Digital transformation: do or die for U.S. banks in the next decade
By Guy Warren, CEO, ITRS Group
For U.S. financial institutions, digital transformations were often rushed through as the race to the top outweighed all other priorities and the big picture was overlooked.
But now America’s banks are facing a new wave of digital transformation that is nearly impossible to achieve with their current systems.
There’s no room for the shortcuts this time around – if they don’t invest in reshaping their digital capabilities from the bottom up, U.S. banks might not survive the next decade.
But what is the path to success in this seemingly impossible task – especially in a country whose landscape of financial institutions is defined by fragmentation and which changed dramatically after the 2008 crash?
The problem with “grow as you go”
The US financial landscape is littered with silos and plagued by different layers of legacy technologies, creating widespread inefficiency. In addition to this, institutional banks are faced with some of the largest volumes of data in broad operational areas of any industry, which include a myriad of many applications, servers and users.
The early stages of digital transformation have seen many banks take a ‘grow as you go’ approach. In the race to the top, digital connections have often been built as quickly as possible, without incorporating flexibility and the ability to expand into the architecture. Although they are growing rapidly and competitive in the short term, this has seen many banks struggle without an overall strategy or a long term strategy to meet the demands of increasingly sophisticated architecture and technology from customers. .
In addition, after the crash, the number of asset trading platforms increased dramatically, so new interfaces and systems were added to take advantage of the price pressures they caused.
As transaction volumes skyrocket, processing becomes more and more complex. A specially designed and scalable set of capabilities is needed to stay in control, starting with a comprehensive monitoring system to provide a comprehensive view of a bank’s capabilities and weaknesses in wealth.
Not responding to these requests is simply not an option. Electronic transactions and payments are the lifeblood of banks and their corporate clients. Not to mention that brand loyalty is no longer as strong as it once was. Businesses are happy to take the leap if it ensures uninterrupted operations – and it’s easier than ever to do so.
In addition to upward pressure from customers, downward regulatory oversight is at an all-time high and error and fault tolerance is declining. American banks must now re-architect their digital systems from a more holistic and preventive perspective if they are to avoid negative reactions across the board.
Reworking these legacy inefficiencies is a gigantic task. The cost of a complete overhaul is substantial and requires considerable resources – not just in terms of money, but in terms of skills, resources and volume of customer demand to justify and fuel these changes.
Does this mean the end for many institutional banks in America? Not necessarily.
The solution lies in building consolidated platforms, especially for smaller institutions with tighter budgets. Third-party providers will be able to upgrade bank assets more quickly, consistently and affordably, often while absorbing much of the associated risk.
These vendors may be the key to enabling U.S. banks to not only resist but thrive in the next era of digital transformation with minimum cost and maximum efficiency.