Digital Transformation in Banking

banking digital transformation

Banks face an unprecedented set of challenges in today’s digital economy which, together, create an imperative for rapid and profound change. The pressure to innovate from fast-moving Fintech competitors while maintaining governance and security is leaving the finance industry no choice but to embrace a digital operating model to remain sustainable in the days ahead.

A few of the main challenges at the forefront today include:

Customer expectations have changed and are shaped by the daily experience we have with Big Tech (Apple, Google, Facebook, Amazon) and other digital platforms. Many consumers have a preference for digital-first brands versus banking brands. Consumers are driving the demand for digital services to better suit their needs.

Second, the competitive landscape has and continues to evolve rapidly. Fintech is moving quickly in developing services that cater to SMB’s and are moving market share in noticeable droves. Not all Fintech companies are competing, some are now open to partnerships. Big Tech is interested in capturing profit pools in banking, starting with payments as the demand for secure e-commerce payment processors soars. With digital, there is an opportunity for smaller banks to “punch above their weight” and gain share and big banks need to be agile and dynamic to remain competitive.

Complicating matters is the weight of the legacy capabilities in banks which include: enterprise IT architecture, business processes and systems. Digital transformations are moving slower in finance than other industries despite cloud solutions providing new options to run more efficiently and cut down IT costs.

The risk environment now includes cybersecurity (and associated operational risks) and the competition for technology talent.

How can banks structure an effective digital transformation program that unlocks value while maintaining security and governance?


A simple way to structure a bank transformation program is to subdivide it into 4 parts:

Customer experience – Building a simple, intuitive digital customer experience is critical. The experience should be designed outside-in, digital-first with, as needed, integration across other channels (branch, ATM, call center, salesforce) and business lines.

Data & analytics – Banks are the original data companies. However, in today’s world of big data and AI, work is still needed to strengthen foundational data capabilities and capture opportunities to apply analytics across banking processes to unlock new strategic value.

Digitization – Many processes are still paper-intensive and not connected front-to-back. A digitization initiative should be focused on “leaning-out” processes, removing paper, and as a result streamline back-office processes, enabling functions as well as core processes such as onboarding, fulfillment and servicing.

IT renewal – The IT function must be able to deliver solutions faster, drive efficiency and focus investments increasingly on the customer experience versus enabling capabilities.

Transforming the customer experience

The customer experience transformation includes 4 key building blocks:

Customer journeys – Should be defined, baselined and re-imagined along with key performance measures (customer experience, efficiency, and risk).

Channels – Building digital-first with an IT architecture enabling re-use and integration with other channels is key.

Data & analytics – Improving foundational data capabilities is essential and using analytics for sales, digital marketing, pricing and customer service presents a growth opportunity to uncover new opportunities with data-driven insights.

Process digitization – Customer journeys connect into core business processes (onboarding, fulfillment, servicing) and enabling processes (operations, risk, compliance). Processes should be digitized with attention to data capture at the source to eliminate rework and inefficiency.

Building data & analytics capabilities

Banking is a business of capital and information. Building data and analytics capabilities are central to a successful digital transformation in banking. The recommended program can be divided into 3 parts:

Data governance – Data governance ensures that there is clear ownership and accountability for data & analytics capabilities across the bank. This is critical to ensure the quality and security of information.

Data aggregation – This is the pipeline from data sources to data sets that may be consumed by people and systems. As shown in figure 4, there are several components to data aggregation and therefore, a clear target state architecture, phased approach, based on business priorities is key. A risk is to load data that is seldom used.

Analytics solutions – As shown in figure 5, the value may be derived from infusing analytics across the bank, from the customer experience to the core and enabling business processes.

Digitizing business processes

Digitization presents a meaningful opportunity to simplify a bank’s operating model while driving efficiency and improving the customer experience in the process. The key steps to achieve this include:

Define and baseline – Given the complexity of capabilities and processes in a bank, it is important to build a model which is used by teams to develop improvement strategies and monitor results. This model should include a capability/process taxonomy along with accountable owners, performance measures and improvement objectives.

Redesign –A robust methodology such as Lean 6 Sigma should be used to simplify processes. Along with this, a library of reusable software components (e-signature, document management, workflow, robotics) should be available and teams should focus on fixing problems upstream to eliminate rework loops.

Building information technology capabilities

The IT transformation program can be subdivided into 4 parts:

Modern IT architecture – The choices made regarding enterprise IT architecture have a profound impact on the bank’s overall capabilities over time. Since no one software provider is able to meet all the needs of a bank, it is important to create a foundation enabling rapid integration. This may be achieved by introducing the concept of a digital core with 3 subsystems:

  • A connector grid or enterprise bus to interconnect systems across the enterprise and decouple channel systems from product and enabling systems.
  • A set of re-usable software services to build applications. This capability is key to improve the customer experience, digitize business processes, simplify and accelerate software development
  • Enterprise data – Data & analytics capabilities which are re-usable across the enterprise including: reference data, data governance, and data science components (models, ML, robotics)

Organization – This part of the transformation is focused on optimizing the mix of resources (employees, contractors, global resources), outsourcing and infusing the talent and skills needed to deliver on IT’s increasingly demanding mandate.

Operating model – IT must become faster at delivering solutions while preserving systems availability, response time, and security. Agile development and DevOps are key enablers.

Portfolio – A large bank may have more than 1,000 systems. Optimizing this portfolio of assets will help drive efficiency, reduce risk and improve agility. Here again, building a model of IT assets with associated economics, disposition and roadmaps is key. A robust debate between the CIO and CFO on this subject can yield productive outcomes.

In conclusion, it is a big undertaking for a bank to have a successful digital transformation. If you have any questions about this recommended approach and how CHORAL can help you implement this recommended IT infrastructure blueprint, contact us today!

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