Survive and Thrive: How Financial Services Institutions Can Face the Digital Storm

It’s been more than a decade since the financial crisis, which brought with it unparalleled levels of disruption and strict regulatory compliance requirements for banks and financial services institutions. In 2018, these organisations know that compliance is quite simply a part of life; however, there is also a fantastic opportunity to continue to grow and thrive—if they push digital transformation to the top of their agenda.

Digital transformation comes in many forms, but in terms of financial services, I’m referring to the ongoing journey to automate processes, develop agile frameworks, and build amazing digital experiences for the customer, all driven by a smarter use of analytics and data. In this article, I want to spend some time highlighting some of the key areas financial services companies must embrace if they are to thrive in the digital era.

Digital disruption, fuelled by technology innovation has hit every market the world over, and financial services has been a poster child for this revolution. Digital banks and fintechs have forced traditional banks, such an ING, Lloyds, and Deutsche Bank to completely rethink the way they deliver services to keep customers and protect their very existence.

Fintechs have become increasingly attractive to consumers, quite simply because they are simple to use, are incredibly convenient, and make life a lot easier. Fintechs are organised in a way that they can “cherry pick” the most profitable banking services and avoid those that deliver less profit.  Traditional banks have woken up to the fact that these nimble, digital-first organisations are a potential threat to their business, across emerging markets, but increasingly also within Western Europe.

Financial services remains a heavily regulated industry, and attempts to innovate are often stifled by considerations around managing risk. While risk mitigation should continue to remain a high priority, failure to innovate may be even riskier. McKinsey reported more than three years ago that legacy financial institutions will see profits decline 20 to 60 percent by 2025 if they fail to evolve digitally.

It’s perhaps unsurprising that some of the world’s leading financial services organisations have made the shift to cloud computing as they seek to build a technology platform that can prepare them for the digital era and help them meet challenging targets. While it may be obvious that the cloud represents a utility-based approach to technology that is more cost effective, there are other benefits which are just as powerful.

For example, cloud computing offers banks protection against technology obsolescence, by eradicating costly, time-consuming upgrades and delivering the latest innovation directly to end-users. Increased regulatory demands mean that financial institutions must not only protect their data but also prove that it is safe. Having access to a single security model via the cloud is another huge benefit for financial services organisations.

For financial services organisations, cloud computing is also about re-imagining traditional processes such as statutory reporting, regulatory reporting, and management reporting to embrace dynamic, rolling processes and performance management. It’s about implementing lean principles to eliminate non-value-add activities and drive continuous improvement.

And as regulations change and agencies provide updated guidance, cloud providers can update their software services to remain compliant, without imposing an upgrade burden on the customer. Adapting to new rules and guidelines is more manageable if processes and systems can be updated in the cloud rather than on a multitude of systems or different versions of a system. It’s no surprise PwC predicted that the cloud will become the dominant infrastructure model in financial services.

While some financial services organisations have transformed their front office to meet new customer expectations, the same cannot be said for back-office capabilities. There are question marks over the technologies and tools required to support those who pay the bills, process payroll, create financial statements, and plan for the future. What about for the decision-makers who need access to better data and deeper business insights? Many financial institutions’ business processes and procedures are yet to reach the levels required if employees are to become more efficient and effective.

The pervasiveness of digital transformation in daily life has raised everyone’s expectations. Not only is it essential to deliver intuitive and engaging experiences for customers, but employees operating behind the scenes—managing financials, talent, and payroll—need a system that can keep tabs on it all. They have come to expect the same, easy-to-use interfaces and experiences in the workplace as they have in the consumer world.

Traditional financial services companies may face trouble in attracting and retaining employees if they’re running on dated technologies. For those who do embrace a single system for finance and HR, the benefits are tangible. Workday customers in the financial services sector specifically have seen benefits, including a 25 percent reduction in manager time spent on performance and compensation reviews, a 10-25 percent reduction in time-to-fill for critical positions, and 1-4 percent lower voluntary turnover of employees. Another huge benefit experienced by Workday customers in this space is a 30 percent increase for HR executives in the time they can spend on strategic business partnering—crucial in today’s business world.

Digital transformation is a term that has been used widely in the media, and it should be made into something tangible. Financial institutions should be able to connect transformation efforts with cost reduction, strategic expense management, cost-capture, and financial system implementation. The only way to do this is to shift away from on-premise software and embrace the true potential of the cloud. Here are the three key digital transformation takeaways for financial services companies to consider:

1. What is the cost of not innovating? Being risk-averse, particularly during turbulent economic periods, is natural; however, financial services must embrace the storm head on and understand the implications of not transforming their business models and putting digital at the core. Digital offerings are replacing physical branches throughout the retail banking sector, and the ongoing automation and digitisation of processes mean that those who fail to get digital right are staring into the abyss.
2. Transform the core business systems too. Getting the customer experience right is one of the cornerstones of digital transformation, but so too is having core business systems that can benefit from IT products and tools that talk to one another and allow business leaders to quickly and easily gain insights from real-time data. This vision is a million miles away from the old-world on-premise IT architecture many of these organisations have come from.
3. Build employee experiences that attract the best talent. As a connected society, we live and breathe digital every day, and in the workplace we expect systems to recreate similar levels of engagement. Build systems and processes that engage and empower employees, allow them to take control of their careers and encourage personal development. Provide employees with the latest technologies they need to do their jobs most efficiently.