The delusion of rapid digital transformation in banking

The banking world appears to be convinced that the COVID-19 pandemic has accelerated digital transformation in the financial services industry. While this may be true in some senses, it is important to temper expectations of a quick and radical shift toward personalized digital solutions that can be seamlessly integrated into consumers’ everyday lives. The fact is that financial institutions, in order to really deliver on this, have four key issues to overcome:

  • Overhauling legacy technology – the financial services industry has a long history of technology infrastructure. This will have to be updated before many new solutions can be offered to consumers.
  • Waiting for artificial intelligence (AI) to mature – AI will have a big impact on banking; there is no doubt. But at the moment, the technology is not particularly mature and has many strides to make before its real-world impact can be felt.
  • Convincing executives to move forward with innovation – many industry executives have 30-40 years of industry experience, leading to deeply-ingrained beliefs of how the industry should work. It will take time to either (a) convince them about the promise of digital transformation or (b) see a new (younger) generation of executives to take control.
  • Complacency – a speedy economic recovery (and a return to “normal”) will make most financial institutions decrease the rate at which they digitally transform. More shocks (e.g. economic downturns, regulatory changes), or a prolonged COVID-19 shock, will be needed to keep digital transformation going at the pace it seems to be headed for.

We are on the path to digital transformation. Sometimes that path is an interstate highway; other times it is a bumpy road. Right now, we are cruising down the former. But we will likely encounter the latter again in the not-too-distant future. In other words, don’t expect this rate of transformation to continue.