How banks upgrade their IT for the future

By 2020, up to 95 percent of bank transactions will be digital. The consumers increasingly expect a digital, state-of-the-art and fully integrated customer experience. However, most banks’ IT is not ready for this radical change.

By Ingolf Zies, Dr. Uwe Schmid, Steve Berez, Vishy Padmanabhan and Marc van der Vleugel

Brief

How banks upgrade their IT for the future

By Ingolf Zies, Dr. Uwe Schmid, Steve Berez, Vishy Padmanabhan and Marc van der Vleugel

First published on setembro 16, 2015
min read


By 2020, up to 95 percent of bank transactions will be digital. The consumers increasingly expect a digital, state-of-the-art and fully integrated customer experience. However, most banks’ IT is not ready for this radical change. Despite the existing level of digital transactions, there is a wide gap between customer demands and the capacity and performance of IT departments. IT struggles with obsolete systems, tight budgets, and a wide range of other demands like stricter regulations and growing business complexity. Nine building blocks for digitalization from the same frame Ongoing operations require a restart. From experience with numerous projects, Bain has developed an integrated Triple-A-Approach with nine clearly defined building blocks in order to overcome this challenge. It is based on aligned priorities, agile development, and an affordable budget. The Triple-A-Approach covers digitalized banking from a customer perspective and allows banks to prioritize and transform correspondingly. At the beginning, the strategic priorities and optimal customer results have to be determined. The process to transform them into IT priorities is, according to a global Bain survey of IT managers, currently the biggest weaknesses in the transformation process. Fewer than half of all companies have achieved complete alignment. The situation appears considerably better with the next building block, innovative management, where the majority of banks have corresponding departments with their own budgets. For the restart to be a success, departments and IT must have a unified vision of the business strategy and the necessary innovations, and align IT priorities accordingly. The restart can only be managed through the use of agile principles. There are still deficits in many areas. This can be partly traced to a considerable shortage of skills and the need to train existing personnel. IT architecture is still insufficient at many institutions. The modulation and shift of many processes to the (private) cloud is a central theme, combined with an improved data architecture. SaaS modules alone may account for 30 to 50 percent of activities in the future. New approaches in growth and operations are the core of agile progress. Currently, only a quarter of banks use agile principles. Those that do have massively sped up processes and made them more flexible. The digital transformation is occurring at a time of growing cost pressure. However, according to the Bain analysis, 20 to 40 percent of essential investments are covered by savings in other areas. Self-financing is vital. Disposing of projects that do not create value can reduce costs by as much as five to ten percent. The most pressing need is to re-evaluate departmental requirements. Streamlining the systems landscape, virtualizing the infrastructure, and using cloud services can free up additional funds for digital projects. Leading institutes already use 40 to 50 percent of their total IT budget for this. Correct focus thanks to a benchmark with digital trailblazers The Triple-A-Model helps companies to navigate an unquestionably very complex digital transformation. The analysis of a bank’s current status—based on existing study—results shows its current digital capabilities. This has many advantages: Banks receive an overview of existing deficiencies and can prioritize individual steps within the digital transformation. The holistic view guarantees that every factor is considered. The strategic approach ensures that the process remains customer focused. Readiness to transform is considered from the very beginning. Based on this benchmark analysis, a customized transformation can be developed for each bank and implemented gradually using proven tools. Little by little, modern, customer oriented IT is emerging for the digital age. The completely digitalized bank is becoming a reality. Download PDF

By 2020, up to 95 percent of bank transactions will be digital. The consumers increasingly expect a digital, state-of-the-art and fully integrated customer experience. However, most banks’ IT is not ready for this radical change. Despite the existing level of digital transactions, there is a wide gap between customer demands and the capacity and performance of IT departments. IT struggles with obsolete systems, tight budgets, and a wide range of other demands like stricter regulations and growing business complexity.

Nine building blocks for digitalization from the same frame

Ongoing operations require a restart. From experience with numerous projects, Bain has developed an integrated Triple-A-Approach with nine clearly defined building blocks in order to overcome this challenge. It is based on aligned priorities, agile development, and an affordable budget. The Triple-A-Approach covers digitalized banking from a customer perspective and allows banks to prioritize and transform correspondingly. At the beginning, the strategic priorities and optimal customer results have to be determined. The process to transform them into IT priorities is, according to a global Bain survey of IT managers, currently the biggest weaknesses in the transformation process. Fewer than half of all companies have achieved complete alignment. The situation appears considerably better with the next building block, innovative management, where the majority of banks have corresponding departments with their own budgets.

For the restart to be a success, departments and IT must have a unified vision of the business strategy and the necessary innovations, and align IT priorities accordingly. The restart can only be managed through the use of agile principles. There are still deficits in many areas. This can be partly traced to a considerable shortage of skills and the need to train existing personnel. IT architecture is still insufficient at many institutions. The modulation and shift of many processes to the (private) cloud is a central theme, combined with an improved data architecture. SaaS modules alone may account for 30 to 50 percent of activities in the future. New approaches in growth and operations are the core of agile progress. Currently, only a quarter of banks use agile principles. Those that do have massively sped up processes and made them more flexible.

The digital transformation is occurring at a time of growing cost pressure. However, according to the Bain analysis, 20 to 40 percent of essential investments are covered by savings in other areas. Self-financing is vital. Disposing of projects that do not create value can reduce costs by as much as five to ten percent. The most pressing need is to re-evaluate departmental requirements. Streamlining the systems landscape, virtualizing the infrastructure, and using cloud services can free up additional funds for digital projects. Leading institutes already use 40 to 50 percent of their total IT budget for this.

Correct focus thanks to a benchmark with digital trailblazers

The Triple-A-Model helps companies to navigate an unquestionably very complex digital transformation. The analysis of a bank’s current status—based on existing study—results shows its current digital capabilities. This has many advantages:

Banks receive an overview of existing deficiencies and can prioritize individual steps within the digital transformation.
The holistic view guarantees that every factor is considered.
The strategic approach ensures that the process remains customer focused.
Readiness to transform is considered from the very beginning.

Based on this benchmark analysis, a customized transformation can be developed for each bank and implemented gradually using proven tools. Little by little, modern, customer oriented IT is emerging for the digital age. The completely digitalized bank is becoming a reality.

Download PDF