While there were some signs of digital inertia in the banking sector before the pandemic, the sudden dependence on all things digital during the lockdown has made the problem even more obvious. Internet-born fintech companies are quickly winning ground because they have full understanding of how to utilize tech to create new business opportunities in these changed circumstances. If they want to keep (and improve) their position in the market, traditional banks need to step up their digital transformation efforts without much more delay.
Fortunately, the list of roadblocks that have traditionally prevented them from going about this is not much different from what impacts other tech-enabled businesses. These include:
- Over-reliance on old business models (e.g. heavy reliance on high payment fees for revenue), which would need a complete rethink as key goal of truly digitally transformed enterprises
- Resistance to organizational and cultural evolution, which must complement changes in business operations. Regulatory risks are also anticipated, making the whole process seem even more unappealing
- Lack of access to (and awareness of) the right tech expertise, i.e. vendors which could guarantee the process is rolled out quickly, in a shortening time-to-value cycle
In the face of these issues, banks have traditionally opted for peripheral modifications – trying to look digital by building websites and apps, or adopting other digital tools that only change how they do what they already do. These changes are often conducted without clear strategic vision and without the effort to transform their core value proposition, leading to no real change in value generation.
To keep (and improve) their position in the market, traditional banks need to
- Approach technology not just as a business support function, but rather as a tool of revenue generation – this change in mindset is what constitutes the very core of digital transformation
- Take a holistic picture of costs and benefits in investing in digital initiatives and envision new technology-driven business models. Traditional revenue sources (e.g. payment fees) need to be reprioritized in favor of more tech-driven business innovation in banking services
- Invest time and effort in identifying tech vendors capable of operationally supporting their digital initiatives in a way that is phased, incremental and ensures quicker time-to-value, with minimal disruption to ongoing business operations
The sense of urgency surrounding digital transformation will only be amplified as the COVID-19 crisis continues. Despite not fully grasping this yet banks should be expected to eventually succeed at this. Because of the central role they play in society and the business ecosystem, hopefully sooner rather than later.
Founder and CEO at Maestral Solutions, Inc.