Reflections on the Bank of the Future
The banking sector is entering one of the greatest transformations we have seen in its history. Financial services firms are starting to make the most of the endless possibilities that digitalisation presents – for both their business and society.
Today, banks are undertaking multi-year digital strategies. And it’s clear the banking landscape will look very different in the next 5 years.
One crucial consideration for ‘the bank of tomorrow’ will be putting customers in control of their destiny – empowering them with additional services that improve the way they live. To stay relevant, banks will need to focus less on selling financial products and more on delivering exceptional, personal, data-driven user experiences.
Innovation and interconnectivity
Digitalisation and innovation are not new to banks, who have always been at or near the forefront of technology-led innovation. However, economic crises have fast-tracked the evolution and adoption of technology for this sector to transform, build resilience, and drive better outcomes.
Now, traditional players and new entrants alike are demonstrating specific scenarios where technology enables new ways of interpreting data and providing benefits to the customer.
Recently, there has been a shift in the focus of digital initiatives towards the value of personalised insights and connected services when using exponential technologies. The social expectation is that financial institutions become ‘invisible’ and simply ‘make things happen’ by embedding themselves in customers’ daily lives.
In response, financial services firms (like many others) are using data and technology to drive sustainable interconnectivity or all industries. This represents a fundamental historical shift in banking where profit is a reward rather than the purpose, and multiple stakeholders have determined the outcome, rather than just directors and shareholders.
However, only 30% of banks report a successful implementation of their digitalisation and the majority fall short of their stated objectives (McKinsey, 2023). If harnessing data and analytics represents the future of banking, why do banks take time to adopt a data-driven culture and how can they make it faster?
Here are 3 key challenges banks are facing, with supporting insights into how to overcome them and drive data-first digitalistion.
Problem One: Quick fixes no longer work and siloes stifle digitalisation, banks need to think big if they want to remain relevant and grow.
Unlike in the earlier stages of the digitalisation process, multiple ongoing quick fixes do not drive significant results. In fact, they can have the opposite effect in the long run, causing more problems and siloed working environments. To drive substantial change, banks require a united vision, and a new, integrated business model that redefines and supports the role they want to play in a changing digital landscape.
However, when banks set themselves up to implement significant change, they often ignore the importance of cleansing their historical data stacks – and the need for bringing together multiple data and functional silos across segments and operating divisions. As a result, collaboration can be hampered due to disparate teams, departments and information spread across various locations.
Differing budgets, priorities and intellectual property challenges have also caused ongoing obstacles when trying to conduct data analysis. One frequent dynamic is the inadequate quantification of how much functions need to build and support by themselves, vs what is already available within the bank and/or to buy in the wider marketplace (ie. data, as-a-service models, shared services, etc). Ultimately, one area may have the budget, materials, and expertise to progress innovation and can do so with a quick fix, but the bank needs to be ambitious and think as a whole to make true digitalisation a success.
What’s more, digital change must be made against the backdrop of the regulatory and economic requirements to ‘run the bank’ – meeting both regional specific requirements and international legislation.
Solution: develop a long-term, collaborative data-driven ethos by reinventing the data culture, people and processes.
From a technology and process point of view, data must be available in real-time, combining internal and external data sources and accessible and supported by infrastructure throughout the whole financial institution. This enables the sharing of a ‘single source’ of information, improves insight into risk, drives overall performance and creates an insights-driven ecosystem.
This can only be achieved through strong, C-level leadership owning and cascading a collaborative, data-driven culture throughout the business. The good news is that in 2024 a growing number of CEOs identify transformation and growth, with data strategy as the enabler, as one of their top priorities (PwC, 2024).
Problem Two: Value realisation and risk in technology and data-driven transformation projects are hard to evaluate.
The criteria and approach for quantifying the outcomes and impact of digital initiatives are different than pre-cloud technology programs, especially when rolling out multiple use cases. For budget holders in banking, it’s not easy to quality value and prescribe profit growth.
Instead, success requires multiple stakeholders to be satisfied – and not just investors or shareholders –a myriad of different customers, bank employees, global regulators, the wider supply chain, and the broader ecosystem. As result, transformation in banking is very complex and full of dependencies.
Aside from quantifying impact, they also need to ‘think digital’ with a risk and compliance lens. Assessing both financial and non-financial risks (for instance, supply chain, ESG, cyber, business continuity, reputation, model risks from AI and systemic risk) as a unified framework across the entire institution is key – with new models needed to support ongoing resilience.
Solution: establish data champions at a senior level to create a knowledge sharing mechanism to translate ideas and the value of data throughout the bank, and connect leaders to gain support and accelerate change.
Banks need to introduce data champions as change actors to operate in a substantial network, driving collaboration amongst the different business units and the wider market.
Data champions are often leaders sitting in the knowledge intersection between banking and digital or data-related proficiencies, who are actively engaged across departments and the external market. They aim to build collaboration, and to identify relevant industry use cases and credentials. Through their work, data champions should also identify gaps, opportunities and partnerships with external providers who can bring value to maximise opportunity.
Problem Three: banks do not have a proven track record in being data-driven and there is a shortage of relevant talent worldwide.
When implementing a digital strategy, experience certainly helps to make it a success. However, there are very few organisations and individuals in the world with a proven track record in implementing the change required to move to a data-driven organistion – instead many have been ‘technology-first’.
Solution: Collaborate with data-specialised partner
Rather than relying on limited in-house knowledge and capability, which often leads to painful data transformation processes, there is a need to collaborate with data-specialised partners to bridge the gap. These partners can deliver comprehensive, reliable, structured, global data and technical support, alongside using industry expertise to provide ideas of potential use cases observed across technologies and occasionally other industries. Such partners can help the bank move from strategy to execution. All while embedding non-financial risk management into the front line and strengthening business resilience in a digital world.
Andy Thornley
Andy joined techUK in August 2022 as Head of Programme – Financial Services. His role includes leading techUK’s work in building a greater understanding of the 'technological art of the possible' in order to apply it to the reform and evolution of financial systems.
Ella Gago-Brookes
Ella joined techUK in November 2023 as a Markets Team Assistant, supporting the Justice and Emergency Services, Central Government and Financial Services Programmes.
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