After almost a decade-long journey, Digital Transformation for Banking has turned out to be one of the most daunting tasks. Despite the banking sector’s significant efforts to adopt digital technologies, their every attempt failed to be an icebreaker due to some operational & cultural deadlocks, such as:
- Operational complexities and potential risks involved
- Hurdles in integrating modern digital technologies with outdated IT infrastructure
- Absence of experienced IT staff to implement digital transformation in banking
- The overwhelming burden of the cost associated with modern technology
- Internal and cultural resistance to embrace the digital revolution
Without any urgency and total reliance on legacy infrastructure, even some notable names refrained from taking any big step toward the digital revolution in banking. But we are in the middle of an era where every single industry continues to adopt digital technologies. This is one of the main reasons that the existing system will be forced to bring a fast-paced digital revolution in the coming years.
With a significant upsurge in cybercrime activities around the globe, digital transformation in banking has become a survival need to curb cybersecurity threats or experience some devastating consequences. Therefore, short-term initiatives have become more crucial compared to long-term solutions destined to lead the preceding initiatives.
This blog post will discuss some of the most daunting challenges associated with digital transformation in the banking sector. Let’s deep dive into the details.
Challenges of Digital Transformation in Banking
Below are 5 top challenges linked with digital transformation in banking which constitute a tough barrier between modern digital technologies and the banking sector.
1. Burden of Budget
One of the most solid barriers that push banks away from adapting to the digital revolution is the capital investment required to invest in modern tech solutions. According to a study by Forbes, a threat-proof & state-of-the-art technology costs over 10 percent of what the banking sector spends on various resources.
To persuade banking and financial services to break this first barrier to entry, the reward must be promising enough. Certainly, the process will eventually begin at a broad scale as more institutions will start eliminating their hesitation to take necessary initiatives.
No doubt, the price is much higher but it will produce more avenues for the banking sector to curb the losses and limitations they are facing with their outdated infrastructures. In simple words, the result is more convincing despite the enormous initial investment required to bring digital transformation into baking.
2. Culture Resistance
Organizational culture and internal practices are the primary determinants of how fast any institution can embrace digital transformation to eliminate existing limitations. If the organizational culture is agile, diverse, and open to innovative ideas, the process will be quick and seamless.
Organizational culture is also a vital aspect that determines the overall capacity for organizational growth. Therefore, financial institutions that depend mainly on a mainstream hierarchy of management where decisions lack the involvement of all concerned stakeholders are destined to drift away from the digital revolution. In such organizational cultures, the entire workforce shows extreme immunity to the digital revolution and tries to abandon such initiatives.
To introduce digital transformation in banking, the leadership must evaluate whether their facility and its all departments are open to embracing change or immune to it. In the latter scenario, breaking the isolation and rigidity is the prerequisite to trigger the wave of a high-paced digital revolution. Knowledge sharing, awareness, and training are some of the key initiatives to ensure a collaborative and adaptable organizational culture.
3. The Lack of Seriousness in Leadership
Revolution comes from top to bottom. Unluckily, the leadership in the banking sector failed to recognize the need for digital transformation in banking. The reasons are:
- The need to substitute outdated processes with modern tech solutions
- The amount of investment required to bring digital transformation into effect
- Hesitation to take risks involved in digital transformation in banking
These are some potential reasons that most of the leaders and decision-makers drift away from adopting digital transformation in strictly regulated niches like finance & banking. But there is still a ray of hope as the leadership mindset is rapidly evolving as the young generation is stepping into this domain.
One of the most convincing ways to ensure cultural shift & digital transformation in banking is to compile employee and CX data. For instance, conduct a customer survey to ask them about the features and utilities want to experience in their digital banking experience.
With every step towards transformation, you need to evaluate the KPIs of your team and customer engagement rate to formulate an effective equation to calculate ROI. All these insights are the key to encouraging senior leaders and decision-makers to invest their trust in digital technologies.
4. Poor Project Management & Ownership
Even if become successful in convincing your leadership, sparing a significant chunk of your budget, and identifying all the tech you need to implement a digital transformation, you are not done yet. An experienced project leader with domain expertise and an efficient Digital Transformation Strategy is the key to successful digital transformation in banking.
The utmost challenge to bringing digital transformation in banking is the absence of a clear definition of project outcomes and areas of initial implementation. If you approach digital transformation in banking with general and standard practices, you are more likely to end up with irrational decisions and obscure project objectives. Because the practices found effective in other industries may further worsen the condition in the banking sector.
Therefore, before jumping on a bandwagon of executing digital transformation, it’s vital, to begin with, an effective strategy, clear project goals, relevant & industry-specific KPIs, and a well-aligned team. Apart from this, it’s mandatory to ensure that all the relevant stakeholders remain on board throughout the project lifecycle to bridge the gap between the banking and tech teams.
5. Lack of Knowledge Sharing
Undoubtedly, one of the most cumbersome digital transformation challenges in the finance sector is the lack of quick access to the right information at the right time. Due to regulatory and security compliances, the tech teams work in isolation with the entire banking department without any two-way knowledge sharing. The result is poor communication and an absurd roadmap to digital transformation in banking. Therefore it is necessary to have access to the right data and information at each phase of the project development lifecycle. In simple words, with the lack of a centralized knowledge base, it’s almost impossible to bring the digital revolution for good.
But there is any solution to this problem? Yes, having a highly collaborative knowledge engine can boost your digital transformation journey by enabling all managers and team members to access the right information whenever required. Your knowledge-sharing portal must be agile enough to instantly adapt to the ongoing changes within an organization without any delay or anomalies.
Cloud-Driven Digitization & Its Implications for the Banking Sector
Digital technologies like cloud computing, blockchain, RPA (Robotic Process Automation), Data Science, and AI are some of the most modern and powerful avenues to bring digital transformation to life.
Before all the technical stuff, you need to trigger a cultural change in an organization to articulate the right digital strategy for modern banking. All your core teams and managers must be serious enough to provide an engaging, secure, trustworthy, and hassle-free digital banking experience to your customers.
Cloud technologies are playing a vital role in bringing digital transformation in banking due to their high-end security, scalability, and budget-free pricing structures. Having cloud-native digital technologies ensures maximum performance and enterprise-scale security without any need to deploy or manage in-house network infrastructures.
Due to their utmost efficiency and lowest maintenance cost, AI-driven cloud services enriched with modern API frameworks are the perfect digital solution for the banking sector. If the financial sector needs to embrace digital transformation in the ongoing era, cloud technologies are the key.
The fact is, the more you delay your digital transformation journey, the more complex it will be to win the race for digital supremacy. Technology is evolving at an exponential rate with each new advancement outdating the previous ones. By addressing the aforementioned challenges to trigger digital transformation in banking, your organization will be destined to attain the apex of digital supremacy within no time.
Keep in mind, that the struggle is continuous as technology is still reshaping and going through quick evolutionary phases. Take a step now before it’s too late to catch the flight of the digital revolution.