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Digital transformation’s top 10: The impact factors that matter

Digital transformation—the theme of this week’s BAI Deep Dive—is sure to remain a non-stop topic of discussion as the financial services industry bears down on 2020.

But there’s no need to wait for a new year and its accompanying resolutions to get the skinny on digital revolution. Here are the top ten drivers of digital transformation and where they stand in this last quarter of 2019.

1. Machine learning and artificial intelligence

Joan McGowan, principal global financial services strategist, SAS:

“Banks fully recognize the potential of AI and its component, machine learning, to transform their operations. They understand that these advanced analytics will help them to better identify profitable customers and opportunities; personalize customer journey; reduce fraud, anti-money laundering and cyber threats; and also help keep them compliant.

“The rub is in the deployment. It’s not uncommon for early projects to fail or not meet expectations because the bank has layered AI technologies on top of broken systems and processes. To succeed, banks must have an agreed-upon, top-down strategy and an analytics-driven platform to work the enabling technologies. But most important, they must fix their underlying infrastructure and optimize operational processes using high-quality and persistent data.”

2. Open banking

Alex Kwiatkowski, principal industry consultant, global banking practice at SAS:

“The fundamental tenet of open banking is the ability for third parties to gain access to previously proprietary transaction data. Hyperbolically heralded as a regulatory-driven revolution, the reality has been underwhelming. Customers haven’t had their financial lives magically transformed and—once again—the industry has invested a lot of time, effort and budget for a relatively meagre return.

“Does this mean that we should write open banking off a failure? No, that would be premature. Rather, let’s view it as a slow-burner rather than a rapid-rocket to a radical new world.”

3. Uniting call centers, branches and mobile

Key takeaway: Branches still matter to promote piece of mind but must work in full concert with digital options.

Mohammad Rashid, vice president, head of consumer lending and capital markets practice, Tavant:  

“For many retail banks, online and mobile channels have become as important—if not more so—than branches and ATMs. Investing in digital banking capabilities has helped businesses improve customer satisfaction. Account opening and problem resolution are two critical interactions that customers will likely make in channels involving the human touch: typically, branches and call centers. According to a recent survey, more than four in 10 customers who disputed a transaction or filed a complaint did so through contact centers. Branches were the second-most used channel.

“Banks can make the most of their branch networks, integrating digital and technology advancements into the branch experience; and conversely, encouraging the human touch in digital experiences. As bank leaders execute on their digital transformation strategies, they must fully recognize the value branches offer and keep customer preferences on the top of mind.”

4. Using AI to screen talent in the recruiting and hiring process

Key takeaway: In an age of strapped recruiters, automation and chatbots will help the talent management process move faster and more efficiently.  

Mohammad Rashid:  

“Screening resumes efficiently and time effectively remains the biggest challenge in talent acquisition. Recruiters are being tasked to do more with less. In the next few years, finding top talent will depend on a recruiter’s ability to automate their workflow intelligently. When volume is high, humans can’t always respond to initial questions with the same speed as a chatbot. In the digital era, where instant information is expected, a chatbot can be an important tool.

“Companies must use AI to assess human qualities, drawing on research to analyze everything from word choice and micro gestures to psycho-emotional traits and the tone of social media posts. This will drastically transform the recruitment and hiring process.”

5. Personalized marketing highly geared to an individual

Key takeaway: Marketing to a general group won’t cut it with today’s consumers, who expect special attention.

Norm DeLuca, managing director, digital banking, Bottomline Technologies:

“Banking customers demand a modern, personalized experience, especially in commercial and corporate banking. From a customer’s online account opening experience, to cross-sell campaigns and email correspondence, today’s banks don’t know their customers well enough to make proactive, insightful recommendations that deepen and grow that relationship. Traditional marketing techniques are failing for banks.

“Fortunately, more modern relationship development systems have arrived for banking. From recommending account optimization strategies to improving onboarding experiences, marketers can get a single, detailed view of each customer’s needs and drive tailored, automated marketing campaigns that foster trust and drive customer loyalty.”

6. Regtech and compliance

Key takeaway: Digital transformation means saying goodbye to siloed, mismatched technology.

Norm Deluca

“Corporations and financial institutions must find a more efficient way to stay ahead to avoid financial liability, regulatory actions, damage to their reputation and to customer relationships. Yet these same organizations are often burdened with disparate, siloed technology across multiple systems and a reliance on manual processes. But executives are paying attention: Financial institution executives often cite a fraud solution’s ability to help meet regulatory and compliance requirements. Audit professionals know that meeting compliance requirements is not enough.

“A successful digital transformation will overcome this siloed approach. Digital tools such as real-time alerting to detect suspicious activity across accounts and customers, streamlined reporting to comply with regulations, plus automated risk scoring and intelligent link analysis detection will help banks remain compliant and protected.”

7. Data and analytics

Key takeaway: Getting data out of silos is desired—but applying it is required.

From an article by BAI contributor Dawn Wotapka:

In 2017, BCG estimated brands that personalize experiences for customers by integrating advanced digital technologies and proprietary data have seen revenue climb 6 to 10 percent. That’s up to three times faster than those that do not. It also estimated that in the next five years, the retail, health care and yes, financial services companies that get this right will join an elite group. It could boil down to ‘a revenue shift of some $800 billion to the 15 percent’ of companies that succeed. 

“Banks have been limited by a combination of their technology systems, data integration capabilities, and security and business policies,” says Christine Parker, vice president and industry market leader of financial services at Pegasystems. “Financial services institutions have historically approached channel strategy and development in a decentralized manner, with limited consideration to consistent and integrated cross-channel functionality.”

8. Blockchain

Key takeaway: While the talk has quieted down lately, blockchain will fundamentally change the banking industry and the world in the coming years.

Mohammad Rashid: 

“Blockchain, the general ledger system, is on the top of every tech analyst, investor and executive’s thoughts for the future. And for a good reason. Its ability to enable a global, open system of record for every transaction we make—while providing us with unparalleled control—will fundamentally change our lives in the coming years.

“Blockchain will lead to new business models—rendering existing models obsolete. Its introduction into an organization results in fundamental business change arguably greater than the technical challenge of implementing it. The challenge is that the curve to business adoption is long. So far, we’re witnessing organizations invest in and experiment with it but unwilling to undergo a discussion about re-conceptualizing their businesses based on blockchain. For many executives, it is a leap too far.”

9. Fraud protection.

Key takeaway: Digital transformation must arm banks to become proactive, not reactive.

Lou Carlozo, managing editor, BAI:

“To better protect themselves and their customers, banks must overhaul their fraud risk practices. And sorry, no cutting corners. It means in every area: from payments to digital ID, verification and authentication. And here’s what’s critical: The time for new tech to do its job is not after a transaction, but before. And, live. Financial institutions that connect their digital inputs to real-time decisioning will not only protect consumers but supercharge customer experience and loyalty as well.

“Here’s what life looks like without it.  A study on bank attacks by Positive Technologies, a Boston-based enterprise security firm that works with the financial services sector, finds that “in the wild, we currently see attacks on interbank transfers, card processing, ATM management, e-banking, and payment gateways.”

10. Digital transformation—the parting shot

Key takeaway: The right transformation technology—with digital banks as a viable answer for traditional institutions and the “phygital” touch—will reduce costs and boost customer experience: two top priorities for banks heading into 2020.

Mohammad Rashid: 

“How do your customers connect with you? Banks need to find new ways to attract the growing segment of “omnidigital” customers. Increasingly tech-savvy, these customers gravitate toward lower fees, convenience, and ease-of-use.”

Editor’s note: The most recent BAI Banking Outlook findings back this up. Millennials and Baby Boomers (at 15 and 20 percent) name best rates as their most important reason for opening a direct bank account. Gen X ranks better rates as second (14 percent), just behind convenience.

“How do you figure out which digital transformation is ‘just right’ for your organization? There are three options for starting:

  • Digitize the front end only.
  • ‘Wrap and digitize,’ fixing the front end while gradually replacing legacy infrastructure and integrating the middle and back office.
  • Go ‘digital native,’ creating a fully digital bank from the ground up.

By expanding their digital footprint, banks can reduce costs and boost financial performance while meeting consumer demand for more streamlined and personalized customer experience. The closer you get to the digital native, the more substantial the cost reductions and the higher the corresponding increase in return on equity.”

For more content relating to digital transformation, register for our week-long digital event, BAI Deep Dive, taking place all week long.

Jeanne Pinder is the founder of ClearHealthCosts.com, an award-winning startup bringing transparency to the health care marketplace. She was an editor, reporter and human resources executive at The New York Times for close to 25 years, and has also worked at the Des Moines Register, Associated Press and Grinnell Herald-Register.