What does digital transformation mean in relation to retail banking?
I was recently asked this question and realised that the answer isn’t straightforward to articulate or define. Here is my take on it.
First, we should distinguish between digitisation, digitalisation and digital transformation:
- Digitisation is the conversion to a digital format of anything that is currently manual or paper-based.
- Digitalisation is about how consumers interact with banks. It involves moving away from analogue technologies such as paper mail and phone calls, to digital ones such as Zoom, social media and so on. In this challenger banks, with no legacy IT systems or physical branches, have a significant advantage.
- Digital transformation involves a whole new mindset and cannot be achieved solely through a series of digitalisation projects. Instead, it refers to customer-centric strategic business transformation. It involves cross-functional organisational change, to wrap value and service around newly implemented digital technologies.
True digital transformation typically involves a number of digitalisation projects, but is much more than that. Change needs to become a core competency, and banks need to be customer-centric end-to-end. This change in approach will facilitate digitalisation projects but should not be confused with them.
Above all, digital transformation is about delivering value to customers. Feedback has shown that many people enjoy the simplicity of managing all their finances in one place, setting up automatic payments or making deposits, anytime and anywhere, without the need to queue in a bank.
Therefore, banks should:
- Digitise information
- Digitalise processes and roles
- Digitally transform the business and its strategy.
Digitisation and digitalisation are essentially about technology. True digital transformation goes beyond that. Digital transformation is about the customer.
Security and cost-efficiency are strong motivators for banks, but the true value of digital transformation is what it can do for the customer. The customer is king and very expensive to acquire.
Banks need to realise that if they look after customers they will be rewarded with loyalty. Customer expectations have evolved over the years. If traditional banks don’t meet those needs, then challengers will.
With existing customer bases of millions of customers, the traditional banks have a huge advantage over the challengers. Digital transformation, done quickly and well, will put them into a position of immense strength. However, their track record in being first to deliver innovative value to customer is generally fairly poor; many will need to step up their game if they are not to be left behind.
Looking to the future of banking, digital transformation is no longer an option for banks which wish to survive - it is a must.