In the early days of digital, most financial institutions equated it to enabling simple self-serve capabilities. Today the focus is on holistic institution-wide digitization. All institutions EFMA and EY teams interviewed indicated they are in the process of implementing front-to-back digital transformations to build a sustainable, digital bank all the way through.
While the interviews revealed alignment on end-to-end digitization, how institutions chose to deliver digital varied. These differences in delivery models reflect scale, the institution’s perception of how to compete in the market, and even how they see themselves and their capabilities.
Larger institutions indicated a focus on implementing in-house technology solutions or pursuing partnerships to build or acquire. One respondent noted, “We built everything in house. We have a very strong, agile delivery capability across all of digital. We are doing releases about every 20 minutes, whereas five years ago we were every two to three months.”
Conversely, some smaller regional institutions focused on partnerships and managed services in non-competitive areas. One interviewee stated, “We test and learn, and sometimes implement, with a wide variety of fintech and big-tech partners.”
The delivery model chosen shapes the digital change agenda at all institutions. One digitally led financial institution interviewed underlines the connection between digital delivery method and strategic focus areas:
“While agile methods are pragmatic for delivery of specific features or releases in the industry, this bank is guided by a ‘future mindset,’ which infuses all activities and is the foundation for all decisions regarding the delivery model. This institution sets its technical strategy by ‘thinking of the best place in our systems (or someone else’s) to build functionality vs. just where it is expedient,’ which ‘helps us avoid technical debt.’”
Over time, these decisions make each subsequent initiative project quicker and easier than otherwise would have been the case. For example, this institution opted for a cloud core banking solution with minimal customization to avoid “vendor lockin,” and instead targets spend at the services and integration layers to build fast-to-market, compelling experiences.
An additional focus area for this institution is process optimization and simplicity, “making things less manual, less cumbersome,” which “brings us faster conversions, reduces costs” and ultimately leads to a “faster path to yes.” In its actions, this institution underlined the direct connection between choices it made in how to implement digital, where to spend, which internal initiatives to focus on and the customer experience.
Notwithstanding delivery approach, the interviewed institutions highlighted two common challenges faced:
- Human capital, including recruitment, training and retention of talent
All interviewed institutions, particularly smaller, regional institutions, cited cybercrime, including malware and fraud, as a concern of high priority. Larger institutions indicated a continued focus on cybersecurity and data safety, while smaller, regional players, which are on average less mature in their digital transformation efforts, indicated a pivot towards focusing on and investing in cybersecurity, as well as digital fraud and anti-money laundering (AML) initiatives.
One regional institution stated, “Our biggest risks are the increasing importance of cybersecurity and the need for stronger fraud and AML capabilities that are tailored to the digital channel,” and that the pandemic has been an accelerant. Another regional institution with previously branch-reliant customers also highlighted the need to educate their customers on cybersecurity and how to keep their data secure when using online and mobile banking channels.
Ease of implementation and approach to cybersecurity initiatives vary, however. “Cyber is more important, but bringing it to market [quickly] and frictionless[ly] has been challenging,” said one smaller institution.
As noted previously, small institutions frequently form partnerships for a variety of reasons — implementation, access to leading digital tools and expertise, and to enable the institutions to more effectively and quickly provide secure digital solutions and meet their mission in the community.
Larger, more established institutions that began their cybersecurity journeys earlier have invested significantly over the past few years, acquiring technical expertise, growing their cybersecurity teams and building protective measures, often in house.
The delivery model has direct people implications. The people and expertise required are dependent on the activities the institution chooses to own or run itself. The market for expertise may also have an impact on the delivery model chosen. In a tight market, a lack of skills available to hire may nudge institutions more towards a managed service model.
All institutions surveyed cited the need for the recruitment, training and retention of some technical experts to develop and maintain digital solutions. With the COVID-19 pandemic, ever more focused effort is being applied here.
Some institutions interviewed, particularly the smaller ones, cited the sourcing of expertise as a challenge. This challenge is heightened by the fact that the technical skills required change so rapidly because new programming languages, architecture models, deployment methodologies and delivery tactics are constantly emerging and evolving.
One institution interestingly noted that, during the pandemic, “The fight for technology talent became global pretty quickly,” meaning that “it has been hard to retain some of our top product and technology talent for the simple reason that they could work for peer technology companies from right here in the province with everyone working from home.”
All respondents cited internal digital advancements to support their people’s operations as helpful in creating a sense of pride and improving employee satisfaction by enabling their people to spend their time on higher-value activities. “By giving our employees the tools to be more efficient, we have made their jobs easier and more fulfilling,” one respondent noted.
Respondents, however, also discussed the road bumps associated with implementing digital tools for their employees. Some institutions were challenged by a lack of internal awareness of the tools needed and explored the creation of specific roles to address internal adoption.
Another challenge is the training of current employees on how to use new digital tools. “Often we only look at whether we had the digital skills to build tools, but not training the front line,” one institution reported. “Did our front line have the required digital skills to engage with clients” while using these tools?
The deployment of digital tools has also made some employees feel vulnerable, perceiving digital as a threat to their job security, which perpetuates the challenges in rolling out digital tools targeting employees.
(Note: Workplace of the future and flexible workplaces, while important topics that all institutions are considering, were not the focus of these interviewees, and plans were still under development at the time of this study.)
This EY-EFMA study revealed that while the focus on customer and digital persists, banks also think of digital in a more holistic way. How institutions define their delivery model varies in large part on an institution’s size, strategic priorities, and access to people and skills. EY’s perspective on digital in the Canadian financial services market is focused on the blending of digital self-serve and human-assisted services, and the implications for institutional operations and technology.
With these insights from Canadian banking leaders, a view of the future of digital and what’s needed to be successful is emerging.
An intuitive mobile experience is central to serving customers in their everyday banking interactions at all institutions. Looking ahead to engaging in more complex journeys — such as touching on complex onboarding, advice or secured lending — there are joint priorities around using artificial intelligence (AI) to surface personalized experiences from complex underlying data. It’s also important to remember that at key points, integrating a real person to assist with the self-serve experience will be critical to generate the trust and convenience that is just as important to the customer.
And internally, while the delivery model (e.g., build, buy, managed service) will depend on each institution’s scale and competitive positioning, the priorities behind digital delivery are common — namely, driving simplicity and focusing on making balanced decisions with the longer term in mind. Digital transformation is a journey that evolves, not a three-week sprint with defined outcomes.
Whether this is in the context of cybersecurity, credit risk or back office, it’s clear the people behind the technology are just as important as the technology itself. Maintaining access to the right labour market in the context of changing work patterns, and putting in place the right training and upskilling associated with tool implementation, will only grow in importance as organizations strive to actually become digital, not just engage their customers digitally.