Huge gaps in the digitalisation strategy of financial institutions have emerged across the globe. The epiphany that transformation is about more than simply patching-in temporary solutions and features for established channels has resulted in banks realigning their strategy to digitise from within, starting at the core of the processing system.
Not every bank will be ready or willing to replace their entire core banking platform. Yet, in many ways, the recognition that institutions’ decades-old core systems are almost like the longest pole in their tent, is the first step of reining in digitisation strategies to innovate-outwardly, starting first with the heart of their infrastructure.
Overcoming this obstacle will be key in all banks’ journeys toward identifying pain points, dissolving friction and optimising their cost structures.
There is also an unspoken and unresolvable challenge in the digital transformation journey, this challenge is tied directly to human nature and therefore cannot be removed — it can only be mitigated. Banking has become ubiquitous with how we operate, and because we base our relationships with the banking industry on trust and security, it is very hard for these financial institutions to reconcile their desire to evolve, with the necessity to protect this trust.
Financial institutions can no longer replace technology for the sake of replacing technology. This type of investment — given its expense and significant operational ramifications — must align with underlying business strategy and therefore satisfy the risk-reward criteria that comes with change.
This is one of the biggest balancing acts facing banks today and because there is so much on the line, the sector is in grave need of leaders who have the courage to push forward and take accountability for both the successes and failures that their teams may have.
However, this approach must be caveated with a condition in order to succeed. If a bank fundamentally bases its innovation with the customer at the heart of this strategy, it is unlikely that any idea will be a bad idea. Yet, if the basis of a bank’s innovation centres around revenue generation or cost reduction, that is where the true risk lies.
Whether or not all banks will decide to migrate their core banking systems to the cloud and shift their golden source of data to this new platform, will remain a focal point during the next five years. What is certain is that financial institutions cannot only focus on opening up their architectures to technology, they must open their minds to it. Banks will have much greater rates of success the more they begin thinking of vendors as partners and leverage their abundant intellectual capital to drive innovation from within, directly out to their customers.
The battle for the customer and innovation will be won by those that start to think differently about how they put their customer first and work toward a community-based, collaborative approach.