Unlocking Digital Transformation in Financial Services

Banks and financial services providers are under increasing pressure from digital native disruptors. Research estimates that global spending on digital transformation in financial services will top $164 billion by 2027.

In the US alone, it is forecast that more than 14% of the population will have at least one account with a digital native bank by 2025 - that’s more than 40 million people with accounts in banks like Chime, Varo or Koho (Canada) in the next three years.

While many see this as a problem with business models for legacy providers, there is a very clear case to be made that this is, at least partly, a technology problem. New providers are not providing richer or broader financial services - in fact, almost invariably it is a small subset of those from traditional providers.

But, they are gaining massive market share through faster and more exciting experiences at every touchpoint from onboarding onwards. These touchpoints are all digital and they match the expectations of a new digital world fed by experiences from Google, Facebook, Amazon and Apple.

Traditional financial services providers have invested in technology over the last 50 years - almost exclusively to automate their existing services and reduce costs. This has led to massive legacy debt with monolithic systems and siloed applications that are centred on bank processes, not on the customer experience.

These systems are not fit for the digital-first world in two major ways.

Firstly, they perform poorly under stress - this is evidenced by the widespread outages and failures at major banks during the last two years - as Covid restrictions have caused peak volumes for online and mobile banking.

Secondly, traditional providers take, on average, over two years to bring new digital services from conception to launch. There has been very little work done to create flexible technology platforms which allow for the launch of new, personalised services and features at the pace of the new market.

So is this the end of an era for traditional financial services? Or are there digital transformation strategies that can help them modernise and take back the lead? Based on our experience in a large number of successful modernisation projects, we think there are.

Before we look at digital transformation strategies that can be taken by financial services providers to modernise their offerings, an understanding of what customers want is essential.

Consumers want a digital-first, modern, cloud-native, digital banking experience. More than this, it needs to be a hyper-personalised experience delivering a carefully curated experience that learns from consumers’ needs. Critical to this is ensuring that data is smart and predictive, creating a carefully curated and efficient digital banking platform at users’ fingertips.

Financial services, as a highly regulated industry, have often been seen as a laggard or late adopter. However, this presents the opportunity to adopt and exploit some of the best modern digital approaches as part of a digital transformation.

Here are some key digital transformation strategies that we see working for large enterprises in every sector:

A services-driven architecture that provides distributed teams with a clear way to access and consume data while customising the design and development of purpose-built products is a must.

When architecting a platform, there are some core concepts to consider. A platform that works but that cannot be easily extended quickly becomes a burden to a business. Maintainability, including both flexibility and testability, should be a key consideration along with extensibility, scalability and security.

Secondly, cloud-native applications provide a clear path to meeting current and future needs around scalable and reliable software.

Leveraging cloud services allows businesses to focus on solving their needs with the confidence that they are utilising tried and tested services that can scale with the business.

Again, maintaining on-premise cloud/hosting environments gets expensive and complex. For applications that can leverage cloud tooling and deliver to their needs, this is the approach that modern enterprises have embraced.

Third, all enterprises must be able to monetise their data consistently to compete in the marketplace.

Whether it’s to deliver more personalized digital experiences for users or leveraging AI to actually have ‘smart’ experiences that can be consistently more predictive and prescriptive, enterprises must be able to consistently digest, standardise and leverage data to deliver optimised user experiences.

Finally, there is the looming market element we refer to as the Talent Gap .

The difficulty in finding, attracting and retaining the best engineering talent is real. While we believe one answer to this challenge lies in leveraging the right product engineering partners, all companies must become more digital to be successful. This is the only way to show the best talent that you have challenging, modern work for them to tackle.

Maintaining legacy technologies is not something that the best talent wants to do. Fostering a product mindset approach through the business organisation, coupled with efficient ways of working, enables engineering teams to build platforms that accelerate the business.

How can we help you modernise your digital banking offering?

At Nearform, we have a playbook that we’d suggest financial service providers apply when moving ahead with a digital transformation project.

Define a customer strategy led by a needs-based analysis rather than products and services to sell. Many banks still offer traditional products in the form of day-to-day consumer banking, various loan types, financial/wealth management. The offerings are ubiquitous across all customer segments.

In a recent study by EY, 86% of respondents expect a seamless cross-channel experience. This means digital product engagement (i.e. mobile and web) will need to be visible to employees who have direct interaction with customers (i.e. wealth management, in-bank, loan origination).

Furthermore, younger customers reported an expectation of personalisation. This requires knowledge of where each customer is in their personal/professional/financial life.

Digital products and experiences should align with these needs, and be personalised based on them, leveraging the data captured to provide that personalised offering. This requires strong product and design expertise coupled with product engineering.

Identify the core foundation elements of your platform and create a plan that identifies the areas that must be modernised, how best to leverage cloud and a strategy to maximise future maintainability and extensibility. Areas to focus on would include the business logic behind services and data.

We recommend prioritising consumer-facing applications which represent the areas of your business where you want to invest. These products will then shift to a modern architecture, and often have dedicated product teams to take them forward once they are modernised. ‘Neo-bank’ or consumer-facing digital banking products may fall into this category.

Evan Bottcher introduced a definition for a platform in 2018 that we like: “a foundation of self-service APIs, tools, services, knowledge and support which are arranged as a compelling internal product”. Today, we’d say that a platform should be both internal and external facing.

Modern enterprises architect and build platforms that enable both internal and external developers to design and build products on top. It’s crucial, even when modernising legacy applications to take this approach as well. For applications that will continue to evolve and be crucial to the business, the modernisation strategy must analyse existing systems from both a business and technology perspective.

If a system is not meeting the business needs or lacks the agility to respond to business needs, then it needs to be modernised. From a technical perspective, if the cost of ownership of a system is too high, its maintainability is too complex or its scalability is limited, then it needs to be modernised.

The approaches to modernisation are rebuild, re-architect or replace. When choosing an approach, you need to strike a balance between the approach that has the highest effect versus the associated cost and risk.

All enterprises should be thinking about implementing design systems across their digital properties and products. A design system is a set of interconnected patterns and shared practices that are coherently organised. This means your digital products take on a consistency so that users gain comfort in how to get done what they want to within your product. Common buttons, locations of functionality and navigation standards all fall into the design system.

We recommend design systems as a requirement in experiences for both consumers, and your employees or channel users. Design systems ensure simplicity and help users work across digital products efficiently.

Most importantly, these design systems should apply across both new digital products being created as well as updated front end for legacy products.

For financial institutions, especially those that have been in existence for some time, modernisation is required, and getting it wrong can be extremely costly.

With fintechs gaining real traction in the market, especially with the younger demographic, it’s imperative to put end-user experience at the top of the priority list. This will require product and design expertise to be part of the modernisation strategy, and not simply think of modernisation as a ‘lift and shift’ IT exercise. Book a free consultation with us today to take the first step in your modernisation journey and discover how we can help you.