This article originally appeared on Forbes.com.

As retail banks gradually digitalize their activities, much of the lending arena, with the exception of credit cards, has taken a back seat. Recent analysis by Bain & Company and SAP Value Management Center finds that banks can handle on average only 7% of products digitally from end to end. That sluggish pace of modernization leaves banks vulnerable as lending comprises more than one-third of retail bank revenue. Banks need to accelerate investments in digital lending if they are to avoid a material decline in profits and loss in market share.

New digital entrants, ranging from financial technology start-ups to incumbent retailers and telecommunication providers, have spotted the opportunity, and are attacking thin slices of the lending profit pool. Many of these financial technology insurgents (fintechs) provide a better experience by focusing on the needs of specific customers—often an underserved segment. CommonBond, for instance, started with loans to low-risk students, and OnDeck offers loans to small businesses without a long track record. Some fintechs, such as Square, offer digital messaging or payment platforms onto which they have added short-term finance. Others, such as ZestFinance, have moved beyond traditional risk assessment to use new sources of data in underwriting, like whether an applicant keeps a consistent phone number.

To help banks better understand the digital lending landscape and inform their next moves, Bain and SAP Value Management Center recently surveyed two dozen banks in 10 countries about their performance in digital lending. The survey shows that overall, banks report relatively low levels of digitalization:

• Customers submit only 14% of loan applications through digital channels.
• Most banks lack digital cross-selling expertise, with the average number of loans at just 1.1.
• Banks spend only 18% of their marketing budget on digital initiatives.
• 14% of simple loans and 36% of complex loans require rework.

Shaping and accelerating the next wave of investment

Some banks have already started to invest in creating better digital lending experiences for customers, making it easier to apply for their offers. They’re also removing bad and avoidable interactions—those caused by complex processes or employee errors, or better routed to lower-cost digital channels. These investments generally have paid off with faster, better and cheaper lending processes.

The experiences of leading banks and companies in other industries suggest several principles that will help raise the return on investment.

Design around the customer’s priorities, not for internal operations. When it comes to digital initiatives, banks often rely too much on an operational perspective based on internal metrics. While such initiatives might initially improve process efficiency, they also tend to undercut the customer experience. For example, people don’t want to buy a mortgage, they want to access capital in order to buy a home. So they embrace an experience designed to help them buy a home more readily than one designed to sell them a mortgage.

Human judgment and advice still matter, of course, and the point is to equip customer-facing employees with digital tools that allow them to enhance the customer experience around their needs (buying a home, financing a business, funding an education). While the contact center remains a principal mechanism to support customers, it should also be easy for a customer to digitally schedule an appointment to see someone if they want advice or when regulatory requirements demand a face-to-face meeting.

Simplify products and processes. At the heart of most bank lending organizations are powerful product teams that typically aim to satisfy all possible customer demands with a huge array of product variations, price points and promotions. Product and process complexity has crept in through historical decisions taken in sequence. To complicate matters, the chain of process steps, from inquiry to collecting customer details to codifying collateral to funding a loan, often functions through separate organizational departments.

Improving the experience and lowering costs require winnowing down the product suite and replacing the complexity of 20 or 30 systems with just a couple of platforms that can handle variety, similar to how automakers have moved to platform sharing (chassis and powertrains) for a variety of car models. Commonwealth Bank of Australia, for example, went from 610 product variants to 18 core products, which helped the bank reduce time to market by 75% and processing errors by 30%.

Reboot IT to support great experiences. IT systems at traditional banks generally have hard-coded rules around every product feature, such as interest rate structure, term length and up-front fees. And different departments might install their own coding so that a change-of-address request at a contact center would have different verification criteria than a request at the branch. The rigidity of hard coding does not allow banks to quickly develop or modify products digitally.

A more effective alternative that’s increasingly being adopted by digitally savvy companies is an IT engine that builds the basic features (interest rates, term, fees) into a core lending platform and then abstracts above that platform to accommodate any product. Product abstraction allows teams to more easily redesign and tinker with a product experience and have it sit on the underlying platform.

Investing to change the bank

Banks already spend a lot on IT—about 6% of 2014 revenue on average, market research group Gartner estimates, far higher than the 1% to 4% in most other industries, including tech-intensive telecommunications. Will digital investments pile on that spending?

In the short run, yes, but the way that banks direct their investments will determine the payoff from digital. Banks making greater digital progress in lending operations have higher IT spend than average. The critical factor: They spend much more on changing the bank’s model than on running the existing model. Laggards do just the opposite.

The leaders accept a higher IT cost because they’re automating more, reducing labor costs and setting the stage for higher revenue through digital conversions. Even traditional banks can compete effectively in digital lending if they’re willing to put the customer’s priorities at the center of their digital redesign.

Written by Richard Fleming and Joe Fielding, partners with Bain & Company’s Financial Services practice. They are both based in New York.