9DECEMBER - JANUARYWhy Invest in Digitalization as an Incumbent Bank?Figure 3This situation closely mirrors Michael Porter's well-known Five Forces theory. External factors ­ new competitors, digitally competent big players, and empowered customers ­ are reshaping the banking landscape. Customer expectations are changing rapidly, and those who don't adapt risk losing their customers. This requires the development of new products, experimenting quickly with a `try and see' approach, and aligning the organisation, IT, and infrastructure. Secondly, customer demand is shifting, and failure to adapt can result in customer attrition. To succeed, you need to develop customer-centric products, do quick experiments with an MVP mindset and fail early; you need to change the way of working and your IT infrastructure accordingly.Instead of viewing fintech companies as rivals, we need to see them as potential partners. However, forming these partnerships requires being on the same technological page and having an organisation ready for collaboration. Moreover, with open banking, non-bank companies are now entering the banking arena, introducing new competition, a potential threat for banks.Perhaps most importantly, talented individuals now prefer to work for companies that are tech-savvy. They demand a digital-first strategy. They do not want to work with a company that uses old technology. It's challenging to retain talent with outdated technology and work structures. To close the gap with neobanks, the banks should attract talent.Five Challenges on the Road to Digital TransformationWhile recognising the need for change and initiating transformation within traditional banks is a significant step, it's not without its challenges. Neobanks are essentially built from the ground up in a digital world, making change feel like trying to modify a car while it's in motion. As a result, many digital transformation projects don't yield the desired results.1) Demonstrating Clear ROIFirst of all, one of the major challenges is explaining ROI for this digital shift. In any investment, it's natural to expect a financial return; however, calculating this in the technical stack upgrade is particularly difficult because it doesn't immediately generate revenue. Digitalisation opens new doors, but quantifying the benefits of the digitalisation process itself is complex. Convincing upper management of the importance of customer experience and the potential for new digital opportunities is crucial, as this journey is like getting insurance for the bank's future.2) Aligning business and ITWithout a full-scale shift to agile working methods like other tier 1 banks, traditional silo structures tend to persist. Different departments within the bank often have different priorities and objectives. If a complete agile transformation isn't possible, appointing product owners from the business side to work with IT teams can help bridge the gap and ensure everyone is working towards the same goal.3) Modernising Legacy SystemsUpdating an old tech stack is not as simple as buying new software; many older systems are interconnected and need to be updated piece by piece. Transitioning to cloud-based technology was also challenging because there were concerns about information security, service levels, and outsourcing. At first, there could be resistance, but now, discussing cloud technology should be the norm.4) Meeting Customer ExpectationsCustomer demands consistently change, and adopting digital solutions for both existing and new customers can be challenging.5) Challenging Status QuoAnd most importantly, old habits and reflexes don't change overnight. Therefore, we should always ask `why?' Why can't we enable same-day account opening? Why can't we move to the cloud?In conclusion, the digitalisation of traditional banks is a journey filled with challenges. However, it's crucial to embrace this transformation to ensure the survival and success of traditional banks in an increasingly digital world. Instead of viewing fintech companies as rivals, we need to see them as potential partnersFigure 4
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