“So we beat on, boats against the current, borne back ceaselessly into the past.”
— F. Scott Fitzgerald, “The Great Gatsby”
Among the themes of Fitzgerald’s classic novel is the role of the past in shaping the future. Mysterious millionaire Jay Gatsby creates his own vision of the future, but this vision is based on a world that no longer exists, and his nostalgia proves his undoing.
Wrapped in this melancholy tale is a lesson for financial firms, which likewise have a nostalgic past. For decades, banking was a simple, if unexciting, business. Deposits funded loans, which provided profit via interest paid.
Those days are gone. Interest rates hover at prolonged historic lows. Complicated financial instruments have added flexibility, but also complexity. The entry of fintechs and non-traditional players have re-sculpted the competitive landscape.
COVID-19’s sudden impacts add to these challenges. BAI research indicates that close to 90 percent of customers plan to keep using digital banking services after the pandemic, and close to half say they would consider switching financial services organizations for a better digital experience.
As a result, many institutions are advancing their data and analytics platforms, and evolving their modeling processes. They’ve invested billions of dollars in cloud, open source and vendor-supplied software, along with consultants to enable them. Still, projects often end in failure.
The digital transformation struggle
Why do so many organizations toil unsuccessfully with digital transformation? Oft-cited issues include lack of sponsorship or expertise, competing priorities, limited resources and inadequate communication.
But there is one key factor infrequently, if ever, considered: the past. The omission is understandable because the “past” defies easy definition and measurement. Still, decisions made long ago, and upheld without appreciation for how times have since changed often have unintended present-day repercussions. These decisions include:
Technology. Legacy technology – particularly around entrenched (and potentially obsolete) databases, computational resources, or governance tools – can evoke a sense of comfort and expertise. With that often comes significant resistance to change.
Processes. Together with any technologies are the processes governing their use (e.g., controls on models, approval patterns, communication channels, etc.). These elements are difficult to change due to their natural familiarity.
Strategies. Businesses see and define themselves in specific ways. We are a retail bank. We focus on small business. We pride ourselves on competitive rates. Self-perceptions are more than slogans; they drive strategies and actions in real terms. Questioning them can make staff feel unmoored.
Changing the tide: Principles for success
When fighting something as potent as years of accumulated technical and cultural debt, how can any project succeed? Change is hard – and fundamental change even harder – but these guiding principles can help organizations overcome common digital transformation obstacles:
1) Know where you’re rowing. A clear vision of the future is a powerful tool. Consider changing customer attitudes and market landscapes. Evaluate current strengths and weaknesses. Transformation is an opportunity to develop a new image of the firm and its business. Creating a vision unencumbered by the past makes it easier to align priorities and measure progress.
2) Have the right equipment. An articulated vision imposes specific demands on the organization’s analytical platform. For instance, where does automation make the most sense and provide the most benefit? What is the optimal modeling strategy? The increasing importance of models to guide decision-making often puts emphasis on:
Speed of development and deployment, along with appropriate monitoring and governance
Cloud-based deployment for efficiency and scalability
Ability to incorporate AI and machine-learning techniques for modeling, data processing and automation
A “citizen data scientist” paradigm for analytics and reporting to get information in the hands of those who use it, when they need it and in a way they understand.
3) Establish people and processes. A well-functioning boat is more than the oars and hull. To get anywhere, the crew must pull in time. This means developing efficient processes which take advantage of the technology available to expedite and enhance decision-making. Agility and governance are paramount.
4) Have a plan, but be flexible. Don’t map the whole voyage, but instead set intermediate goals and waypoints to allow for adjustments. Technology choices are key to enable mid-journey course corrections while systems and processes are being settled.
5) ROW! Often, the most difficult decision is simply to begin. This entails trusting the new boat and leaving safe harbor – but no one can arrive at their planned destination without first casting off.
No manner of preparation can guarantee successful transformation, but given current conditions, maintaining the status quo is not an option. It’s time to reimagine the future.
Begin with a clear vision of the horizon, the right technology, efficient processes and incremental goals.
With those elements in place, firms can chart a course to enhanced brand reputation, improved operations and customer experience, and a competitive edge through their transformations. Those who put the past behind them can navigate to a more prosperous tomorrow.
The timing of an interest-rate change is anyone’s guess. That means your time is better spent on smart, longer-view strategies for growing deposits and pulling in customers who will stay with you for the bulk of their banking needs and...