Digital Transformation for Banking in 2023: What You Need to Know

In digital transformation, organizations leverage digital technologies and processes to change the way they operate fundamentally. This allows them to meet ever-evolving business and market needs. While digital technologies are a vital component of digital transformation initiatives, at their core, they revolve around the customer: how organizations engage them and how they can utilize tech to deliver enhanced customer experiences. 

Many industries, such as the banking industry, are undertaking such changes to improve their operations, meet customers’ needs, and gain a competitive advantage. Banks are accelerating their digital transformation initiatives in a bid to bolster their operations, meet customer expectations, provide more value to their clients, and remain agile and competitive in today’s ever-changing business landscape. 

What Does Digital Transformation in Banking Mean?

Digital transformation for banking is more of a paradigm shift and entails moving away from legacy processes to implementing digital operations using new technologies. Furthermore, it entails an operational and cultural shift that requires integrating digital technology into all areas of your organization. 

Digital transformation for banking is made up of several actions. It requires organizations to continuously create new business value, utilizes new technologies that leverage a user’s expertise, constantly innovate, and deliver seamless customer experiences by providing them with personalized and convenient experiences. 

One of the key drivers of digital transformation for banking is customer expectations. However, several bank processes are designed to benefit the bank instead fulfilling customer needs. Employing a customer-centric approach in digital transformation will require organizations to undergo operational transformation. Banks should re-evaluate their knowledge of their customers and better understand what their clients want for banks to build more meaningful relationships with their customers. 

Banks can leverage data collected from different stages of the customer journey and process and analyze various datasets to gain more insights into and prioritize their customers’ behaviors, preferences, and pain points. For example, by employing new technologies like AI and automation, banks can make their services more accessible to customers, speed up loan fulfillment processes, and resolve disputes more quickly. 

Digital transformation for banking enables banks to overcome common challenges such as outdated legacy systems, lack of speed and agility, siloed core banking applications, and the growing needs for open banking and integration capabilities. It can also be applied to a range of BFSI departments, including insurance claims, fraud analysis, loan services, and more. 

Digital transformations in banking and financial services can help banks and financial institutions of all sizes to optimize operations and how they deliver value to their customers. Banks are increasingly moving toward digitalizing their operations and automating their business processes to provide customers with more convenient and secure digital banking experiences. 

In a BusinessWorld podcast, Kissflow CEO Suresh Sambandam talked about a “citizen development paradigm”, which provides non-IT personnel with a platform that allows them to leverage their expertise and incorporate it into working applications even without programming knowledge. He goes on to say that a paradigm shift in thinking is required. In most cases, the IT department handles digital automation processes. However, with the adoption of the citizen development paradigm, business users can create their own simple workflows and applications without relying on IT. 

Key Drivers and Challenges of Digital Banking Transformation

According to Kissflow Associate Director for BFSI Sales Manish Narayanaswami, low-code, and no-code technologies have been in the market for over a decade. In recent years, particularly during and post-COVID era, there has been a surge in the adoption of low-code and no-code tools, especially in the BFSI sector, which is a $50-billion market. He attributes this surge to the need for enterprises to find alternatives to digital transformation initiatives. According to Narayanaswami, organizations have spent a lot of money on digital transformation initiatives in the last decade. However, most of these initiatives failed. 

Digital transformation for banking is a complex process that can be challenging to execute successfully. According to BCG, only 30% of such initiatives succeed in meeting their objectives. Common challenges faced by organizations that want to implement digital innovation in banking include implementing these organizational and cultural changes at scale, especially in large organizations.

This means that 70% of these initiatives were unable to provide the intended value. Narayanaswami adds that while there are many reasons why these initiatives failed, there are two common and recurring reasons: improper use of technology (buying off-the-shelf products) and inefficient use of technical resources (building from scratch). 

Another challenge is that even after putting all these resources into building a solution, your employees are not using it because they feel comfortable or are familiar with the inefficient legacy systems that are already in place. 

Given that digital transformation initiatives are quickly becoming an integral part of the operations of financial institutions, banks, FinTechs, and other BFSI organizations are racing to fund large-scale digital transformation initiatives. However, finding the right technology stack to implement that fundamental change for core systems and legacy operations proves to be a significant challenge for CIOs and CTOs. 

Key drivers of digital transformation in banking

Several factors drive the need for digital transformation in banking. These include:

• Changing customer expectations – Adopting a customer-first approach has become necessary for organizations to maintain a competitive edge. Doing so will allow them to provide customers with seamless, personalized experiences and enhanced transparency and security. Beyond implementing a digital banking transformation strategy, banks should customize their DX strategy based on customers’ needs. 

• Evolving regulatory requirements – In some cases, organizations are prompted to undergo digital transformation, such as employing new processes to meet data protection laws to comply with newer or more complex regulatory requirements. 

• Obsolete systems – Modernizing your infrastructure helps facilitate the flow of information and gives you access to new technology systems that are faster and more compatible with more advanced technology.  

• Rigid core systems – Implementing new core banking systems allow banks to be more flexible and more able to adapt to consumers’ changing needs. Furthermore, these can open up new opportunities for growth by enabling banks to create new revenue streams, deliver hyper-personalized experiences, and implement more scalable and open architecture. 

• Skill shortage in IT – According to a Gartner survey, 75% of IT executives cite that talent availability is the most significant adoption risk factor for emerging technologies. With the emergence of low-code/no-code platforms, organizations can pave the way for citizen developers. In a BFM podcast, Kissflow CPO Dinesh Varadharajan shared that citizen developers are crucial to inclusive digital transformation. He adds that through citizen development, users can solve their problems themselves without necessarily relying on IT teams, helping bridge the skills gap. 

• Time-to-market – Building a solution from scratch leads to a slower time-to-market. Digital innovation in banking allows banks to become more agile and more capable of responding to market or technology changes. 

• High OpEx – According to a McKinsey report, as much as 15 to 20% of a bank’s budget goes to operations. Implementing an effective bank digitalization strategy can transform these functions, which, in turn, can potentially lead to improved profitability and returns for shareholders. Doing so also enables banks to provide improved products and services to clients, which can also increase revenue. Moreover, by automating some processes, banks can improve efficiency, streamline operations, and reduce operational expenses. 

Benefits of Digitizing Banking Operations

Digital transformation for banking can unlock many vital benefits, including:

Increased Employee efficiency

Giving your employees the right tools can eliminate silos, which fosters better collaboration. New technologies like AI and automation can also boost employee efficiency, as they can improve the quality and consistency of their work while also taking care of repetitive tasks. This frees up your employees, allowing them to tackle more complex tasks.

Improved customer experiences

Today’s customers are looking for better services. By accelerating digital transformation in banking, banks can help their employees and processes become more efficient. This, in turn, allows them to deliver intuitive and seamless customer experiences across many different aspects, such as communication.

Enhanced security

Adopting new technologies enables organizations to access robust security features, which help improve transparency and system integrity, as well as provide them with a better way to protect sensitive customer data.

Increased Scalability

Digital transformation initiatives enable organizations to become more flexible, helping them scale up or down according to their or the market’s changing needs. These initiatives can also speed up an organization’s growth by improving time-to-market speed and allowing them to make continuous improvements.

Addressing Skill shortage

DX initiatives empower business users to become citizen developers, giving them the tools to create solutions to address their problems. Through digital transformation, employees with little to no programming background can build their own apps or systems without relying on their IT department.

Legacy modernization

Digital transformation for banking helps financial institutions shift from outdated legacy systems to more modern ones. This allows them to compete with newer financial organizations like Neobanks while aiding them in providing continuous, consistent, and more effective services to customers.

What Are the Digital Banking Transformation Priorities for 2023?

CIOs and IT leaders are prioritizing digital transformation for banking initiatives such as:

Shifting from on-premises to cloud

New banking models require banks to shift the focus on their organization, products, and services to understand their customers better and meet their needs. Switching to cloud-enabled digital services can help banks drive innovation and grow their revenue. Cloud-based solutions also help banks become more flexible and scalable to better meet changing customer expectations.

Building Security

While new technologies can help bolster security measures, they also come with potential risks. Prior to adopting new tech or systems, banks must put appropriate security measures in place to protect their customers’ data. Choosing a solution that offers robust security features can help banks enhance their system’s integrity.

Building custom banking apps

Because of the growing popularity of mobile banking, banks are racing to build their own baking apps in a bid to retain existing customers and attract new ones.

Automating banking operations

Accelerating automation allows banks to deliver more optimized customer experiences, enhance employee productivity, and digitize operations.

Expanding core banking systems

Enhancing core banking systems is one of the top DX priorities for 2023. Organizations can achieve this by leveraging low-code development platforms like Kissflow to build or customize complex applications quickly and easily.

Challenges of the messy middle layer

Narayanaswami adds that there’s also the added challenge of the “messy middle layer”, which affects internal employees the most. CIOs and CTOs are tasked with maintaining the health of the front-office and back-office ecosystems and ensuring that your bank uses the most optimal technology to address all the different layers of your operations. On the one hand, if your core banking system is becoming outdated and hindering your digital transformation initiative, then you’ll need to replace it. On the other hand, you want to create a personalized Internet banking experience for your customers by employing AI. 

Choosing between buying a solution and building it is subjective and is determined by factors such as the scale and expertise of your IT teams. Whether you decide to buy or build, the people most impacted by your choices are the employees running the front-office and back-office operations. 

In most cases, these employees use several different systems to complete a simple task. Eventually, they’ll tire of these applications and learn new technologies, so they revert to outdated or inefficient legacy systems. Ideally, employees should have access to a simple, effective, and agile system that can help them manage daily processes and tasks. 

Building such systems is relatively simple for IT teams, but they’re also faced with other tasks, such as adapting to new technologies and upgrading core systems. This leaves them with no bandwidth to streamline all your operations. In addition to that, these processes are prone to change, which translates to a considerable overhead. According to Narayanaswami, to tackle this messy middle layer, you need to keep in mind that internal employees don’t need very personalized solutions, unlike end users. They also don’t need comprehensive large-scale systems and applications.

Tackling the buy vs build dilemma

Nowadays, organizations are facing a common dilemma: build or buy. Each approach has its fair share of pros and cons. If you purchase off-the-shelf products, you’ll have access to a cost-effective solution that you can use as is and give you a quicker time-to-market. However, these off-the-shelf products are often vendor dependent and usually come with product limitations. 

If you choose to build your own solution, you can develop and deploy a flexible and customizable solution with practically limitless possibilities. The downside is you’ll be undertaking a costly and time-consuming endeavor with a slower time-to-market. 

Narayanaswami goes on to say that choosing between building your own solution or buying off-the-shelf products is very subjective and depends on several factors, like your timeline, budget, IT resources at hand, and more. However, the emergence of low-code/no-code platforms gives organizations access to a third alternative, which can potentially accommodate the best features of the previous two approaches.

Banking Trends That Demand Digital Transformation

One of the biggest challenges in digital transformation for banking is legacy core banking platforms. Banks are also faced with the added challenge of digitizing their products and services to meet their customers’ changing requirements and keep up with complex and evolving regulations. Moreover, with the skill shortage, banks are facing difficulties in becoming technologically equipped. 

Adopting a digital transformation initiative can help banks overcome these common challenges. However, DX initiatives go beyond implementing new technologies or systems. It also involves getting everyone on board with the transition by investing in training them to use these new systems and avoid reverting to legacy systems. 

Furthermore, organization heads must take ownership of these initiatives and show commitment to seeing these initiatives through. Banks can also leverage the capabilities of low-code platforms to augment the capabilities of their ERPs. For example, employees can use the platform to build a solution that can automate repetitive tasks or streamline their workflows. 

When it comes to complying with regulations, adopting DX strategies can help banks address new requirements, such as security. However, despite adopting new technologies, for instance, you may still face more complex challenges, given that regulations also tend to evolve.

Digital Transformation Process in Banking

DX in banking involves the integration of new technologies, systems, and processes to optimize operations, improve customer experiences, and help banks keep up with the changing market landscape. It requires banks to shift from legacy systems and legacy thinking to more modern and agile solutions and perspectives, as well as a shift to more streamlined and collaborative business models. Digital transformation examples in banking include the adoption of blockchain technology, automating business processes, and leveraging AI capabilities to streamline processes like data collection and analysis. 

DX enables banks to deliver more cohesive and hyper-personalized experiences for customers throughout every stage of the customer journey. Some of the critical aspects of DX in banking include personalization, automation, enhanced security, and omnichannel banking experiences. 

The process begins with organizations defining the objectives of their digital transformation journey by assessing their internal operations, the technologies they’re using, the competition, and employee skills. From there, organizations can outline measures or ideas for DX that require less time and entail less risk. 

Once you’ve tackled issues and solutions to improve internal operations, you can focus on improving customer experience by defining customer needs using data before jumping toward implementing new business models, which have a longer time-to-value and entail a higher risk of failure. You can then focus on acquiring or allocating resources. 

DX doesn’t need to be one grand endeavor—you can introduce your DX initiatives piecemeal, starting with key projects. Then, you can work on integrating these initiatives into other projects. Lastly, you’ll need everyone, from top management to end users, to be on board with your DX initiative. Effective implementation needs to have a clear communication plan that outlines each person’s or department’s roles and responsibilities. Furthermore, you need to craft a marketing plan that communicates the benefits of your DX initiatives to your customers. 

Successful Digital Transformation Strategy

Digital transformation for banking entails practical approaches that start with laying the groundwork for an effective DX initiative. This means defining the problem before looking for potential solutions. Technology transformation comes with several “layers of digital transformation,” according to Kissflow’s Manish Narayanaswami. Knowing these layers allows you to create a problem framework and identify operational transformation needs across different departments. 

In banks, for example, end-to-end loan origination processes tend to employ multiple disparate systems. To avoid fragmentation, defining the problem across numerous departments allows you to come up with a more strategic DX approach.

Kissflow use cases for digital transformation for the banking

A low-code platform like Kissflow can be used to simplify core banking processes like loan origination processes, including checking lists, verifying addresses, checking credit, and verifying documents. You can also use Kissflow to build systems to send reminder emails for KMIs, send reminders for non-payment, dues, or penalties, deploy event-based mailers, make approvals for rewriting loans, and automate NPA processes. 

Instead of replacing your ERP, you can use Kissflow to build solutions and systems to enhance its capabilities. This, in turn, allows you to optimize your business processes further, manage different banking activities, and deliver better customer experiences. 

Aside from optimizing your loan origination process, you can use Kissflow to augment the capabilities of your ERP for core banking processes like branch banking and CASA. For instance, you can use Kissflow to build cash count and vault management apps. For CASA, you can leverage Kissflow’s capabilities to create a system that automates the account opening process, reports, and checkbook or passbook issuance. Moreover, you can use Kissflow to augment ERP capabilities for KYC and renewal processes. 

Migrating from legacy systems to modern tech platforms

According to Narayanaswami, low-code platforms can help accelerate digital transformation in banking by simplifying and streamlining the migration from legacy systems to modern and agile technology platforms. Low-code integrations let banks maintain their legacy systems for a bit longer by taking the valuable and functional components and making these available to the new system. Furthermore, shifting to a low-code platform allows banks to reuse their existing data by transitioning from their old infrastructure to more up-to-date systems. 

Lastly, low-code platforms like Kissflow enable banks to future-proof their business. That’s because the platform lets them build scalable and flexible solutions that can be customized according to changing market needs. 

Digital Transformation Examples in Banking

What does digital transformation for banking look like in the real world? Below are several digital transformation examples in banking:

• First Philippine Holdings Corporation (FPH) is using Kissflow to digitize its and its subsidiaries’ operations in an effort to accelerate its decarbonization mission. Using Kissflow, FPH has digitized over 100 office processes, helping it complete more paperless transactions per month. Using Kissflow, the company plans to transform additional operations across various departments and subsidiaries. Through the platform’s low-code capabilities, FPH is now capable of accelerating its DX journey. 
• One of the Philippines’ leading banks is using Kissflow to transform and optimize its financial processes, including credit approvals, document review, HR workflows, and more. It has automated over 70 processes and has 18,000 users. 
• Organizations can use Kissflow to modernize their legacy systems, streamline core system operations like approvals and workflows, and give FRM and Compliance teams a centralized solution to manage risk, fraud, and compliance. 

Digital Banking Transformation Requires an Experienced Team

For a DX initiative to be effective, it requires a cohesive and experienced team. Aside from top management, employees must also be capable of adapting to new changes. The stakeholders who can help drive DX for banking include CIOS, CTOs, CDOs, and Chief Innovation Officers. 

Top management can oversee an organization’s overall DX strategy, identify opportunities for innovation, and collaborate with other leaders to execute a new plan, such as adopting new technologies or processes to accelerate digital transformation. 

How to Avoid Failing Banking Transformation from Experts

Digital transformation for banking can be a daunting undertaking. Concerns such as using new and unfamiliar technologies and challenges in adopting new platforms or systems can hamper the adoption of a digital transformation strategy for banks. Most organizations focus their bandwidth on developing and maintaining critical systems to run their business.

Collaboration between the business and IT department

However, according to Kissflow CPO Dinesh Varadharajan, they tend to ignore the applications that are required for businesses to run their functions or departments. He adds that digital transformation initiatives should start with transforming the way the business is run. Moreover, it’s crucial that the company and its IT department work together to accelerate digital transformation. Otherwise, the initiative is not going to work. 

Have discipline and clear goals

According to Tony Saldanha, former P&G head of operation and digital transformation and author of the book Why Digital Transformations Fail, 70% of digital transformation initiatives fail because of the lack of discipline and clear goals. He goes on to say that this discipline is a two-part component. One refers to the clarity of your definition of what digital transformation is. The other is discipline in terms of having the right goals and processes. 

To help avoid failure, he suggests following a 5-stage digital transformation model, which starts with organizations laying the foundation of their DX initiatives through automation of existing work. However, Saldanha notes that this is where many organizations are stuck. 

Moreover, most organizations that have a digital transformation agenda are at stage two (silo change) or stage three, which is “partially synchronized” or the partial conversion of an entire organization through strategy sufficiency and an effective change model. 

He adds that top management, CEOs in particular, should be more than just engaged in the initiative. They need to have commitment and ownership of the initiative and “[have their] skin in the game”.

Shift your mindset

Aside from shifting from legacy processes, there’s also a need to pay attention to doing away with “legacy thinking”, which can prevent organizations from unlocking the full benefits of digital transformation initiatives and adapting to changing consumer demands and market conditions. Thus, organizations need to invest in training their employees to better support the DX initiative and shift their mindset to let go of legacy thinking. 

Moreover, financial institutions are bound to face internal struggles when implementing a bank digitalization strategy. For them to be able to manage such challenges better, it’s essential that they strike a balance between continuity and change without compromising progress. Without this balance, organizations can potentially fall into chaos or conservatism. 

Industry Trends and Best Practices

CFOs play a major role in accelerating digital transformation in banking. They’re responsible for utilizing data analytics to drive insights and advance strategic decision-making. By leveraging their financial expertise, CFOs can use data analytics to unlock new opportunities for growth, manage risks, and uncover new revenue streams. They can also identify patterns in data that can help organizations make more informed decisions to drive innovation.

Below are some of the key trends and best practices when it comes to digital transformation for banks:

Implementation of collaborative business models

Working with FinTech firms and third-party platforms gives banks access to newer technologies and the capacity to develop new products and services. For example, a bank can collaborate with a FinTech company that leverages AI to build and deploy a more streamlined onboarding process. 

Digital Banking readiness

Banks are working toward future-proofing their business models. However, challenges like increased competition and complex regulations hamper these efforts. The top priority for many financial institutions in 2023 is their readiness to undertake digital banking transformations, which can help banks enhance risk management and operational efficiency, as well as meet changing customer demands and market and organizational needs.

Use of Artificial intelligence

Financial institutions are looking to leverage AI and machine learning to optimize operations, bolster cybersecurity efforts, and mitigate risks of fraud. While there is a clear focus on adopting newer technologies, the focus still remains on the customer journey and the need to provide customers with seamless and secure banking experiences.

Increased focus on cybersecurity 

A DBR survey shows that for 96% of global financial institution leaders, cybersecurity is their top priority. This is followed by mobile channel user experience (91%), mobile channels (87%), and data and analytics (83%). This is because a growing number of financial transactions are performed digitally, which prompts financial institutions to bolster cybersecurity efforts, such as adopting advanced security solutions like encryption, to protect their customers’ data. 

It’s worth noting that financial institutions are still facing key challenges when it comes to accelerating digital transformation in banking. These include resistance to change, lack of or limited resources necessary to accelerate DX initiatives, and challenges in regulatory compliance. 

How Low-Code Application Development Platforms Can Accelerate DT in Banking

Low-code application development platforms (LCAP) like Kissflow give business users what they need: a simple, efficient, and customizable solution for daily operations that will allow them to move into a centralized digital system with a simple and standardized interface. LCAP can help accelerate digital transformation in banking as these solutions require minimal to no training for users to employ these systems. 

Kissflow has built a low-code/no-code platform to help organizations tackle the messy middle layer without worrying about the pros and cons that come with the buy or build options. The platform gives you access to tools that combine the best features of buy or create options, allowing you to build, change, and deploy your own solution up to ten times faster than building it from scratch using traditional programming languages. 

Conclusion

The importance of digital transformation in banking goes beyond adopting new systems or technologies. It entails a paradigm shift, moving from legacy systems and legacy thinking to integrating newer systems into all areas of your organization and overcoming resistance to change. By adopting a bank digitalization strategy, banks can future-proof their business, become more agile, and maintain a competitive edge, while still putting the focus on their customers and providing them with exceptional experiences throughout their customer journey. 

Low-code/no-code platforms like Kissflow can help accelerate digital transformation. By giving business users access to intuitive tools, organizations can empower their employees to become citizen developers capable of building and deploying their own solutions. Aside from addressing skill shortages, empowering citizen developers helps foster innovation in organizations. 

If you’re planning to undertake digital transformation initiatives for your organization, you may want to explore more resources, engage in discussions, and emulate actionable strategies, such as the ones outlined in this article, to help you implement an effective digital banking transformation strategy.