June 14, 2024
4 min read
Digital transformation remains high on the list of priorities for most banks and other financial services. But the goals and processes are different for every business, and the results aren’t a guaranteed magic bullet for companies that implement them. McKinsey says over half of financial services digital transformation projects “exceed their initial timeline or budget” or fail altogether and that only 30% achieve successful implementation. These are two worrying trends for an industry of incumbents looking to keep pace with fully online banks and emerging fintechs.
Obviously, avoiding transformation altogether isn’t an option. Even so, the figures indicate a pressing need to account for the points of failure – business and technical – that routinely sideline digital plans. As you plot out your own digital transformation, be on the lookout for the following blockers and business issues.
You can’t blame banks for modeling the success of leaders in a persistent economic downturn, and smartly executed digital experiences can lead to quick wins. Digital sales account for half of overall sales at some of the world’s largest banks, a figure that will only increase as customers at the B2B and consumer levels come to demand more convenience and access from their financial products.
However, for established banks and financial services relying on deeply embedded, long-serving technology, adding new customer- or employee-facing technologies isn’t as easy as quickly migrating workloads or writing a few lines of code. It’s a significant investment for a nonguaranteed payoff. Essentially rolling the dice on a presumed 30% chance of success, per McKinsey’s analysis, is an impractical risk for any business dealing with a global financial crunch, but ignoring clear demand from customers is just as dangerous.
Behind rising customer expectations are the online financial services that mold them. Traditional banks are built on a foundation of existing technology that has a reputation of being difficult to integrate with newer solutions, leading to inertia that newer, digital-native competitors don’t have to deal with.
In addition, fintechs aren’t always bound to the same federal and state regulations as traditional banks and services, which grants them a level of agility conventional banks struggle to match.
To modernize at a faster cadence and bring new capabilities to employees and consumers, some traditional banks have entered an age of so-called “coopetition” by partnering with digital competitors, a strategy that comes with distinct advantages (a quick path forward to new technologies) and downsides (security risks, even more technical debt to deal with long-term).
In most circumstances, it’s fair to assume the banking world’s procurement, SAM, and IT Ops pros would much rather enhance their current software’s interoperability if the move was technically and financially practical. It would allow them to leverage current competitive strengths and avoid the major technical overhauls that typically come with banking and financial services digital transformation.
Competing business models and escalating customer expectations aren’t the only factors pushing digital transformation in financial services and banking. Technology itself is moving faster than at any point in history, and most transforming businesses feel pressure to make newer advancements, such digital/cryptocurrency and artificial intelligence, part of their plans.
But incorporating emerging technologies is not a simple feat for traditional banks and financial services with complex existing architectures. Integrating new solutions often requires costly and time-consuming migrations, customizations, and upgrades that can disrupt normal operations and pose security risks.
Moreover, some technologies might not be fully compatible or compliant with existing regulations and standards without modifications the financial institution is uncomfortable making on its own. Even finding employee skill sets capable of bridging current systems with upcoming innovations can be extremely difficult for financial services thanks to an ongoing IT skills gap.
Large tech upgrades are even more difficult to stomach financially than they normally would be due to inflation and other aspects of the global financial turndown, but lagging behind more agile, digitally enabled fintech competitors is expensive in its own right. To compensate, large banks and financial services like Capital One have turned to independent software maintenance vendors to prep their current technology for their digital transformation plans.
As outlined in Gartner’s “2024 Market Guide for Third-Party Software Support,” independent support and maintenance providers are an especially strong choice for companies seeking to maintain unsupported (legacy) software while moving other systems to new vendors.
That maintenance can include modernization insights that prepare new systems for the future, as Citizens Financial Group found when they relied on Origina to help them keep their current databases active during the rollout of a new digital banking option for customers. The move allowed Citizens to embrace modernization at its own cadence without overcommitting to a risky software upgrade that wouldn’t guarantee a fix.
Independent software maintenance providers help financial services organizations reduce their software licensing costs, which, in turn, frees up resources that can be invested in new technologies and innovations – a helpful addition in an economy where every expense must be closely examined and justified.
Banks are early adopters of the growing independent support industry, with several of the finance sector’s biggest names leaning on services like Origina to extend the life of digital offerings like VMware and IBM® BigFix without slowing ongoing modernization. Adding the services of an independent software maintenance vendor can increase your chances of success and lead to a more innovative digital transformation.
Gain insight into industry-only news, access to webinars, tips and tricks, blog posts, podcasts, and guides, surrounding topics like cybersecurity, reducing software support and maintenance costs and much more, all delivered to your inbox each month.
LEARN MORE