Digital transformation: it’s do or die for American banks over the next decade
By Guy Warren, CEO, ITRS Group
For America’s financial institutions, digital transformations were often executed at haste as the race to the top trumped all other priorities and a big picture view was overlooked.
But now, America’s banks are facing a new wave of digital transformation that is almost impossible to achieve with their current systems.
There is no room for shortcuts this time – if they don’t invest in overhauling their digital capabilities from the bottom up, U.S. banks might not survive the next decade.
But what is the path to success in this seemingly impossible task – particularly in a country whose financial institution landscape is defined by fragmentation and which changed significantly following the crash of 2008?
The problem with ‘grow as you go’
The US financial landscape is dotted with silos and plagued by different layers of legacy technology, creating widespread inefficiency. On top of this, institutional banks face some of the highest volumes of data across expansive operational estates of any industry, which include a myriad of numerous applications, servers and users.
Preliminary stages of digital transformation saw many banks adopt a ‘grow as you go’ approach. In the race to the top, digital connections were often constructed as quickly as possible, without incorporating flexibility and the capacity to expand into the architecture. While high-growth and competitive in the short-term, this has seen many banks now flailing without a big picture, long-term strategy to meet the increasingly sophisticated architecture and technology demands of clients.
In addition, post the crash, the number of venues for trading assets increased significantly, so new interfaces and systems were added to take advantage of the pricing pressures these caused.
As transaction volumes skyrocket further, processing is becoming increasingly complex. A purpose-built, future-proof set of capabilities is required in order to maintain control, starting with a comprehensive monitoring system to afford a full view of the capacities and weaknesses of a bank’s estate.
Not meeting these demands is simply not an option. Electronic transactions and payments are the lifeblood of banks and their corporate customers. Not to mention, brand loyalty is not as strong as it once was. Businesses are happy to make that jump if it will ensure uninterrupted operations – and it’s easier than ever to do so.
On top of bottom-up pressure from customers, top-down regulatory scrutiny is at an all-time high, and tolerance for errors and outages is waning. US banks must re-architect their digital systems from a more holistic, pre-emptive perspective now if they wish to avoid backlash down the line.
Transformation 2.0
Reworking such legacy inefficiencies is a behemoth task. The cost of a complete overhaul is substantial, and requires extensive resources – not just in terms of money, but in terms of skill, resources and sheer volume of customer demand to justify and fuel these changes.
Does this mean the end for many institutional banks in America? Not necessarily.
The solution lies in building consolidated platforms, particularly for smaller institutions with tighter budgets. Third-party providers will be able to get banks’ estates up to scratch more quickly, consistently and affordably, often while absorbing much of the associated risk.
Such vendors may be the key to allowing US banks to not just withstand but thrive in the next era of digital transformation with minimum cost and maximum efficiency.
