“You may have the most efficient, straight-through processing platform and yet still kill transformation. Because transformation is about the business and the people, not the IT systems.”
When Sabrina Del Prete talks about digital transformation in banking she likes to use the Titanic as a metaphor.
The banking industry is like a sinking ship, she says, “Some banks will survive, others will be left behind.”
A Sinking Ship
“We will all be knocked down if Apple decides to create an Apple Bank. Or if Amazon says it wants to offer bank accounts and investments and mortgages – they already offer lending, it would be a natural next step.” Her credentials as someone who has led the digital charge from the front mean that this is more than just speculation. It is based on the stark realities that she sees every day.
Digital transformation is the new craze in banking, and has been for some time. Chief Transformation Officers, a new breed of digital experts, have a mandate to turn the business models of traditional banks upside down, rather than just adding new digital tools to better interact with customers and staff.
Yet as Del Prete, an enigmatic Italian who speaks with frightening honesty, says, for most of them it’s a truly gigantic and daunting task.
This is because transformation gets to the heart of how banks function — into the dark depths of their back offices and systems that support each function. Behind the shiny counters, slick websites and mobile apps, there are old-fashioned and ingrained ways to process transactions, manage risk and perform administrative tasks, says Del Prete:
“Compared with the modernity of the front-end, the inside of banking has a Frankenstein-esque quality. It is a monstrosity of processes and platforms, built on layers upon layers of old technology, often impossible to decipher and unbundle. And all around it, an organisational structure and a culture programmed for its own survival.”
And even banks with large-scale digital transformation projects are often failing to reform institutions whose DNA Del Prete says is “risk and innovation averse”. Banks are using technology to do what they are already doing today only slightly better. Fundamentally, the products and services that banks offer are no different to those offered centuries ago.
Banking, she says, needs to transform from within.
‘A Monstrosity of Processes’
“In most cases Banks are only changing on the surface,” Del Prete continues. “They are just putting a new layer of paint on the Titanic. They are not fixing the hole.”
To truly transform, banks must build more agile operating models that are customer-centric. They must develop an openness to innovation and organisational and technological flexibility. Banks must essentially tear down the infrastructure and culture that has shaped their industry for the past few centuries. The recent paper by Dealflo on the digitisation of financial agreement process references five stages of digitisation, with the final stage providing seamless access to all services through digital channels. This is where banks are striving to get to. But that’s no easy feat.
Yet the reward for banks will be businesses that are more client-centric, tech-savvy and lean — and are fundamentally changing to deliver better results. “Those who will succeed will mould how banking will operate in the next century,” Del Prete enthuses. Voice firm and charisma oozing, she maps out her vision for digital transformation in banking.
An Agile Beast
She says there are critical things banks need to do to transform. First, they need to recognise that transformation is not a technology programme. Del Prete compares transformation in banking to building a winning Formula One team — you need more than just an engine. “You may have the most efficient, straight-through processing platform and yet still kill transformation. Because transformation is about the business and the people, not the IT systems,” she says.
Building an agile, client-centric beast will require a mass change to organizational structure and culture — which Del Prete says, “is everything”. “Transforming a business in a sector that for hundreds of years has remained virtually unchanged, programmed for risk aversion and centred around products rather than clients, is hard — cynicism and resilience are essential travel companions.”
Reforming an organization’s culture is a top-down process. Banks need the decision power and the resources to move fast. Management needs to trust, empower and energise the transformation. “Like the captain of the Titanic, the CEO needs to understand that losing time can be fatal,” Del Prete says.
Too often transformation projects are siloed. Banks are keen to open trendy “innovation labs” that are housed outside the main corporate office and stuffed with ping-pong tables, break-out rooms and organic smoothies. But, “Transformation needs to be in the bank. Like a virus. Employees need to be ambassadors for change. They can’t be hidden away in a funky, colourful office with beanbags. Because there, they cannot influence the rest of the people in a bank. They risk becoming just a check-box to tick off.”
The fatal flaw that banks make is assuming that they do not need to change. For centuries banks’ line of thinking has been that competitors are other banks and that their sector is banking. Yet digital transformation is dissolving the boundaries between industries, and opening the floodgates to new competitors. These so-called “fintechs” are biting at the fringes of banks’ business models, and Del Prete says banks cannot underestimate the stalking tigers.
“Think Apple, Amazon, Google, Uber, Facebook, WhatsApp. They count their customers in many hundreds of millions or even billions; not even the most successful banks can compete with that,” she says. Yet it won’t be all doom and gloom.
Banks are increasingly working with fintechs as part of their digital transformation. They understand that built-at-home is not always the best option, particularly with fintech developing deep subject matter expertise as they mature. Together they may be stronger, and transformation should result in products and services that are inconspicuous and more entwined into the way people go about their everyday lives. Banks will be more agile, innovative, inclusive and responsive to customers’ needs. Re-platformed systems and a leaner operating model should cut costs and improve profitability. “If you can drive the change, the result pays back all the effort,” says Del Prete, with feeling.
The Titanic proved that even the biggest ships can sink. Whether banks can pull off digital transformation will determine whether they not only survive, but thrive.
Sabrina Del Prete, the Digital Transformation Director at RBS England & Wales, predicts that if lenders do not embrace digital technology quickly enough, they could be overtaken by tech-savvy challengers. There are lessons to be learned from China, where WeChat’s social media and banking platform has 700m customers and Alibaba, whose main business has been selling consumers goods online, is now the nation’s third largest wealth manager with $124bn AUM.
Part of THE DIGITAL FUTURE OF CUSTOMER CONTRACTING series