Why are Banks Struggling with Digital Transformation?
According to research by Gartner, CIOs in the banking space expect 45 percent of enterprise revenue to come from digital business by the year 2020.
Despite this, further research from Liferay indicates that 93 percent of digital transformation projects in the banking sector face major obstacles, including lack of resources and disagreements over ownership of the transformation project. In that same survey, 37 percent of CIOs said that they are only now beginning to implement their digital strategy.
Perhaps the most worrying statistic is this: in a survey of EMEA banks by IDC Financial Insights, only 24 percent said that they viewed digital transformation as an organization-wide strategy. Many transformation projects are happening in isolation in areas such as customer experience or back office, with no unified strategy to transform the entire business.
Why is banking so slow to transform?
There is clear pressure on the banking industry to adapt. Nearly half of retail customers in the EU now use online services, while SEPA has helped to create a sophisticated banking infrastructure across Europe. So why is the industry struggling to keep up?
The main reasons are:
The financial industry is regulated more than most others. EU firms operate within strict rules about the handling and storage of data, and 47 percent of CIOs surveyed by Liferay said that compliance is a major obstacle in their transformation. New legislation, such as the EU Cybercrime Directive makes the situation even more complex.
- Legacy systems
Established financial institutions often struggle with a multi-layered IT infrastructure. Often, the entire back-office system is dependent on legacy systems that cannot be integrated or easily migrated. For some financial companies, the maintenance of these legacy systems can consume up to 75 percent of the available IT budget, which presents a further hurdle for digital transformation.
Fragmentation is another issue for organizations with complex infrastructures. Individual departments launch their own systems; businesses are acquired and their systems are kept live; new systems are launched but not fully rolled out. Over time, this can lead to a network of numerous components, none of which are compatible with each other. Building a digital platform on these foundations is a daunting challenge.
- Lack of ownership
Ownership is an issue for many digital transformation projects. Should it be led by marketing or IT? Should it be a shared responsibility of the C-Suite or should there be a specialist team to lead the project? Is it worth appointing a Chief Digital Officer to oversee transformation?
In the financial sector, this conversation is challenging as there are so many elements to the customer lifecycle, and each one is owned by a different business unit. Digital transformation can only work if each of these units comes together and collaborates.
What should banks do next?
This current era is a period of disruption for every industry, with tried and true business models becoming obsolete overnight. Some people in the banking sector feel that they may avoid this disruption. They are wrong.
For banking providers and companies hoping to engage fully with digital trends, there is an opportunity. But you can’t wait for other to lead the way. You must create your own industry vision, and then you need to think about where you fit into that vision.
Next: The Future of the Financial Industry – and Your Place in it