We are witnessing a once-in-a-generation transformation in the financial services industry as banks face up to what’s required to compete effectively in the digital age. Most banks recognise the need to integrate digital technology across all areas of their business and the need to change their operations to deliver greater value to customers.
Banks need to open up their infrastructure, be willing to challenge the status quo, to collaborate with partners and experiment. There isn’t a simple recipe for success and some initiatives may fail – but the culture of the bank has to change to create the right environment for success long term.
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Banks are at different stages in their transformation strategies – some are fully embracing the challenge and opening up to change, while others are still tinkering around the edges. But standing still is not an option. Open Banking is bringing new opportunities for all – and allowing challenger banks, fintechs and tech giants to gain a foothold in the market.
Successful transformation must be driven by the business, it’s not just about technology change. The culture of the organisation is often the biggest barrier to overcome.
So how can banks drive cultural change across the organisation? Five tips for success include
A clear vision
Digital transformation cannot be achieved overnight. Buy-in from the board and embracing a digital-first approach as part of the culture of the organization is essential.
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By GlobalDataThe best place to start is to align the transformation programme to the bank’s overall vision for the future. If everyone understands the transformation the bank is seeking to achieve long-term, and buys in to the ‘big picture’, and their role in achieving common goals, it becomes much easier to encourage new ways of working. A change in mindset across the entire organization is needed to ensure digital-first, customer-centric objectives are met. If no one is questioning the bank’s performance today, what it should be tomorrow and if things can be done in a faster or more efficient way, you risk being left behind.
A technology roadmap
Legacy core banking systems at the heart of banks’ IT infrastructure are often held responsible for holding back banks’ innovation efforts and crippling their agility. It’s risky replacing these systems and change cannot be achieved quickly. But digital transformation is a long-term project – it must be a constant evolution of a business’ organizational, operational and technological foundations, and requires careful planning. Technology leaders need to set out a clear path and bring everyone with them in understanding the roadmap to success.
If you think about a bank and the systems it needs to operate effectively, these can be broken down into three areas:
- Systems of record – these are the back-office core systems. Software here is typically developed using a linear, or ‘waterfall’ approach. It’s okay for developments and changes to these systems to move at a slower speed;
- Systems of differentiation – these include decision-making, pricing, analytics and risk management tools in the middle office. These will need updating more often to accommodate changing business practices or customer requirements;
- Systems of innovation – these are the customer-facing apps and must be updated frequently. It’s here that banks haven’t been innovating fast enough and it’s crucial to move more quickly – taking on an agile delivery methodology, collaborating and innovating from the outside in.
Any companies launched in the last five to seven years will already have a culture in place that thinks in terms of agile and scrum. A change in mindset is needed by the established banks – helping them understand how others work and how to deliver innovation – particularly in regard to ‘systems of innovation’ that impact customer experience.
Cross-functional teams
Another key step in driving cultural change is to reorganise the way people work together and interact across the business. In a traditional bank structure, teams exist in functional silos, with business staff operating separately from technology experts. To make the business more responsive, it’s essential to break down these siloes and bring different roles together within new cross-functional teams, including business experts, developers, data scientists, quality assurance testing and compliance experts, with each team dedicated to delivering a particular service. This enables more agile development so that customer-facing software can be delivered in sprints on a continuous basis.
Education is key. Making the business case for setting up cross-functional teams is a radical change. And it’s only natural that staff will have questions about how the changes affect the way they work. It’s also important to consider re-skilling: teaching business people about coding, and technical people about the business so they can work more effectively.
Collaboration and ‘outside-in’ thinking
As well as cross-functional teams within the bank, it’s also healthy to open up the bank to new talent, ditching the ‘not invented here’ approach. There’s a growing realization that banks cannot own everything anymore. It’s essential to put in place a technology and partner ecosystem to support the business and allow it to capitalise on new innovation fast. The advent of Open Banking means banks no longer ‘own the customer’. A lot of large banks have caught on – investing in innovation labs, collaborating with fintechs and others from outside the organisation. The use of APIs and cloud platforms is crucial in changing the way banks develop new systems and bring innovation into the institution. Standardised and tested APIs can be used to link core systems to the outside world and a new generation of developers that can help banks innovate from the outside-in.
Banks can also learn from the ‘big tech’ firms. We’re seeing an uptick in banks hiring talent from technology firms, and big tech firms hiring bankers as the two industries start to converge. Banks are starting to think more like technology companies, and big tech firms are offering services in areas like payments and lending.
Environment for success
Finally, it’s essential that banks create the right environment for success: this includes creating both a technology and cultural environment that encourages innovation and experimentation. A platform-based approach that incorporates a testing environment and allows for fast feedback is crucial. That way development teams can quickly assess whether a particular feature is meeting or falling short of customer requirements. Moving away from a monolithic approach to software development and breaking it down into the delivery of individual microservices means that if one service doesn’t perform as expected, the team can learn and move on, with no need for any recriminations. A continuous delivery model is one of the biggest mindset changes. It means no longer thinking about upgrading an entire system, recognizing that today’s platforms are made up of multiple constituent parts that are loosely coupled – so one part can be upgraded without affecting the rest. The advantage of this approach is that improvements can be delivered quickly – and feedback collected on apps soon after a requirement is identified.
Executed in the right way, digital transformation will deliver huge improvements in efficiency and flexibility – eliminating bottlenecks and streamlining processes. But it cannot be achieved without first addressing organizational culture. Getting that ingredient right and engaging and empowering staff to support the ongoing transformation of the business – in a way that delights customers – is fundamental to success.
Eli Rosner, Chief Product and Technology Officer, Finastra
