Banking’s Digital Transformation – Time to Get on Board

By Robert S. Reggiannini and Mark B. Shaw
| 5/29/2019
Banking’s Digital Transformation – Time to Get on Board
Digital technology is changing individual behavior and wiping out businesses and industries, and it’s beginning to transform the banking industry as well. Digital deployments are changing how customers interact with both their current and prospective financial services providers.

Today, banks, credit unions, and other banking service providers find themselves at widely varying stages in terms of the scope and sophistication of their digital capabilities and service offerings. Improving customer acceptance and engagement with digital banking products and services requires an understanding of digital technology trends, along with a structured, strategic approach for the deployment of digital channel enhancements.

Digital trends in community banking

In many respects, the digital transformation in the banking industry – particularly for large banks and credit unions – has been progressing at surprising speed. After all, it has been just more than 20 years since the first deployments of e-banking systems made online banking truly practical.

Within just a few years, online banking became mainstream. According to a series of surveys commissioned by the Federal Reserve Board and the University of Michigan, the number of consumers who reported using online banking grew from a mere 10.7% in 1999 to 51.7% in 2006.1

At about the same time that survey was completed, the emergence of tablet devices and smartphones began driving demand for mobile delivery of e-banking services. Soon, customers could view their account balances and transaction-level account data across a number of channels, including telephones, desktop computers, tablets, and smartphones.

To be sure, challenges existed with native device operating systems. In addition, there was a lack of complete straight-through transaction processing as the back-office processes often lacked the workflow and process automation that was needed to integrate with the front-end internet banking and mobile banking systems.

In many cases, gaps between the end user’s self-service actions and back-office execution still exist at many banks for functions such as new account applications, card controls, notifications, and customer requests. Whether driven by weaknesses in the technology itself, a lack of true real-time integration, or management policy, these gaps have led to significant variances in service levels and inconsistencies in how customer interactions are handled. Often, significant variations occur within the same financial institution across various channels. Even if end users have not yet discerned these differences, they will soon. For example, why can customers add overdraft protection online in five minutes but doing so in a branch takes at least twice as long?

The industry response to this shortcoming has been a move toward an “omnichannel” approach in which the customer experience is consistent, regardless of which channel is used. This response is still ongoing, even as the industry moves on to the next phases of mobile technology such as person-to-person payments, mobile bill pay and card controls, self-established account activity notifications, and integration with personal financial management features.

Observation suggests that most banks and credit unions already recognize the urgency of this digital culture and its transformation of consumer and business behavior and expectations. The industry is witnessing a dramatic run-up in CEO interest in trying to understand, evaluate, and implement various enhancements or full-scale rollouts of new digital banking services.

For example, in a recent Crowe webinar, executives from a variety of banks and credit unions were asked where their organizations’ digital transformation efforts currently stand. The majority of those responding (almost 87%) said they currently are working on it, while fewer than 8% said they either had not started or were just getting ready to do so this year.
exhibit 1
At the other end of the spectrum, an even smaller number (5.5%) believed their organizations were finished with the effort, having fundamentally completed their digital transformation. An objective observer must note, however, that even this small number could be questioned, since a genuine digital transformation in this age of technology evolution is never really “complete.” It is, rather, an ongoing process that must be continually assessed and improved as application development, technology architecture, and hardware device technology continue to advance.

According to one recent study, the annual technology spend by the five largest U.S. banks is now more than $40 billion.2 While community banks cannot match that level of investment, the size of the big banks’ technology budgets is driving industrywide momentum for continual assessment of digital channels and banking operations.

The mindset that drives transformation

Understanding that digital transformation is an ongoing process, rather than a one-time event, is just one facet of the shift in mindset necessary for banks, credit unions, and other financial institutions to engage successfully in new deployments of digitally driven products and services. In fact, the transformation encompasses more than just new products and services alone. Instead, it can be more accurately described as a synergistic effort across four broad domains:
  1. Strategy. Leadership, buy-in, and direction from the top are essential – starting with the strategic recognition that large investments will need to be made in the digital channel.
  2. Customer experience. Industry leaders in digital technology view the customer relationship as a journey rather than merely a collection of service offerings. This mindset manifests itself in a comprehensive set of user self-service features, modern and attractive user interfaces, and a drive to make all customer-facing channels efficient, convenient, and responsive to customer expectations.
  3. Process automation. Just as executive support and an enterprise drive for more responsive customer interactions are necessary, there also must be a drive to automate operations, compliance, risk management, and internal controls associated with online customer actions. Straight-through processing within a repeatable and automated compliance and internal control framework can foster the best customer experience at the least possible cost per event.
  4. Data intelligence. Digital transformation drives a critical need for data that is trusted, useful, and actionable. Achieving these qualities can mean looking beyond core providers to optimize digital and mobile experiences or create value-add opportunities, such as product bundles that link deposit and loan accounts to reward and membership programs.
In many cases, decoupling digital technology from the core banking platform can enable greater control and flexibility. Industry experience shows that the lack of technology integration often is the biggest inhibitor to the digital transformations of banks and credit unions.

A structured approach to digital channel enhancements

While the shift in mindset described above is fundamental for digital transformation, it obviously is only the foundation. A successful transformation should build on this base using a structured, strategic approach. At a high level, this approach can be visualized as a series of four major phases:
  1. Understand the outlook and strategy. Executive leadership should begin the implementation by engaging in a deep dive into understanding the bank’s digital technology options, recognizing what can be delivered, and relating that understanding to the bank’s business strategies. This deep dive requires a clear definition of target markets, expected competitors in those markets, and the bank’s differentiating products and services. It also requires an objective assessment of how various digital technologies can enhance or inhibit the execution of those strategies.
  2. Define capabilities and outcomes. Rather than developing digital services on the assumption that customers will follow, smart digital competitors begin by defining and mapping the envisioned customer journey first. With the desired outcomes and goals defined, cross-functional teams can then begin to identify potential competitive advantages and opportunities to monetize the bank’s capabilities.
  3. Align the technology with the business. A critical step in the transformation is the development of a complete legal, operational, and cost understanding of the bank’s core system provider as it relates to existing digital platforms and the envisioned new digital channels. Core provider capabilities should not dictate the pace of change. If roadblocks or shortcomings are identified, the digital team should begin evaluating alternative providers and approaches, applying all the normal procurement best practices to fully vet vendors, and evaluate the potential impact on technology infrastructure, personnel, business processes, and costs.
  4. Monitor, measure, report, and readjust. Careful monitoring and review are essential whenever strategic initiatives are implemented, but in the case of digital transformation, close scrutiny is particularly important. As the pace of technological advances continues to accelerate, the life cycles of technology tools continue to grow shorter, which ultimately drives down the potential the return on investment. Management must be disciplined and purposeful in extracting the objective data – and nimble and flexible when adjustments to the strategy are needed.
As the banking industry’s digital transformation continues to accelerate, the costs of embracing this movement will be significant, encompassing both one-time capital investments and ongoing operational costs. In the longer term, however, a well-planned and executed effort also can generate new cost-saving opportunities elsewhere in the bank’s operations, along with potential new revenue sources and customer growth opportunities. As digital engagement grows, the cost per transaction or activity is likely to drop dramatically.

Institutions that fail to address this fundamental change in the banking landscape risk losing competitive position, market share, and franchise value. For both operational and strategic reasons, forward-looking bank executive teams should insist that their organizations get on board and take the lead in driving the industry’s ongoing digital transformation.


1 “U.S. Households’ Access to and Use of Electronic Banking, 1989-2007,” Federal Reserve Bulletin, Volume 95, 2009, Appendix A, Table B.1.,

2 Naomi Eide, “With Multibillion Dollar Tech Budgets, Large Banks Eclipsing Competitors' Investments,” CIO Dive, April 9, 2019,

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Bob Reggiannini
Mark Shaw
Mark Shaw
Managing Director