Digital Transformation and Financial Services: The Lessons, the Challenges and the Future

Last year saw a massive acceleration in the impact of digital transformation, one significant consequence of the global pandemic on the working environment. In 2020, digital technology was an important element in finding solutions to the shockwaves caused by Covid-19. But technology will reach far beyond virtual meetings and the conversion of manual analogue tasks to online and digitised formats. It will have an impact on our underlying approaches to working and on business culture.

Financial services are no exception. The sector is already highly regulated and had arguably come much further in digital transformation than many, with significant increases made in investment in digital technologies well before 2020.

2020 has seen a big increase in adopting digital transformation tools across the board, something we have covered recently in our report Digital Transformation Through Human Development.

“All the data we have seen suggests digital transformation has accelerated the adoption of digital technology strategies. Being able to adapt quickly will be a test of the organisation’s long-term success – particularly around areas such as employee experience and customer satisfaction”, says Lisa Pantelli, head of content and community at Simplycommunicate, a digital transformation consultancy. According to her, there are three key challenges:

• How to drive personalised experiences for both customers and employees alike. With customers, this means understanding their specific needs and providing tailored products, services and support quickly and efficiently. With employees, the challenge is around being agile and adaptable to their needs.
• Skills gap – The pace at which the transformation has been introduced means in-house teams may not yet have the resource and capabilities to drive the leadership component of change management.
• Behaviour change –  seasoned change leaders know that you must consider both people and process throughout the change for it to be successful. And it’s well recognised that applying ‘soft’ skills to people, communications and engagement is the hardest part of effective change management.

“Within large, traditional financial institutions, the organisational structure can be complex, often leading to silos that present a barrier to business-wide change” –  Lisa Pantelli

Getting buy-in from employees is crucial for digital transformation to be successfully implemented. Getting the technology, for the most part, is easy enough, says Pantelli. “There’s a plan, a roadmap, milestones, etc. But getting people used to a new way of working or platform – when their behaviours are so entrenched in the ‘old’ way of doing things – is one of the biggest challenges to overcome. The scale of the investment for this part of effective transformation should not be overlooked. Be prepared to heavily invest in communication and training to get this right”.

There is probably not a single industry that does not face some sort of digital transformation, with known latecomers such as healthcare and education beginning to catch up. But there are challenges in digital transformation that are unique to the financial sector.

Following the global economic crash in 2008, regulators have played a difficult role in ensuring marketplace equity, fostering competition, and protecting consumers. Regulations take years to be developed and implemented, while technology often develops faster. While financial organisations might have transformation ambition, it is always against a regulatory backdrop. This can result in larger organisations taking significant time over their digital transformation, leaving them several steps behind their non-FS counterparts, says Jonathan Phillips, head of consulting at Simplycommunicate.  

In addition, the sector often has a risk-averse approach, which can be counter-cultural to truly innovative transformation programmes.

The industry features complex infrastructures. Key challenges to digital transformation lie in the difficult integration of legacy systems and new technologies. As well as this, the sector struggles with a lack of qualified personnel with experience in managing digital transformation initiatives, says Garry Jones, CEO at Perfect Channel a technology company providing trading and auction solutions to the sector.

The 24/7 nature of the industry rarely allows enough time for companies and markets to evolve or implement new systems. The potential for problems caused by greater digitisation could be why we are seeing the industry hesitating to adopt a more digitally focused approach. ‘Technology within the sector needs to be reliable and stable on a level that few other industries need to match, which also creates hesitation from firms in introducing new digital systems, front and back office’, said Jones.

Given the regulation and complex infrastructures that are often prevalent in finance, much is at stake to get digital transformation right. As Phillips points out: “It is also a sector in which failing to get the transformation right from day one can have long, far-reaching consequences for business operations. The evidence suggests transformation in the sector, however, appears greater concentrated in smaller FinTech firms rather than more established, traditional organisations.”

Arguably, financial organisations must have a more rigorous approach to digital transformation to be successful. There might be room for other sectors to learn from the challenges financial services have faced so far, particularly the one around culture.

However, across all areas, transforming technology and the process of digitising is always a challenge, but it is one that often yields considerable benefits, Jones points out.

“It is like turning round an aircraft carrier rather than manoeuvring a speedboat, but once implemented it can add real value in driving revenues, lowering costs and widening distribution” – Garry Jones 

Digital transformation is not purely about technology. Platforms change, but the value is driven by people and processes. There are also significant cultural challenges to realising the full value from digital transformation: are employees aligned, is there the right innovative mindset? Do we hold the customer central to everything that we do? So often, we hear of organisations that are spending millions on external, customer-facing digital initiatives, while internally, employees are struggling for digital basics. There needs to be alignment between the internal digital landscape – and the external says Phillips. He also says financial services have a specific set of engagement drivers – to make transformation work, businesses need to understand what engages, motivates and inspires their teams.

“Talk to people. Listen. Respond – and seek their input. That way, they’ll be on the journey with you.” – Jonathan Phillips.

It is natural for people to resist change, which makes leading and managing it very difficult. The finance industry is not known for new and innovative ways of doing things which is probably why it has been severely disrupted in the last years. To some extent, this might have an impact on the success of future implementation of digital transformation.

Change can only be realised if there are buy-in and willingness at all levels of the organisation. Transformation in its truest sense cannot happen without this – otherwise, it will be an uphill battle to change established behaviours of teams who do not want to change – or to understand the reasons why, says Pantelli. 

“Leading by example is critical, as is making sure people know and understand three things. What change means to the organisation, what it means to their team and what it means for them as an individual”, says Pantelli.

“The industry still relies on legacy technology and out-of-date systems and middleware. However, recent advances in technology, including application of machine learning and data science, have drastically changed the ways that new systems get implemented. For digital transformation to take place, there must be a cultural change. Financial institutions tend to be risk-averse when selecting technology partners that could help bring much-needed innovation”. – Jones.

Jones points out that when it comes to the soft skills that are needed by leadership for this transformation, patience is key, as well as an open-minded approach to a new way of working. This is true of every project. Cultural change must come from the top, and often top-down initiatives with the full backing of the C-suite will accelerate the transformation. Jones also mention how IT departments often adopt a ‘not built here’ attitude to external providers and consultants. A partnership mindset is essential. Trusting the process of digitisation and having data at the centre of decision-making will ultimately increase productivity and profitability.

“In short, if the business case is sound, people at all levels buy into the change, and there’s real investment in digital transformation – it will happen”, concludes Pantelli.