Digital Transformation in banking sector

What are the main opportunities and threats attached to the digital transformation? Why do banks undergo digital transformation and how it impacts Finance, HR and Business Change functional areas? This article seeks to explore possible answers to those questions. Join us to learn more on this topic as we speak to NatWest Polska Leadership Team. 

Digital transformation in the banking sector refers to the digital technologies and innovative strategies being integrated into the financial services area. Digital transformation no longer remains an option. In many cases it is a necessary step for a bank to maintain its’ competitive advantage, improve operational efficiency, enhance customer experience, and adapt to the evolving financial services landscape. 

Agnieszka Żak, Head of Change & Business Management, observes that digital transformation impacts many aspects of our lives and considers experimentation and innovative ways of working as key enablers.

“Digital transformation is multidimensional, covering various aspects of technological, social, and economic changes that affect various areas of life. Therefore, an organizational culture supporting experimentation and innovative thinking is necessary in the process of digital transformation and adaptation to a dynamically changing business environment”.

Karol Bukała, Head of HR Poland, stresses opportunities resulting from the adoption of new technologies and benefits it might bring to our personal and professional lives.

“To me digital transformation means variety of things, starting from automating and simplifying, then going through enhancement of data analytics and usage of AI and finishing with different digitalized solutions like cloud or quantum computing in the future. At the heart of all of this is clearly technology changing the ‘current’ into completely new ways of thinking and working, having a huge positive impact on the way we organize processes, improving efficiency and productivity. 

The other bit worth mentioning in my view is what we could call ‘user experience’; I believe we all like when things touching us are done seamlessly and smoothly and our interaction is positively limited, but still all what we want is done for us. I am curious what the future will bring and how the abovementioned technologies will impact us as human beings, but I am confident as up to now I see how my life both privately and professionally has positively changed, how it simplified letting me focus on all the important aspects”. 

Piotr Malinowski, Head of Poland Finance & Data highlights the fact that Digital Transformation is not only about roll out of new tools and improved IT infrastructure, but also drives change across wider organisation including culture and ways of working.

“Digital transformation in Finance can be defined as a change in the ways of working underpinned by implementation of breakthrough technologies. Digital transformation is not only about technology upgrades. It also implies a change in company's culture, employees mindset and the ways the processes are defined, organised and executed. 

Digital transformation should be considered as evolution, as opposed to being a revolution. Companies - including banks - are a mixture of people and their personal and professional experiences, technology solutions and systems and applications developed over time; products and services offered to customers. All those aspects need to be carefully considered when planning for a digital transformation. One of the biggest challenges in Finance space remains the existence of multiple systems and the need to reconcile them on a regular basis: there would be transactional systems where the transactions like payments are recorded on a live basis, and there would be systems and applications supporting core Finance activities like statutory reporting and management reporting. At times, a certain system or application was developed to address a very specific need and as such that system is not suitable for any other reporting activity. Digital transformation, if successfully implemented, could help determine golden data source which would then serve as a basis for all processes executed across Finance with no need for tedious reconciliations and investigations of the reasons behind breaks. It is now of paramount importance to be able to source, manage and use data effectively and efficiently as this is something that can help build competitive advantage and can be seen as a key element driving improved efficiency, cost reduction and customer and employee satisfaction.

Digital transformation is not only about implementation of new technologies and tools. Digital transformation equals organisational and cultural change. Digital transformation - if successful - should result in various functional areas in any company, including Finance department, to work in a different way. Digital transformation should allow to build bridges across various functional areas and reduce silos mentality e.g. there would be a link now between front line staff dealing directly with a customer and back office staff looking at financial performance of the products and services sold to customers. Data democratisation means data is easily available across organisation but not through various spreadsheets prepared on an ad hoc basis, but through more complex reporting tools offering standardised reports and visualisations. Elimination of inefficient reporting processes and thousands of tailored spreadsheets and introduction of standard reporting tools instead should drive significant time efficiencies. That time can be spend on more value added activities instead such as data analysis and data control. 

Digital transformation introduces new tools and new ways of working but also helps look at existing problems with a fresh eye. Demand for services and products delivered through digital channels is increasing fast. This results in new challenges such as digital risk management and data quality management, which are extremely important in banking sector. Golden data source being defined should lead to reduced need for reconciliation down the process stream and should reduce probability of errors and mistakes. Advanced reporting tools can help monitor and reconcile two data sources on a daily basis while the same activity was performed manually only once a month to support month end close”. 

Dariusz Żak, Head of Governance & Prevention Division discusses to the role of digital transformation in managing and mitigating risks and the importance of agility in risk management. 

“Digital transformation has a significant impact on risk management in shared services. Since the processes and services we deliver more often rely on Straight Through Processing, machine learning or AI technology, manual controls structure and their testing assumptions upon which enterprise risk management was built might be neither effective nor adequate. This can lead to risks arising from an inappropriate control environment. Therefore, this evolution involves the integration of advanced technologies, data analytics, and automation to enhance risk intelligence capabilities. 
Key risks in shared services during digital transformation include lack of understanding of business processes and service delivery, resistance to change, inability to meet customer expectations, data breaches and failure to deliver on Service Level Agreements. However, by streamlining processes, and leveraging real time data analytics, organizations can also identify risks more effectively and mitigate potential events promptly and with greater agility. 
Thus, the importance of agility in risk management during digital transformation is often highlighted. Agility or experimentation allow businesses to quickly adjust to shifting market conditions and customer demands, reducing exposure, and increasing certainty about outcomes. As a result, I believe that thanks to digital transformation risk management becomes more accessible and adaptable, fostering a proactive approach to risk mitigation in shared services”.
 

Summary

Over the last couple of years, we have observed dramatic advancements in technologies. Blockchain, artificial intelligence, cloud computing became a new normal. Traditional banking institutions must adapt to stay relevant in rapidly changing business environment and this is the reason why they are investing in this area millions every year. Digital transformation can bring multiple benefits such as an improved decision-making process and more personalized banking services. However, as the number of digital transactions increases, cybersecurity remains the number on risk for the banking industry. 

 

Author: Małgorzata Kordek

Graphics: Canva

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