One of the surprising things that came out of a recent survey IDC did in partnership with SAP was the front-office emphasis of digital transformation (DX) in the banking industry. Thirty-nine percent of the 500 respondents we quizzed said DX initiatives at their organization are primarily in the front office and aimed at improving the customer experience. This was almost double the number that said DX is primarily about back-office initiatives focused on creating an agile infrastructure.
This front-office tendency is not a bad thing in itself. The problem comes, though, when this mindset lapses into a focus on “customer-facing” parts of the bank, rather than the more holistic “customer experience.” It’s easy to understand how this happens. We are all consumers after all – right up to the board of the bank. We most easily comprehend what we can see and feel ourselves, and this means the customer touch points. We can make comparisons with rival banks, and we can discover firsthand how new players – in or out of the banking industry – are bringing new user interfaces to the phones in our pockets.
There’s a second point to be made here. It’s probably unfair to suggest that banks end up focusing most of their investments on the customer-facing parts by default. The fact is that lots of the trickiest, most sensitive, and most political challenges are in the back and middle office. They are in the legacy tech siloes, the separate lines of business, and the far-flung regions. Often a bank can find that the easier option for improving customer experience is short-term tactical fixes and point solutions that introduce this or that piece of new functionality for the customer. If it happens that this approach worsens the eventual reckoning that must be had with all the legacy in a bank’s IT estate, then that is a problem for another day.
The magic happens behind the scenes
IDC believes, though, that the most sustained improvements to the customer experience are likely to happen behind the scenes. If the aim is to deliver a seamless customer experience, then it is the connections between the touch points, more than the touch points themselves, that are key to this. A true omni-channel experience, allowing customers to flit between channels at their own convenience without having to repeat any steps in a customer journey, requires that those channels are connected with each other and updated in real time.
This type of best-in-class customer experience cannot be delivered by new channels alone. The back and middle office need to be overhauled and digitized as well. For the customer experience to be seamless, data needs to be able to flow seamlessly between the channels, back to the core, and to all the departments that run analytics, such as fraud and marketing. For all this to happen in real time requires a fully digital core and an enlightened data governance regime.
The good news is that, as Figure 1 demonstrates, retail banks are at least starting to understand this. When asked what DX initiatives they have already implemented, they were much more likely to cite typical front-office initiatives, such as the redesign of customer interactions around the mobile channel and the introduction of live chat. However, where they plan to invest in the next couple of years tells a different story, with use cases more likely to involve the middle and back office, such as building an enterprise-wide compliance structure and “data as a service.”
This shows that banks are reaching the limits of pushing ahead with front-office innovations while neglecting the back office (or the “plumbing,” as it is occasionally termed). And it might also mean that the “enterprise” aspect of digital transformation in practice means a retrospective effort to make sure the back and middle office are properly supporting the functionality delivered in the front office.
This is progress, of a sort. But it is still not the ideal way to look at digital transformation. Banks understand that a new business model is emerging of partnering with other banks, fintechs, and technology providers, and that they can no longer build everything themselves. They will need to rethink their entire front- to back-office operations to achieve full digitization that this business model will require. The survey finds that only 28% of banks worldwide see DX as an organization-wide strategy to redefine their business models. So there is a long way still to travel before banks fully accept the need for, and implications of, enterprise-wide digital transformation.
To learn more, read The Future-Proof Digital Bank by IDC.