4 must-know digital transformation risks in the banking industry

All industries are quickly adapting to digital transformation in order to keep up with the latest trends and consumer demands. But for the banking industry, this transformation is especially crucial, as it impacts not only customer behavior but also bank processes and organizational structures. While there are many potential benefits of digital transformation, there are also risks that banks need to be aware of. Here are 4 such risks that bankers should be aware of during their own digital transformations.

1. Burden of Budget

The capital investment necessary to invest in cutting-edge technological solutions is one of the most significant obstacles keeping banks from embracing the digital revolution.

The reward must be sufficiently alluring to convince banking and financial services to overcome this initial barrier to entry. As more institutions start to lose their hesitation to take necessary actions, it is certain that the process will eventually start on a large scale.

The cost is undoubtedly higher, but it will open up more opportunities for the banking industry to reduce losses and other problems brought on by their outdated infrastructure. Simply put, despite the enormous initial investment needed to bring digital transformation to banking, the end result is more convincing.

2. Lack of Knowledge Sharing

Lack of quick access to the appropriate information at the appropriate time is unquestionably one of the most challenging aspects of the financial sector’s digital transformation. The tech teams collaborate with the entire banking department in isolation without any two-way knowledge sharing due to regulatory and security compliances.

Poor communication and a ridiculous roadmap for banking’s digital transformation are the end results. Therefore, access to the appropriate data and information is required at every stage of the project development lifecycle. In other words, it’s nearly impossible to use the digital revolution for good without a centralized knowledge base.

However, is there a solution to this issue? Yes, a highly collaborative knowledge engine can help your digital transformation process by making it possible for all managers and team members to access the appropriate information whenever necessary. Your knowledge-sharing portal needs to be flexible enough to quickly adjust to ongoing organizational changes without any lag time or anomalies.

3. Slow Outdated Legacy Systems

One of the biggest obstacles to risk managers’ efforts to digitize the function is legacy systems.

It can be challenging to connect data held in different silos and create an internally cohesive system due to the complexity of the banking IT infrastructure. Additionally, it is common for IT departments to lack the power necessary to initiate significant change within their own organizations. Rather than being seen as a department that leads major projects, IT is frequently seen as one that helps “keep the lights on.”

Because they are newer players in this market, fintech companies are free of cumbersome legacy systems. These companies have successfully combined banking and technology in a variety of areas, from digital product portfolios to overall risk management skills. Additionally, they are beginning to significantly outpace more established players in the banking sector, particularly when it comes to effective risk management.

Even though sticking with outdated, well-known technology may seem like the simplest and cheapest option, it is actually quite expensive. Without specialized risk-technology expertise, updating a legacy system can take a long time and still leave you without the functionality you require for proactive risk management.

4. Poor Project Management & Ownership

Even if you are able to persuade your leadership, save a sizable portion of your budget, and identify all the technology you require to implement a digital transformation, your work is not yet complete. The secret to a successful digital transformation in banking is a project manager with industry experience, domain knowledge, and an effective digital transformation strategy.

The lack of a defined project outcome and initial implementation areas is the biggest obstacle to bringing digital transformation to banking. You run the risk of making irrational decisions and unclear project goals if you approach digital transformation in banking using general and standard practices. Because the practices that have been successful in other industries may make the situation in the banking sector even worse.

Therefore, it’s essential to start with an effective strategy, clear project goals, pertinent & industry-specific KPIs, and a well-aligned team before jumping on the bandwagon of implementing digital transformation. In addition, it is essential to guarantee that all pertinent parties are involved throughout the project’s lifecycle in order to close the gap between the banking and tech teams.

Conclusion

Banks are under pressure as consumers shift their spending to tap into new technological frontiers. This digital transformation is requiring banks to change the way they operate, which comes with a certain amount of risk. 

Despite these risks, there are opportunities for banks that embrace digital transformation. Those that don’t may find themselves at a disadvantage as the world continues to change. Do you work in the banking industry? How has your organization approached digital transformation?

Follow and contact SmartOSC Fintech to get more great advice about technology solutions for your organization.