Legacy thinking and processes can hinder digital banking transformation in financial institutions. To adapt to changing market conditions and remain competitive, banks and credit unions must shift their culture, mindsets, and processes. Four organizational capabilities needed for innovation and transformation include nimbleness, scalability, stability, and optionality. The right balance between continuity and change is crucial to successfully managing internal struggles during digital banking transformation. Financial institutions should embrace new technologies while fostering a “challenger mindset” that encourages experimentation, collaboration, and continual learning.
Financial institutions are continually upgrading digital banking features to meet consumer demands for convenience. However, many are neglecting the potential of using data to drive marketing campaigns. Transaction data can provide insights into customer needs and competitor engagement, allowing financial institutions to offer personalized, targeted products and services. Embracing data, artificial intelligence, and machine learning, banks can follow the example of companies like Amazon and Netflix, which leverage customer data for personalized recommendations, turning digital banking into a profit center.
The pandemic accelerated the pace of IT-based change, increasing the urgency of meaningful digital transformation. But a study from the Boston Consulting Group revealed declines in digital transformation value realization, along with increased cost overruns, timeline delays, and a decline in leader engagement from 2020 to 2022. Two fundamental problems exist: most organizations are not designed for radical change, and most organization leaders are not prepared to lead it. Effective leadership is critical for digital transformation, and executives must be prepared to leave their comfort zones to succeed. Leaders need to develop their own vision, create a transformation roadmap, and increase their probability of transformation success using models, templates, and case study examples. Confidence is key, and training leaders to apply knowledge confidently is crucial for successful digital transformation.
The digital era has transformed the way consumers perceive banks, with younger generations viewing them more as concepts than physical institutions. As a result, regional banks are adjusting their customer engagement strategies to compete with larger banks and fintechs. They are increasingly relying on digital marketing, which offers efficiency, addressability, and measurable results. The strategic use of digital marketing can also highlight how regional banks better understand their local communities needs by using accurate, up-to-date customer data. As an example, if a regional bank’s territory has a booming housing market, mortgage deals can be emphasized. Alternatively, if the area is home to high-income individuals, wealth management services can be promoted. First-party data has become paramount, enabling cross-selling to current customers and identifying potential new customers.
In 2010, the fastest way to move money on the same day from New York to London was to catch a flight from JFK to Heathrow and deliver it yourself. Now, you can initiate a secure, real-time payment that’s sent and received between accounts anywhere in the world in seconds at virtually no cost and in any currency. The switch to digital payments has accelerated dramatically, driven by smartphone adoption, new cloud-based platforms, the adoption of APIs and composability, improved infrastructure, and global payment messaging standards. The World Bank forecasts that the digital economy, currently representing over 15% of global GDP, will contribute 30% to global GDP by 2030, creating 30 million jobs.
The terms super-app, marketplace, ecosystem, and platform are often used interchangeably, although they have distinct definitions. A super-app has a core functionality with associated features, such as WeChat’s messaging service, which also includes voice calls, photo sharing, social apps, and payments. A marketplace, such as Amazon or eBay, connects buyers and sellers. An ecosystem refers to a network of interconnected solutions, like Google’s search engine, smartphones, smart speakers, and other devices. A platform includes functionalities enabled by APIs that third parties can leverage to create their own solutions. These models are not merely projects or features but require comprehensive business strategies, long-term vision, and investment. They also require different parts of the bank to collaborate effectively, which may be challenging when different divisions have their own goals. A clear understanding of the model being built is crucial, as is a clear strategic direction or “north star”.
Banks have an opportunity to dominate the growing Buy Now, Pay Later (BNPL) sector according to a report by Accenture. The value of BNPL payments in the U.S. is expected to increase by 25% in 2023 to reach $94.9 billion in 2023. Accenture believes that banks could capture a larger share of this market by integrating BNPL options into their credit card offerings, a strategy already adopted by JPMorgan Chase and Citibank. And with increasing regulatory attention on BNPL, banks’ experience and regulatory resilience could offer an advantage over fintech competitors. Accenture also recommends introducing bundled products and promoting financial well-being to customers.
