Digital transformation
Companies need two distinct digital transformations: becoming digitized and becoming digital. Becoming Digitized involves integrating digital technology into core operations, such as accounting and invoicing. This transformation is based on the company’s operational backbone, focusing on core processes like delivery, bookkeeping, and back-office operations. While previously supported by traditional enterprise systems, today it may be powered by software-as-a-service. The aim is stability and scalability. Becoming Digital pertains to developing a digital platform which serves as the foundation for a company’s digital offerings and rapid innovation. This platform interacts with partners and customers, aiming for revenue growth and quick development of new digital products. To implement both transformations, researchers recommend separating the teams, with distinct teams handling digitization and digital platform development. Digital leaders must also be allowed to break traditional rules since digital innovation will likely require bypassing conventional approaches. Finally, it’s important to foster leaders who are familiar with the new digital landscape.
Payments
The debut of the FedNow instant payments service has received significant attention. While many see this as a monumental step in the payments sector, others have reservations. While businesses might benefit from instant payments as it accelerates the Automated Clearing House (ACH) process, real-time payments might not have the same appeal for consumers as the benefits over existing payment methods are not clear. There are also concerns regarding the safety of using FedNow compared to credit cards. A review of some early adopter financial institutions’ websites revealed limited information on FedNow, with few addressing consumer safety.
Strategic planning
Many banks’ strategic plans lack genuine strategy. They often just consist of lists of projects, coupled with generic vision and mission statements about trust, customer service, and sustainable growth. Such statements are not only disconnected from their tangible corporate goals but also offer little to distinguish one bank from another. For a bank to develop an effective strategic plan, it must identify its primary customer segment for growth. Banks also need to objectively analyze their corporate projects, determining which will genuinely drive growth and differentiate them in the market. This involves prioritizing projects based on their potential impact and the required effort, recognizing the need for both offensive and defensive strategies. Defensive strategies aim to maintain the status quo, while offensive ones focus on growth and winning. Proper allocation of resources between these two strategies is crucial for success.
Workforce
In addition to challenges with interest rates, margin compression, and recession risks, bank executives must also address the current realities related to the hybrid workplace. One thing that is clear is that hybrid work is here to stay. 77% of Fortune 100 companies operate under this model. 59% of workers prefer hybrid workplaces, and another 35% favor fully remote positions. Flexibility in work schedules is equated to an 8% pay raise by employees. Recognizing its significance, banks are now adopting flexible scheduling, especially for roles that can’t be performed remotely. The shift to hybrid work poses challenges for maintaining company culture and productivity and forces a reimagining of office space needs. Finally, concerns are emerging about a declining work ethic and accountability among some employees in the new hybrid environment. Distinguishing dedicated professionals from less committed employees has become essential in the current tight labor market.
DEI
The representation of women in tech jobs and university degrees remains uneven despite gradual improvements over the years. Women make up only 21% of Computer Science degree holders and only 31% of employees in the top 5 tech firms. The discrepancy deepens in senior roles. This disparity can be attributed to historical misconceptions, such as women being deemed unsuited for hard sciences, a lack of female mentors, and inadequate career guidance. However, initiatives like “Girls Who Code” are bridging the gap. This non-profit organization empowers young women with technical skills and mentorship. They collaborate with major companies like Accenture, Meta, and Bank of America to offer hands-on experiences and insights into the tech industry. Bank of America’s Hari Gopalkrishnan, a board member of “Girls Who Code”, highlights the organization’s role in reshaping perspectives on tech careers, emphasizing that tech goes beyond coding and includes fields like UX Design, Analytics, and Ethics. Both organizations are committed to this cause, with professionals investing significant time in mentoring and guiding participants, debunking misconceptions, and forging tangible career paths.
Regulation
The Federal Reserve has announced a new supervisory program to oversee bank activities related to cryptocurrency, blockchain technology, and partnerships with tech-driven nonbanks. This program will augment the Fed’s current supervisory processes, focusing on strengthening the oversight of these “novel activities”. The initiative seeks to encourage financial innovation while addressing potential risks to ensure the banking system remains secure. Activities covered by the program include partnerships with nonbanks offering banking services, crypto-asset-related activities, and the use of distributed ledger technology for various purposes. The intensity of the supervision will be based on the risk associated with each firm’s engagement in these activities. The program will collaborate with external experts from various sectors to gather diverse insights.
Digital systems
A “sidecar” is a modern core system that runs alongside a bank’s traditional core system. Advantages of a modern core system include real-time processing, innovation through reduced complexities, cloud-native capabilities, API-first design, reduced costs, improved stability, standardization through common languages like ISO 20022, and access to a broader talent pool familiar with open-source technologies. One suggested approach for banks is to gradually transition by introducing a modern core for specific customer segments, such as those using instant payments. While this might seem like a costly and effort-intensive task in the short term, it promises long-term benefits including reduced operational costs, enhanced product offerings, and a competitive edge, especially in the realm of mergers and acquisitions. Adopting a sidecar approach, where they gradually transition customers to the new system, can be a strategic, risk-mitigated step towards future-proofing their operations.
Digital transformation
Banks are grappling with the challenge of whether to invest in digital transformation or reduce costs. Consumers, commercial clients, and employees have heightened expectations for their experiences, putting banks in the crosshairs of tech-savvy startups. Yet, there’s a way for banks to balance enhancing customer experiences while managing costs, and it involves breaking down long-standing silos within their operations. To effectively transform their tech strategies, banks should optimize work and processes across the institution, eliminate silos between functions and systems, and use process automation, AI, and low-code configurations to innovate their work methods and cut costs.
