The digital corner. Digital transformation in banking – is it a mission impossible?

By Sabrina Del Prete


Digital transformation is the new craze in banking. Chief Digital Officers, a role just fresh out of the mould, barely have their feet under the table yet they are already being elbowed out by a new breed of digital experts, the Chiefs of Digital Transformation. Their mandate is to take a business and turn it upside down rather than simply add digital tools so as to interact better with customers and staff. They have the toughest job in banking – and in most cases they are destined to fail.

This is because digital transformation goes beyond creating seamless customer interactions; it goes right to the heart of how banks function, into the dark depths of their back-offices and the inner workings of the systems that support each and every vital function. Beyond the shiny counters, the modern websites and the attractive mobile apps, there are old-fashioned ingrained ways to process transactions, manage risk and perform a broad range of administrative tasks. Compared with the modernity of the front-end, the inside of banking has a Frankenstein-esque quality. It is a monstrosity of processes and platforms, built on layers upon layers of old technology, often impossible to decipher and unbundle. And all around it, an organisational structure and a culture programmed for its own survival.

Good luck trying to tackle this – it’s truly a gigantic and daunting task.

Indeed, the best advice for the digital transformation leaders in banking would be to lean towards pragmatism and state loud and clear that the transformation of our monolithic banks is impossible – then swiftly get budget to build a beta bank on the side of the (paying) host. Next, set up base in a smartly decorated digital lab and build a new bank from scratch rather than transform the existing one. All that remains is to sit on the lab’s colourful bean bags, avoiding the unfashionable traditional bankers still stuck in the old construct, and wait for the incumbent to shrink, suffer, become embarrassingly obsolete and hopefully die with dignity. At which point, they can come to the rescue of the old bank’s customers and colleagues – should there be anyone left standing.

There is however an alternative available to those who are too stubborn to accept that digital transformation in banking is indeed a mission impossible, those immovable few who would rather face a catastrophe than give up. Rather like engineers on the sinking Titanic, with a chance to take a lifeboat and row away as far as possible, who instead choose to jump into the flooding engine room, get elbow deep in oil and obstinately carry on fixing the wounded mechanical behemoth knowing that their efforts may well be futile.

Here are some tricks and lessons learnt that could help these few brave souls:

Digital Transformation in Banking is an insider job

If you are not a banker and do not understand how bankers think, operate and what makes them tick, I am afraid you have very little chance. The organisation’s passive resistance is set to break your spirit. The banking antibodies are ready to surround you and will suffocate you before you know it.

As a digital transformation leader you need to lead the reconnaissance and advance assault team first and foremost. You open the way for your digital foot soldiers to do their job by getting a licence to transform the business from those who truly own it. These most likely don’t sit on the Board or the ExCo, they are the second and third layer of management, the civil servants of banking who have seen many CEOs come and go and have always kept a firm hold on the keys to getting things done. You get them to hand you those keys by building around you a team of turned bankers, who know technology, compliance, operations and products inside out. Like the best criminal lawyers, they know the rules better than anybody else. They can talk numbers, regulations, processes, systems and mainframe. But they have moved to the dark side and have sworn allegiance to Digital. They don’t get frustrated when they get no for an answer, instead they get energised and pedantically put their arguments together. They are a precious rarity but once you begin to find them they tend to multiply. Because they lure their colleagues into Belief, that banking can still be a serious business but fun to work in. They can share the vision, make allies, energise the thinking. The only thing better than turned bankers is more turned bankers.

Digital Transformation in Banking requires broad shoulders and fast legs

The key word in Digital Transformation is indeed “Transformation” and not “Digital”. Doing digital is fun, creative and rewarding – it’s a journey that you take with a light heart and a sense of optimism. Transforming a business in a sector that for hundreds of years has remained virtually unchanged, programmed for risk aversion and centered around products rather than clients is hard – cynicism and resilience are essential travel companions.

To succeed you need to have the strongest allies in the CEO and in the most senior management team, in addition to a clear and broad mandate and a proper budget. To digitally transform an organisation you may have to make some pretty radical calls that go against traditional banking constructs. For example, you may ask for the outsourcing of Operations, or the drastic downsizing of IT and move to the Cloud, or put a stop to the old-style manufacturing of products and serve clients through APIs instead. As Megan Caywood (Chief Platform Officer at Starling Bank) says “APIs have changed how software is created and brought to market, and are set to change how banks manufacture products. The future of banking is a marketplace, in which each service is provided through a partner”. Just a few examples of how you could find yourself in a difficult spot without full support from the CEO and his closest team. It is not that the organisation cannot eventually be persuaded, but in a world that becomes 100% more technology intelligent every 18 months, speed is of the essence. Marc Benioff  (CEO of Salesforce) is very clear on this: “Speed is the new currency of business”. You need to have the decision power and the resources to move ahead fast. The CEO needs to trust you, empower you and let you run. Like the captain of the Titanic, he/she needs to understand that losing time can be fatal.

Digital Transformation IS NOT a technology project

The worst fate for any digital transformation ambition is to be boxed into a technology programme. Technology is only a part of the story. You may have the most efficient straight-through processing platform and yet still kill Transformation. Because Transformation is about the business and the people, not the IT systems.

Of course technology is important and will bring you down if it does not work. It is also a perennial arms race, because even when you have done your homework properly, once you have it – your new IT platform, well shined and oiled – wait five minutes, and it becomes obsolete. It is all moving very fast as new paradigms begin to take shape and technology moulds itself around them. Look at block-chain: we were told not to worry, that it would happen sometime very far in the future and yet it is here already.

Now, assume you have done all the right things and you have a splendid engine. Then – boom! – you drop it into your normal set of people, processes, organisational structure and culture. At a minimum it will implode.

Never forget that you are building a winning Formula One team, not just an engine. You need to ensure that the organisation can absorb the change, prepare the bodywork, the fuel, the right tyres for the conditions. Choose the best drivers and remember that they cannot win without a strong team in the pits.

Your agile, client-centric strategy will demand a different type of organisational structure and a radical change of culture. You may start questioning the way you are managing the business, your risk appetite, your commercial goals. Certain jobs will become redundant whilst new roles are created. Your IT people will start morphing into DevOps, the chimeras of banking who can swap from coding to process to customers with no apparent effort. To attract and retain them and any first class digital talent you will need to think about a different set of rewards and contractual agreements. Gone is the time of the permanent job for life, the end-of-year review, the infamous 360. Hail the short contract of the digital experts who live in an ecosystem of possibilities, migrating from project to project and from sector to sector. And yes, you will also need to provide the IKEA high tables and the comfortable bean bags.

Digital Transformation in Banking is a red herring

A fatal mistake for a digital transformation leader in banking is to think that banks are here to stay, maybe as emerging fintechs, in smarter, shiny containers but basically still banks. This idea may lead you to believe that your competitors are other banks and your sector is that of banking. And here you are, fighting with the other small creatures of the forest of financial services without realising that the giant tigers are looking down at you, lazily getting ready for the kill. Think Apple, Amazon, Google, Uber, Facebook, WhatsApp. They count their customers in many hundreds of millions or even billions; not even the most successful banks can compete with that. And the non-digital brands, like BMW, Nike, John Lewis – they speak to customers in their language, which is about their lives, never about products.

We have heard the counter arguments many times: they are not in the business of banking, they are not attracted by it, they have no appetite for regulations. Who cares if in China the biggest bank is WeChat (700million customers in less than 3 years) and the largest wealth manager is Alibaba (from zero to $165billion in 18 months). It is because of loose regulation, not a real threat to us in the West.

I say do not underestimate the stalking tigers. They are moving in, maybe they have realised that regulations are easier to comply with if you truly know your clients inside out, if you have real time reporting systems, if you can monitor and evidence all of your touch-points with customers.

And then it’s an invisible pull. We bankers think we are in banking and that’s what we do. Yet, we are rather in the business of enhancing lifestyles. They, the tigers, have a great advantage, that they know exactly what business they are in, which is about people and their lives. We are going in the same direction, the tigers know it but we don’t.

So, what to do? Pursue partnerships, collaborate, use the tiger’s speed to accelerate your own, never stop following your customers and explore more broadly the concept of “banking products” and their pricing. Aim to make banking inconspicuous and yet entwined into the way people go about their everyday lives. You may be a small creature of the forest but, to steal a metaphor from Isaac Newton “By standing on the shoulders of giants you may be able to see still further”. I am sure it works for tigers too.

Hold fast

The short story is, digital transformation in banking is not for the faint hearted. You need to be a knowledgeable insider, you need to have broad shoulders and fast legs, you need to understand business and people in addition to technology – and you need to think beyond the safe confines of Gringotts’ vaults.

Most of all, you need to be stubborn and relentless and have immense reserves of energy.

But just think of the satisfaction of keeping the Titanic afloat after all, with the crew and passengers safely aboard, blissfully unaware of what has just passed.  Catastrophes can be avoided, the world of banking is not all doom and gloom as long as the Chiefs of Digital Transformation keep heart – steady, tough and immovable in their resolve. There are many already out there, drenched in engine oil, with a few scars and burns. They are hardened by the fight – but holding fast.

The article originally appeared on LinkedIn at: