In the article Digital Transformation in Banking: Last chance, that was published recently, the Head of the FinTech division at Andersen, Denis Ostapchenya, formulated the main aspects of process digitalization in banks and financial companies. However, the transformation does not always go smoothly and according to plan because fallible people are behind all the processes. A survey of IT Directors at several Eastern European banks showed what issues the bank’s managers should pay attention to first when making a decision and developing a digital transformation plan.
A survey of representatives of ten banks showed that the optimal volume of investments in digitalization at the initial stage is 10% of the total annual costs of the bank. The initial stage (active phase) lasts 1-3 years, and then, the volume of investments decreases. However, the costs for this item will never stop fully, since the digitalization process, once launched, becomes continuous.
In the IT Directors’ opinion, the difficulty of justifying investments of such a volume is one of the main problems. Shareholders are not always willing to approve such costs. In most cases, refusals come from the fact that the costing looks very specific, while the benefits are abstract. The likelihood of an investment can be improved with reasonable projections of cost and time savings, productivity gains, customer base growth, and other benefits of digitalization.
The bank’s top management may have problems in assessing the effectiveness of the Digital Transformation Director.
The assessment should be based on specific metrics:
Evaluating the results for some of these parameters can take quite a long time. Therefore, it is important to define specific intermediate indicators as well. Conference speeches, interviews, and articles in industry publications may be important but they are not digital transformation. The Transformation Director is not supposed to work as a marketing specialist or PR manager.
When choosing a candidate for the position of Digital Transformation Director, it is recommended to pay special attention to their work experience and how long, on average, they held each position. The most basic transformation processes alone usually last at least 3-4 years. The candidate’s CV will show whether they are able to work in one place for such a period and bring the process to its conclusion.
Digitalization can’t be approached superficially. If you merely digitize existing products, you’ll get digitization, not digitalization. For example, many banks have already digitized the process of issuing loans. This means that a client can apply for it online without visiting the office. But the process of consideration and decision itself is still carried out by the staff and may take several days. This can’t be called full-fledged digitalization.
Most banks take a simple path and digitize what is most noticeable. But those who adhere to the concept of digitalization should not chase quick superficial results. It must be remembered that digitalization is not a marketing technique; it is carried out primarily to make processes more efficient.
The problem is that the performer often has no motivation to look at the issue from the point of view of the employees who will work with this process. The solution to this can be the engagement of third-party consultants who can offer the best option, as well as consultations with employees from other departments.
If the initiative comes from above, managers are unlikely to become an obstacle. On the other hand, it will be difficult to convince the board of directors that the time has come, and now there is a need to make large investments in a project that will bear its first fruits only in a few years. Especially when “everything works well enough as it is”. If management has given the green light but still doubts the feasibility of the venture, the IT Director may feel a lack of support.
Another obstacle can be the bank’s security service. Firstly, the transition to digital technologies will add to their job, and secondly, cybersecurity professionals will have to take on new unknown risks. In such a situation, all that is left to do is to negotiate, prove the benefits of change, and win supporters.
It happens that not only the security service but also the bank’s IT team is not eager to introduce new technologies when the old ones are still working. Few want to switch to a technology that has yet to be figured out when they are comfortable working with what they have. If the IT Director and the team go by infrastructure rather than data, evolution will be very slow, and digitalization will most likely turn into digitization.
For some IT Directors, the term “digital transformation” is nothing but annoying, as in their understanding, it means both a lot and nothing. Perhaps, every bank is now making at least minimal attempts to introduce digital technologies. However, in the majority of cases, this is done unsystematically and doesn’t give tangible results, which only increases negativity and skepticism.
We at Andersen have come to the conclusion that banks’ efforts to go digital should be called digital evolution. Evolution into digital, as follows from the points above, is associated with a number of challenges, and there is definitely no correct path. Lack of investments, competent personnel, and support “from above” – these are the problems that will have to be faced. However, the main and most difficult issue is changing the mindset of employees who need to be convinced to become supporters of this evolution.