their core platform when their current contract expires. Eighty percent of ABA survey respondents said they’d consider moving to a cloud-based core. If you choose to migrate your network to the cloud, consider a unified networking and security solution since you will be extending your network traffic beyond the traditional corporate perimeter.

Know where you want to be today and in the future

Be realistic about the competitive landscape and your best opportunity for success. Do you want to dominate as a mid-sized commercial bank? Will you carve out a niche for a specific demographic? 

Make a list of must-haves vs. nice-to-haves in terms of technology solutions. Must-haves include meeting current customer expectations for a secure, real-time communication channel. For most banks, a Unified Communications as a Service platform (UCaaS) integrated with a Contact Center as a Service (CCaaS) serves this need. 

Ensure connectivity, security and compliance with a software-defined approach. Software-defined wide-area networking (SD-WAN) with Secure Access Service Edge (SASE) enables financial institutions to leverage 5G LTE connections at a lower cost than other private lines—and helps ensure security and PCI DSS compliance at every endpoint. 

Develop a cost-benefit analysis to ensure the technologies on your must-have list add value to business outcomes. If your cost-benefit analysis doesn’t cover everything on your wish list, make sure you know your priorities.

Activate your digital transformation game plan 

You’ve marked where you are now and you know where you’re going. Using your gap analysis and evaluation of what’s critical to address first, identify a list of actions to close the identified gaps.

Manage digital transformation in phases

Start with individual projects that are relatively low complexity, while serving your must-have needs. Quick wins involve less project governance and just a few key people. Low-complexity digitalization investments are likely to pay off quickly, have a positive impact on employee morale and foster a sense of momentum among the transformation team. 

Establish vendor relationships

Now that you have a sense of your strategic priorities, seek out professional partners who can help you design and implement the right solutions for your needs. Be wary of ballooning complexity by bringing in several partners whose expertise and recommendations then need to be de-conflicted and aligned.  

Benefits to reducing the number of vendors the transforming organization relies on include improved security and compliance with reduced complexity and cost.

There are many benefits to reducing the number of vendors you rely on, including improved security and compliance with reduced complexity and cost. Consider a solutions provider that can bring all your must-haves together under one vendor.

Build and stick to a timeline

Mismanaged timelines during complex implementations create headaches for institutions and end-users alike. They can even derail your digital transformation project. Create a detailed roadmap with target milestones and assigned tasks. Set success metrics and measure them at each milestone.

Learn from these earlier phases what to do differently at later stages. Tweak and improve implementation as needed. Digital transformation success isn’t achieved by moving in a straight, predetermined line. Rather it comes from getting to the right solution for your organization in the end––while encountering as few detours and roadblocks as possible along the way.

In closing 

Charting out a clear course for transformation will go a long way to understanding the time it takes to complete each phase and the stakeholder involvement needed for completion. Digital transformation starts and ends with a high-level overview of a future-state digital banking strategy that aligns with your vision. Keep that vision of the endgame front and center for your team throughout the digital transformation process.

Windstream Enterprise can give you the network tools, performance and security you need to start your banking transformation.

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Key Takeway
A primary benefit of digital transformation in banking is the ability to attract and retain a new generation of customers. Other wins range from heightened productivity to lower operational costs, better risk reduction and increased revenues.

Educate your C-suite in the role technology plays in being a more agile retailer