For the last 4 months banks had to radically change the format of their work: the pandemic doesn’t spare businesses. Emergency transfer of employees to remote locations, work to establish the efficiency and availability of banking services... There is no going back: digitize or die as a business. We tell you how banks can pass through digitalization painlessly and step-by-step.

Adapting vs going out of business and what we can learn from Xerox

Remember Kodak and Xerox? Until 2006 they were leaders in their segments, but couldn't keep up and lost their market position after the digital revolution. Customer demand is constantly changing and these companies were not flexible enough to accommodate these rapid changes.

The COVID crisis has shown that businesses can react to new conditions quickly and radically when they have to choose between adapting or dying. Companies faced a choice: to either transfer employees to remote work within a few days and adjust their tasks to these new conditions, or to incur serious losses and sacrifice their positions in the global market.

The banking sector was no exception. In addition to the need to transfer employees to telework, banks had to solve the problem of remote service in the shortest possible time. Of course, almost all financial organizations already offered mobile and Internet banking services, but not all of them were ready for the sharply increased volume of load on systems.

As a result, companies that focused on developing digital banking a few years ago gained a huge advantage. The others have to look for ways to digitialize, faster and more efficiently than competitors. Although each company's service model is unique in its own way, they all focus on the client. And so it is the client that should be at the heart of the digital transformation of the bank.

Denis Ostapchenia - the Head of the Fintech Department at Andersen - and his team have identified the key factors that help banks with their digital transformation issues.

How to implement digital transformation if you're a bank

1. Concept development

The digital transformation of banking must be approached in a comprehensive manner. The transformation strategy should be developed with the participation of all departments, not only IT. Until recently, only 12% of banks followed this systematic approach, and its advantages were reflected in a seamless increase in profitability.

It is important to consider the following points:

● The optimal term for implementation of the concept is 3-5 years. It is inefficient to plan for a longer period of time due to market volatility.

● The core of the concept should be the transformation of business processes and IT, and attention should be paid to their interaction.

● It is necessary to take into account the prospects for changes in the personnel structure of the bank: the share of service personnel will decrease, while the share of technical specialists will increase.

As the transformation progresses, banks become more and more similar to tech companies like Revolut, Tinkoff... It is interesting that the tech giants, in their turn, are actively developing payment and financial systems - Apple, Samsung, Alibaba.

2. Creating Smart IT Architecture

IT-architecture is the digital skeleton of the bank. It should simplify and speed up the launch of new products and be easily supported and scalable. The speed of testing and launching new products is one of the key factors for success today, and the architecture must provide this speed.

The IT processes of many banks still rely on architecture developed 30-40 years ago (so called ‘legacy systems’). Many of these systems are quite successful, but it is becoming more and more difficult to launch new services and products based on them - it requires more time and resources. The system becomes more cumbersome and unoptimized. This, in turn, slows it down even more and increases the number of system errors.

There are two ways of switching from legacy to intelligent architecture: ‘abrupt’ and ‘smooth’.

The ‘abrupt’ scenario involves replacing legacy architecture with new architecture in the shortest possible time, and requires significant investment at the initial stage. The "smooth" scenario allows you to save some part of the legacy systems and to replace the IT architecture gradually.

More often than not, the new architecture will belong to one of three types:

● microservice architecture;

● Service Oriented Architecture (SOA);

● hybrid version.

The microservice approach is the most popular, but it is not the only one. Each case may have its own optimal variant, which should be determined by in-depth analysis. Experience shows that it is possible to combine these approaches, and even use them simultaneously.

3. Developing the most profitable channels

The popularity of the channels may vary depending on the service region. But in the USA, Western Europe and Russia, customers prefer mobile and Internet banking to personal service at bank branches. While, in the USA and Europe, Internet banking and mobile applications are used with approximately the same frequency, in Russia mobile banking is the clear leader.

On average, the mobile channel is already in first place, and its popularity continues to grow. The transition to a mobile-first strategy is absolutely justified, as our society can safely be called smartphone dependent. The coronavirus outbreak has made mobile services even more in demand.

List of Features

Our analysts have compiled a list of features that should be present in any ‘mature’ mobile banking application:

● Authentication by biometric parameters.

● QR-payments.

● Payment subscriptions.

● Integration with Apple Pay, Google Pay and Samsung Pay.

● Ability to obtain cashback, integration with loyalty programs.

● Transfers via phone number and social networks.

● Ability to set goals for savings.

● Customizable expense reports.

● Advanced sms/push notifications.

● Chat-bot with AI.

● Account statements with detailed description of transactions.

When developing mobile applications, you should pay equal attention to functionality and usability. It is impossible to constantly develop innovative new products: most new products are alike in many respects. So, to come out ahead, you need to be the one that offers the most convenient service. When developing UX, we try to get feedback from end users: we make questionnaires, conduct focus groups, do A/B testing and only then create an interface.

4. Use and protection of collected data

The principle of working with data should be taken into account already at the stage of concept development. Leading banks of the world already actively use Big Data. Thanks to AI and ML technologies, the value of data is increased and its analysis helps to develop strategies and create new products. In 2019, according to Deloitte, 22% of banks already use AI, RPA and ML, and another 36% are using it in test mode.

In summary:

For the development of a company's digital transformation project it is important to involve a team of professionals with experience. These are system architects, analysts, developers and testers working with a wide variety of technologies. Andersen most frequently uses Java, .Net, Scala, Python, Go (backend), React or Angular (web), and Swift or Kotlin (mobile).

It would be a mistake to think that digitization is a project that can be completed. In fact, it is a process of continuous change that takes time and money, but can bring steady growth in revenue, customer base and user loyalty.