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Digital transformation: banks need to think ahead … but not too far



Customers now expect fast, efficient services as part of their everyday lives. Digital transformation is an on-going active programme for most large banks. It costs money, takes time and uses resource. And, it could take years to implement.

How do you decide on the best action that considers time, money, resource – and fundamentally, the customer?

You could look to update your current legacy systems, which may solve these challenges in the short term. But, how much further ahead have you looked? Will this be a short-term fix that leaves you with an even bigger challenge to broach in a few years? Let’s hope not. And done right – it needn’t be.

In response to the changing market, some organisations have taken the next step and looked at modernising their software to be digitally equipped, through re-platforming. We understand that this is also not an easy task. But, spending the time to fully understand what your needs are and what capabilities you need to support your transformation, helps set your business up for the future.

During this process, you need to look ahead and understand what is on the horizon and attempt to include it in your architecture. However, the temptation to future proof every eventuality when migrating to a new decision making platform can often lead to the requirements becoming too detailed and complex and you may end up losing sight of what you need today. You need to get the balance right.

The key is to get the core building blocks in place first. Then you can be assured that you have a stable base that is created with flexibility. This flexibility can help you in the future when you want to add additional functionality.

Why not repurpose what’s under the hood?

Traditional legacy systems are a staple part of the banking infrastructure, and have become immensely complex as they have been modified over time.

When you lift the bonnet and take a look, it may be hard to find exactly what you’re looking for. Your legacy system may look a little clunky and tired, but you can still learn from what’s already there.

No doubt you’ve spent years developing workflows and decision strategies. And, thankfully, there is a lot of your base design that you can still re-use.

Digital transformation is the opportunity to refine the decision-making strategies that you want today. You therefore need to ask yourself ‘what are we trying to achieve at this point?’

The economy, regulation, people, and life events all influence change. When looking at digital transformation, it’s useful to include the capability that is flexible enough to adapt to future changes (known and unknown). But, you also need a system that’s fit for purpose now. This way you can ensure you’re making decisions based on the current climate – but also able to easily modify your decision strategies when needed. By doing this form of agile build it’s should set a foundation that you can build on again and again. This time, you are setting a foundation that can be built on as your business grows and changes. A simple update and adaption, not a complete transformation.

Make informed decisions using your customer’s current circumstances

New data-sets are becoming available that were not in existence even 5 years ago – alternative loans, rental data, Mandatory Commercial Data Sharing (MCDS), and many more.

Using old, or older data and old scoring policies in your credit risk decisions could be a risk to both you and your customer. The risk is created through not being able to accurately assess a credit application using the most recent available insight. This could mean that your lending decisions aren’t reflective of your customer’s situation – and therefore you may not be giving them the most suitable products or terms for them. It also poses additional unnecessary conduct risks that can be simply rectified by using accurate up-to-date insight.

New platforms and decision software could help you address these issues quickly. Teamed with accurate credit scoring and the use of up-to-date scorecards, they can help you make better decisions. Legacy systems tend to be less flexible and cost you more in the long run. Therefore, a migration is certainly something to consider. Naturally, this will incur a cost. You would need to balance this against any potential brand reputation, data security concerns, and compliance.

Whilst we talk a lot about customer expectations on a digital level, we also need to consider offline experiences as customers simply want to receive a good service that is best suited to their needs. This means accurate credit assessments should be based on how much the customer can afford, and identity should be verified based on the information being presented. This may be done digitally. But, it also needs to be managed using data that is available through traditional channels– such as the phone or in the branch.

Your platform needs to be flexible and designed to handle all of these scenarios, using a consistent policy that’s easy to update no matter which touchpoint. You want to be confident that whether your customer calls, applies online on their smart phone or walks into a branch, they will be assessed consistently and fairly. And that you are confident you have the most up to date information on that individual’s circumstances that has informed the decision.

When designing new systems, it’s tempting to put everything in at the beginning…

If you’re looking to repurpose and update older legacy systems it’s easy to fall into the trap of looking at what you have, not what you haven’t. Time is critical and it’s tempting to proceed with yet another enhancement to your current system – redeveloping and enhancing a specific area – such as your scorecards for example, without considering what else could influence necessary change in the longer term. Think of it like jenga, if you keep adding to it, it will stand up – but to a point. How much bigger would the problem be if it fell down and needed redesigning? How much more investment would you need?

Balancing the need to deliver a fit for purpose decision strategy, knowing what to add now and later, is the challenge. What’s important is that you consider what your needs are – in comparison to your customer’s needs. And that you lead any change or transformation project with the customer at the forefront of it. Like regulators have. Regulators are always looking at how they can protect and better serve customers.

Let’s imagine you did do a full redesign

So, we have considered many things – scoring policies, redesign, redevelop and more. In conclusion, when designing new processes and systems, there is a clear temptation to make them so big that it allows for any eventuality.

However, if they become too big they run the risk of not being functional at all. You do need to look at the future, but you also need to act now. So, how do you approach this challenge?

  1. Try to factor in all your elements into a wish list and filter out what can be done now or at a later stage.
  2. Don’t let the list get too big that it stops you from moving forward. How can you ensure it doesn’t?
  3. Relate everything back to the customer and your regulatory responsibilities. What’s their needs and wants and how can you meet them?
  4. You need to decide which one you do first and which one offers you the best, most cost effective opportunity that can contribute towards the future of your business
  5. Changes in regulation can happen quickly. You therefore need to consider if you would be in position to start again? Or, have you set up the functionality that can adapt to change.

I’ve recently worked with a large bank to help them review some of their onboarding journeys, for digital and traditional channels. Replatforming was the best option for them. By partnering with them, getting to know them and the strategic objectives they aspire to achieve, I have been able to guide them through this challenge of balancing what they need now versus what they think they’ll need in the future.

Together, we have redesigned their new practical, functional decisioning systems to deliver just what they need for now, but with the ability to grow, optimise and change quickly.  What they now have is the ability to extend, to add further building blocks and integrate other concepts and changes at a later stage.

What will you choose? Stay as you are? Develop and respond to today’s trends? Or redesign, setting up a foundation for the future. Within any, we can help.

This article is about: digital transformation