“The Chinese use two brushstrokes to write the word ‘crisis’. One represents danger and the other represents opportunity. In a crisis, you must be aware of the danger…
…but also recognize the opportunity,” reads a quote from John F. Kennedy. The latter has become particularly relevant for the financial sector in the context of the pandemic. As businesses shut down and consumers turned to their banking providers virtually, the importance of cloud-based platforms became apparent. They have enabled employees to ensure that business continues from home, in complete safety, for example by providing customers with the credit they need.
For years, banks’ IT systems have been an obstacle to digital transformation. Many still use parts of their infrastructure based on outdated programming languages. Years of fixes have led to complex systems that consume a large portion of IT expenditure. At a time when French banks are facing an evolution of their traditional banking model as well as the immediate challenge of leading a double transition, digital and towards a sustainable economy, this situation is no longer tenable.
Even if the 2021 recovery was very real for French banks, with more variable results in corporate and investment banking (CIB), the pre-crisis structural problems have not disappeared. The ACPR 2022 study on The digital transformation of the French banking sector (n° 131), confirms that traditional banks are continuing their digital transformation with a clear strategic priority: rethinking the customer relationship to better preserve it. In this perspective, they are focusing their efforts on the expectations of customers, whose digitized uses have been confirmed by the recent health crisis and are committed to offering new offers and better quality services. Thus, digitalization becomes an essential element for the viability of banks.
A personalized view of the customer
From now on, more than 75% of French people carry out their financial transactions online and only 19% of customers go to their bank branch at least once a month according to the study carried out by McKinsey on the acceleration of digital sales of French banks (September 2021). In a context marked by increasing digitalization, the requirements in terms of digitalization and agility of banks are also increasingly high. However, according to this same study, French banks offer fewer products online than via their branches and call centers, the online subscription process is rarely seamless, with redirection to the branch or call center, and there is little commercial proactivity on remote channels. Thus, financial institutions must start by offering a better service to better retain their customers. But this is precisely where they run into difficulties because of their siled IT systems. Silos must be broken down and information must flow freely, while maintaining the highest levels of data security, to better understand customer needs and support them more proactively.
Next-generation computing platforms are harnessing the power of artificial intelligence and machine learning to enable financial service providers to deliver the much sought-after “360 view” of each customer and create micro-segments that allow them to make decisions based on real-time data and information.
One step at a time: micro-transformation as a recipe for success
One thing is certain: a complete digital transformation is a colossal undertaking. So it’s best to think and act in stages: micro-transformation is about taking those first steps. In today’s environment, it’s understandable that it can be difficult to overhaul an entire infrastructure all at once. So even in times of economic uncertainty, implementing small but impactful micro-transformations is a strategy that allows financial institutions to drive optimization, continuously innovate, and stay ahead of the competition. In large digital transformation projects, users can feel overwhelmed by all the changes. During micro-transformations, they will be supported more gradually in managing these changes, which will give them time to adapt and develop new work habits. Employees are encouraged to familiarize themselves with the new processes and systems and to derive benefits in terms of time savings, increased efficiency, better usability or customer retention and satisfaction.
It’s about making “quick wins” by implementing small technology projects that have a targeted but measurable impact on the organization.
Using technology to support a sustainable economy
The pandemic is not the only element that has profoundly changed the whole of global society. The now unanimous call to reduce CO2 emissions and achieve climate goals also applies to the financial sector. The ESG requirements (analysis of environmental, social and corporate governance criteria) which are gradually coming into force are challenging financial service providers to an extent that is still difficult to assess. Digital transformation is an essential element for the successful implementation of ESG initiatives. A 2021 study commissioned by nCino of around 200 banks in the UK found that 44% of them are adopting digital technology to capture and track ESG indicators. Meeting ESG reporting requirements is increasingly important as customers, investors and other stakeholders want to know more about companies’ ESG performance. Companies themselves need more information about their own strengths and weaknesses in order to take meaningful action. Being equipped with flexible and agile technology proves to be a competitive advantage in this field. For successful implementation of ESG initiatives, financial institutions need to assess their entire portfolio for ESG risks and facilitate collaboration between compliance and credit teams. Staying ahead of regulations will be an increasing challenge, which means businesses will need to bolster their data infrastructures with smart tools. Thanks to new technologies, platforms can be configured to add clauses and fields that help capture, validate and analyze ESG data and turn it into actionable insights.
Far from being limited to being a source of risk, the digital and climate transitions bring growth opportunities for the banking sector. However, in the absence of rapid responses to these structural changes from private and public players, French and European banks could be weakened, which would negatively affect the real economy (up to 5.5% of GDP French by 2050), as Denis Beau, First Deputy Governor of the Banque de France, pointed out in his speech on April 14, 2022.