The core theme at Sibos 2021 was digital transformation, its impact on the finance industry, and how financial institutions can drive this transformation. Digital transformation is wide-reaching and can mean different things for different industries. For financial services organizations, it’s about bringing technology up to par to meet client needs, adhere to regulatory requirements, and mitigate risk.
Digital transformation isn’t as easy as 1,2,3.
At Sibos, Guy Mettrick, the Financial Services Industry Lead for Appian, had the opportunity to chat with Chris Skinner of The Finanser blog. This session focused on the breadth of challenges the financial services industry faces and how digital transformation can help navigate these challenges.
Challenge #1: Sunken costs and technology gaps.
The technology banks use to manage business operations is undergoing a wave of change. Without the right technology, banks lose revenue as a result of inefficient processes and unoptimized workflows. Skinner referred to this as the deconstruction of critical technology for banks as new players and better technologies enter the market.
First, banks must identify where sunken costs are stemming from. They often stem from outdated technology or inefficient processes. Next, they must revise those processes or update the technology and hone in on the pieces of the puzzle they have already optimized. This makes it easy to determine who to partner with to eliminate sunken costs and build back efficient workflows.
Here’s how Skinner suggests an organization get started with their digital transformation journey: They should identify their core competencies, or where they excel and have optimized workflows. Next, they should identify the code, APIs, applications, open banking platform, ecosystem partners, etc. that help fill the gaps where core competencies are lacking. But this simplified explanation is not as easy as it sounds, and the process often requires executive buy-in and participation.
Challenge #2: Agility and adaptability.
Digital transformation isn’t a linear path—you will encounter bumps, detours, and alternative routes along the way. For some financial institutions, it may be relatively simple to upgrade existing technology or find a new solution that brings legacy technology together to reap the benefits of digital transformation. For others, digital transformation may require starting from scratch. And it’s not always easy to determine which path is the right one. To achieve digital transformation as quickly as possible, it’s crucial to stay agile and adjust course as needed.
Challenge #3: Technology that transforms.
Mettrick posed this question to Skinner: “What’s more important, the technology used, or knowing how to use it?” And Skinner promptly replied, “The latter. There are so many buzzwords that you can throw into a conversation, from distributed ledger technology to blockchain to AI, machine learning, low-code, the cloud, decentralized distributed services. But, before any of the technology is applied, it’s important to understand the business model, the technology you’re looking to deploy, and how does it marry with the current business organization?”
Skinner elaborated, stating that digital transformation is about so much more than technology; the expertise of the team implementing it is a major dependency.
Challenge #4: The evolution of environmental, social, and governance priorities.
Skinner sees two kinds of activism pushing financial organizations: citizen activism and investor activism. The former is led primarily by groups of citizens protesting and standing up for their beliefs—and Skinner states these protestors find their way into business operations more than we likely realize. Investor activism is accomplished through constituents of financial organizations refusing to support the business unless they follow environmental, social, and governance (ESG) policies. This kind of activism is driving a shift from shareholder economics to stakeholder economics, Skinner says.
Digital transformation comes into play here through the technology used to manage and report on ESG compliance and efforts. With ESG and sustainable banking becoming more and more of a force in the financial services industry, it’s crucial financial organizations have the technology needed to bring all ESG-pertinent data into a single source of truth for easy reporting to stakeholders both internal and external.
Skinner’s predictions for the future of financial organizations.
According to Skinner, banks are at a critical point in their journey. Newer banks in the financial services industry are paving the way for an entirely new vision of banking, and they won’t do the same thing banks did 20 or 30 years ago. Instead, they’ll be digital-first. Skinner predicts the banks that can’t get a hold on digital transformation will likely be acquired by the newer banks, leading to a wave of digital-first banking in the next 10 to 20 years.
Digital transformation and the ability to adapt to change in the market are crucial for banks and other financial institutions. Those who can’t adapt or digitize will find themselves behind in a new phase in the evolution of banking and financial services.