Digital Transformation in the Financial Services: Choosing the right approach is like half battle won!
In recent times, “Modernization”, “Digital Transformation”, or “Digitization” are buzz words in the industry, but quite synonymous in nature. Modernization is not new thing in the financial services industry. The only difference is the factors driving the modernization. This time, modernization is been driven by new digital technologies, new innovative business models and new digital customer needs.
Financial services companies are facing significant pressure for modernization due to peer competition, new start-ups or entrants in the market. Few years back, I heard this saying “Financial services industry is typically a decade late in the new technology adoption”. But now I firmly believe that is not true anymore…
What are the drivers for modernization?
New technology and digitally enabled customers are the key drivers for modernization in financial services industry.
New technologies -
New technologies such as Social, Mobile, Analytics, Cloud (SMAC), IoT are driving technological innovations as well as disrupting business across industries. These technologies are enabling financial services players to offer a new customer experience, scale, reach, efficiency, and insights. This is changing the game across the board. It is leading to changes in how product and services to be offered to next gen customers and also resulting in changes in business models. Some of the best examples of new business models are new lending platforms (LendingClub, ZOPO), robo-advisory platforms (Betterment, WealthFront) etc. Recently, Block chain technology (permissioned distributed ledger) is making waves in the industry and considered to be game-changing for clearing and settlement.
Customer needs / expectations -
With new digitally enabled product or services, customers are powered with vital information and insights in business and are enabled for better decision making. In wealth management market, an end investor is looking for more real-time updates on his/her portfolio performance on the mobile or tablet and wants to know how his/her goals are impacted. Sitting in the front office, an asset manager would like to view consolidated real-time up-to-date positions from back office for making better investment decisions and managing risk with accurate views on exposures. The aim for financial services players is to deliver superior customer experience at a lower cost.
What are challenges for Modernization?
- Legacy systems (mainframes) are barriers to delivering on ambition and some of the reasons
- Increasing cost burden due to co-existence of old and new products with duplication of infrastructure, development & maintenance and human resource
- Complexity and inflexibility of legacy systems
- Huge investments in past and IT spending
- Interdependence of multiple systems
2. Time to execute modernization efforts and sustainability for long duration are critical to success
3. Achieving the same level of performance and reliability with new products is a major challenge.
Key points to be considered
Although, there are various ways to approach or modernization strategies, I think below are some important things to be considered before embarking on the modernization journey -
- For product modernization, the extensive analysis should be done in all Business, Functional, Technology and Market (BFTM) aspects to understand existing capability, strengths and weaknesses of each product. This will help in realizing where products stand in the market and making some strategic decisions.
- At the same time, modernization should be also started with “End goal in the mind”. The future end state of the product modernization is a very important aspect in the overall modernization process. It will help in answering 3 questions — “What needs to be done”, “Why it needs to be done” and “How it will impact overall business”. If we know answers for these 3 questions, the modernization process will be clear and on target throughout the course.
- With above these exercises, organization should have knowledge of overall efforts required for modernization and come to a stage where keys decision on product planning can be taken.
- Last but not least, define minimum success criteria for modernization. Without it, we wouldn’t clearly know if we achieved real goals.
To conclude, some people call it “Modernization” or some “Digital Transformation” but in the end, it is same and we don’t need a guru or strategist to realize “Why” is it required but the most important question is “How” it needs to be done with futuristic goals in mind. Like many other industries, players in financial services industry are also embracing this transformation. Although, both opportunity and challenges exist, those who quickly adopt and enhance or modernize their product portfolio will eventually survive. Nevertheless, it’s up to each company whether they grasp the opportunity or sit tight and wait for the disruption to occur.
