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Digital Transformation in Banking: Banks have a long, Long Way to Go

Digital Transformation in Banking: Banks have a long, Long Way to Go

OBSERVATIONS FROM THE FINTECH SNARK TANK

As a buzzword and management fad, digital transformation has about another 12 to 18 months before some new fad begins to take hold.

Banks, on the other hand, have a long way to go to achieve their digital transformation.

A study from Cornerstone Advisors found that only about a quarter of banks and credit unions had embarked on a digital transformation strategy prior to 2019, and that 45% hadn’t launched a strategy prior to this year.

Not surprisingly, then, few banks are very far along towards completing their digital transformation journey—all told, only 36% think they’re at least halfway done.

It is hard to believe, however, that 20% of the institutions that deployed their digital transformation strategy in 2020, and 27% of those who started in 2019, think they’re at least halfway done.

If you thought that financial institutions who were halfway (or more) done with their digital transformation strategy would have already deployed most emerging technologies, think again. The data tells a different story, especially regarding:

  • Cloud computing and APIs. Roughly four in 10 banks who think they’re halfway or more through their digital transformation strategies have yet to deploy cloud computing or APIs. And I have a colleague who keeps urging me to stop calling these technologies “emerging.”
  • Chatbots. I guess most banks don’t agree with my assessment that chatbots are a foundational technology and that every bank will end up deploying multiple chatbots across a range of business processes and customer journey. Only about a quarter of the institutions halfway or more through their transformation have implemented chatbots so far.
  • Machine learning. Just 14% of the banks (self-reportedly) halfway or more through their digital transformation efforts have deployed machine learning tools to date. For a technology that is hyped as having a transformational on the industry, 14% doesn’t seem like a very high number.

But digital transformation isn’t just about technology, right? At least that’s what some observers say. Even if it isn’t, then surely we can use business results as a gauge for digital transformation impact.

Maybe not.

Less than a third of the banks who claim to be halfway or more done with their digital transformation strategy have achieved a 5% improvement in any of nine key performance measures.

And I thought I was setting the bar low at a 5% hurdle.

Delusions of Digital Transformation

What should we make of these survey findings?

Either: 1) Bank execs have a very different definition of what digital transformation is than I (and I suspect, you) do; or 2) Bank executives are deluding themselves (or Cornerstone) regarding how far along they are in their digital transformation journeys.

In the spirit of Jeff Foxworthy’s “you might be a redneck if...,” you might be digitally transformed if:

  • You’re opening checking accounts within five minutes. Even among banks that offer digital account opening, 40% still require an applicant to take more than 10 minutes to complete a checking account application according to a study from Cornerstone Advisors.
  • You’re instantly approving unsecured loan applications through digital channels. The same Cornerstone study found that at 54% of banks, it takes loan applicants more than 10 minutes to complete an unsecured loan application online or on a mobile device, and that just a third are instantly approving those loans.
  • You’ve got a more holistic view of your customers’ financial lives. Bankers like to say that they have a lot of data about their customers. Nonsense. Consumers generally do a very small percentage of their financial activity with any one institution. If a bank hasn’t “transformed” its data aggregation capabilities, it hasn’t digitally transformed.
  • You’ve built a digital product factory. Banks need a technology platform than enables them to rapidly and cost-effectively design, create—or plug in—and deploy new digital products and services. The digital product platform must be: 1) component-based; 2) API-driven; and 3) cloud native.

By this criteria, most banks have a long, long way to go towards becoming digitally-transformed.

-Published By 

Ron Shevlin - Senior Contributor - Fintech

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