How a flexible, modern approach to digital transformation provides a faster path to tangible value for financial services organisations.
Introduction
Ask different leaders across the financial services sector about digital transformation, and it's unlikely you'll receive the same response twice. Those leading the field having taken significant modernisation steps will likely laud the opportunities it affords but perhaps also share warnings about stagnation and scope creep. Those at a less advanced stage will be excited about the benefits to come but have similar tales of woe regarding budgets or time to value. Then there are those yet to move with the times, stuck in a legacy world, struggling to identify where or how to apply digital transformation within their business. Which category does your business fall into?
Regardless of the bracket you identify with, there is one common thread across all of them – the knowledge that to transform is to survive in financial services
Modernisation is no longer a luxury for those with the resources to do so. In a fast and ever-changing financial services market, companies are tackling increasing demand along with heightened customer and employee expectations. There's a pressing need for organisational agility, risk mitigation, enhanced customer service, seamless transactions and accounting transparency. And all of this must be accomplished while making efficiency gains and cost savings. In short, digital transformation is business-critical for every business in the financial services industry.
Traditional operating methods are ill-suited to today's business norms, at best impacting competitiveness and at worst threatening the company's existence. Where once a financial services market leader's headcount was a measure of its success, those same businesses now compete with billion-dollar companies employing fewer than a thousand staff. And not all of them are new, born-in-the-cloud market disruptors either; they simply learned how to adapt and thrive in a modern business landscape faster than other incumbents.
So, what does successful digital transformation look like for financial services businesses, and which figures within the organisation should be leading the charge?
This whitepaper investigates the shifting approach to digital transformation for financial services happening alongside changes to the overall industry landscape. It will shed light on a move away from traditional IT-initiated system overhauls and focus on the tangible and more quickly realised value that Intelligent Automation can bring to financial organisations new and old. This value is driven by those who understand the need for it and will benefit from it the most – their HR and finance departments.
The time for Digital Transformation was yesterday
The pandemic played a major role in accelerating digital transformation. To boost agility, efficiency and work from home productivity plus avoid being caught out by future disruption, many companies leapt to a level of digital maturity they wouldn't have achieved for almost a decade if it weren't for COVID-191 . KPMG suggests that the pandemic drove many financial services companies to double down on their fintech investments, while EY research highlights that almost half of companies in 45 countries sped up initiatives to automate their businesses following work from home mandates2 as the use of financial apps and mobile banking services soared by 72%3. Ultimately, however, the coronavirus merely shed light on a problem that had needed fixing for a long time – the ball and chain impact of legacy systems.
An unwanted legacy
Those who have spent many years using the same deeply ingrained solution find it hard to simply start from scratch and transform their business. While this is true across every industry, it's particularly painful in the finance sector. For example, compare the agility and efficiency of banks using decades-old core software on-premises with a cloud-based fintech start up using real-time data throughout integrated systems, and you'll see the stark difference. According to the FCA, 92% of the UK's financial services firms rely on legacy technology in some form4, while 43% of US banks still use the COBOL programming language that dates back to 19595 . Similarly, 47% of companies use HR software that is over seven years old6.
45% of senior business decision-makers at UK financial services firms cite legacy IT infrastructure as one of their three biggest internal challenges8
Financial services companies reliant on vast, monolithic ERP solutions patched over many years with digital duct tape and bolted on 'modernisation modules' are forced to adapt their processes to the software, not what's best for the business. It's for this reason that 36% of HR professionals believe lacking technology to be the cause of their failure to automate and better organise onboarding programs7 and why 45% of senior business decision-makers at UK financial services firms cite legacy IT infrastructure as one of their three biggest internal challenges8. It means financial services organisations not only struggle to keep up with market changes or dedicate resources to higher-value projects but must do so while maintaining an expensive, inflexible and ever-ageing system.
As far back as 2016, companies like Deloitte were championing a shift in the organisational DNA of financial services organisations to cater for digital transformation. Today, however, the information flows demanded by legacy systems appear as archaic as the analogue methods they replaced. Most processes, often carried out across multiple systems, are still labour intensive, especially those related to finance and HR. They require significant manual effort and introduce the risk of human error to achieve run of the mill outcomes. Research shows that administrative tasks take up around 73.2% of an HR professional's time9 , while McKinsey Global Institute believes that 60% of all occupations have at least 30% of activities that could be automated and that 56% of all human resources tasks can be automated with existing technologies. These tasks take up time which finance and HR professionals could be using to add more value to their organisation. Unnecessary effort and the duplication of it are rife in such processes, with the underlying systems a major barrier to digital transformation. It's here where automation using modern technology is required to bridge the gap, but AI and IT alone can't solve these problems.
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Footnotes
1 https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/the-new-digital-edge-rethinking-strat egy-for-the-postpandemic-era
2 https://hrdailyadvisor.blr.com/2020/04/14/the-evolving-role-of-hr-and-finance-in-supporting-digital-transformation/
3 https://fintechmagazine.com/venture-capital/coronavirus-lockdown-sees-fintech-app-use-rise
4 https://www.fca.org.uk/publications/multi-firm-reviews/implementing-technology-change
5 https://www.ey.com/en_lb/banking-capital-markets/why-banks-can-t-delay-upgrading-core-legacy-banking-plat-forms?ref=hackernoon.com
6 https://www.slideshare.net/jbersin/ten-disruptions-in-hr-technology-for-2015-ignore-at-your-peril/12-15Two_Ma-jor_Marketplace_Issues1_Too
7 https://www.businesswire.com/news/home/20180116005484/en/HR's-Big-Challenge-2018-Fix-New-Hire
8 https://www.bankingcircle.com/legacy-tech-issues-facing-banks-how-they-must-resolve-them-1010654
9 https://www.gnapartners.com/resources/articles/how-hr-pros-spend-their-time
Originally Published 12 January 2023
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
