# The case for banks to digitally transform
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2019-11-12
Category: BANKING
Category URL: https://financedigest.com/category/banking
Meta Title: How Legacy Banks Can Thrive Amid Digital Disruption
Meta Description: Learn how legacy banks can stay competitive with tech-driven challengers like Monzo and Starling Bank in the ever-changing financial landscape.
URL: https://financedigest.com/the-case-for-banks-to-digitally-transformhtml

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By **David Murphy,** Managing Partner, Financial Services EMEA & APAC at digital consultancy Publicis Sapient

With the exponential pace of change in financial services, the need for legacy banks to adopt digital transformation strategies is paramount. In the face of a difficult macro environment, new competition, shifting customer expectations and emergence of new technologies, banks can no longer rely on outdated practices.

Arguably the biggest factor driving digital [transformation in legacy banks](https://www.financedigest.com/transforming-the-retail-banking-ecosystem-its-all-about-technological-innovation.html "TRANSFORMING THE RETAIL BANKING ECOSYSTEM: IT’S ALL ABOUT TECHNOLOGICAL INNOVATION") is increased competition. Over the past five years, a new breed of ‘challenger’ banks have emerged, focusing on delivering digital-only [services and exceptional customer](https://www.financedigest.com/how-customer-services-has-changed-during-covid.html "How Customer Services Has Changed During Covid") interactions. In the UK alone, there are currently more than 20 serious [challenger banks](https://www.financedigest.com/the-rise-of-challenger-banks.html "challenger banks") including Monzo, Revolut and Starling Bank.

These newly created [digital banks are resetting the standards for the industry](https://www.financedigest.com/will-central-bank-digital-currencies-deliver-a-more-democratic-payment-industry.html "Will Central Bank Digital Currencies deliver a more democratic payment industry?") as a whole and must not be underestimated. By relying on their tech, rather than their reputations, they share characteristics which incuments are struggling to replicate. These characteristics include being cloud-native from the offset, posessing fintech friendly architectures and open data models that adapt to new innovations quickly, a culture that promotes [rapid customer-led proposition development](https://www.financedigest.com/north-america-europe-industry-power-distribution-component-market-to-develop-rapidly-by-2020-2030.html "North America & Europe Industry Power Distribution Component Market to Develop Rapidly by 2020-2030") and high levels of straight-through processing, enabling lean operations.

Tech-driven digital [disruptors such as Monzo and Starling Bank](https://www.financedigest.com/dont-play-second-fiddle-how-disruptor-banks-can-leverage-music-and-audio.html "Don’t Play Second Fiddle: How Disruptor Banks Can Leverage Music and Audio") have ultimately, won over customers with simple, low-fee, mobile-first products and services. And they aren’t standing still. They’ve continued to develop their offerings and products ever further, while traditional competitors scramble to catch up. What makes them feared, is their rapid appetite for [market share especially with younger consumers](https://www.financedigest.com/top-5-players-to-account-for-45-of-global-consumer-appliance-coatings-market-share-through-2031.html "Top 5 Players to Account for 45% of Global Consumer Appliance Coatings Market Share Through 2031"), and the fact that they operate at dramatically lower costs which frees up more money to invest in growth.They are also in a position to implement new features in weeks, not months. The constant innovation from these ‘challengers’ keeps [pushing the standards ahead](https://www.financedigest.com/kosovo-pushes-ahead-with-car-licensing-rule-resisted-by-serbs.html "Kosovo pushes ahead with car licensing rule resisted by Serbs"), a struggle for incumbents who inevitably take time to build change momentum due to legacy capabilities and ways of working.

Despite criticism – or perhaps hope – that this new breed of banks would fade into obscurity as their mainstream competitors develop similar products, the [digital disruptors have proven themselves to be here to stay](https://www.financedigest.com/the-vitiligo-treatment-market-to-stay-digitally-put.html "The Vitiligo Treatment Market to stay digitally put"). According to [Which?](https://www.which.co.uk/money/banking/bank-accounts/best-and-worst-banks-a3q5d8c6dj7y), challenger bank Monzo has been ranked as the best bank in the UK with a customer rating of 86% (banks were rated out of a series of categories by real customers). Their ability to match up to some of the biggest and most established names in the business is a concern for many in the [traditional banking](https://www.financedigest.com/traditional-banks-need-an-overhaul.html "Traditional banks need an overhaul") sector.

The time for incumbents to [close the gap](https://www.financedigest.com/closing-the-sustainable-investment-gap.html "Closing the sustainable investment gap") is now. They must accelerate their pace of change or else [risk falling](https://www.financedigest.com/euro-zone-bond-yields-fall-as-ecb-policymaker-flags-recession-risk-gilts-eyed.html "Euro zone bond yields fall as ECB policymaker flags recession risk, gilts eyed") even further behind.

So, with an abundance of legacy debt, how can large, established banks respond?

Three clear models of digital business transformation have developed and in order to transform, [banks need](https://www.financedigest.com/what-banks-need-to-prepare-for-eba-pillar3-disclosure-of-esg-risks.html "What Banks Need to Prepare for EBA Pillar3 Disclosure of ESG Risks") to take a dual or three-pronged approach to implementation.

**Evolve**

First, how to approach the evolution of core mindset and infrastructure to gradually transform the [bank towards](https://www.financedigest.com/deutsche-banks-rollercoaster-ride-towards-more-stability.html "Deutsche Bank’s rollercoaster ride towards more stability") a more effective future model. This is the fundamental issue that [holds back innovation and adoption](https://www.financedigest.com/major-myths-and-questions-holding-banking-and-financial-services-back-from-full-digital-id-adoption.html "Major myths and questions holding banking and financial services back from full digital ID adoption") of new ideas/practices in this sector. Banks must tackle this head on by taking a more structured approach to driving this incrementally;  by going back to their ethos and structure, investing in communication and training as well as developing a clear & comprehensible digitalisation plan, [eliminating silos and developing robust strategies](https://www.financedigest.com/new-zealand-drops-covid-19-elimination-strategy-under-pressure-from-delta.html "New Zealand drops COVID-19 elimination strategy under pressure from Delta") for employees to get behind. It’s also crucial to invest in modernising IT practices and applications such as the Cloud, with a strong focus on designing for Cloud rather than just [migrating](https://www.financedigest.com/financial-services-industry-blazes-the-trail-for-cloud-migration-post-pandemic.html "Financial services industry blazes the trail for cloud migration post-pandemic") old processes and architectures into a new Cloud infrastructure. [Banks must also move to a customer](https://www.financedigest.com/lost-in-translation-why-banks-must-learn-the-language-of-their-customers.html "Lost in Translation: Why Banks Must Learn the Language of their Customers") led model – both from an organisational and incentives perspective; Service design, customer journey-based models and tools can enable this.

The most [important part is to ensure a culture change](https://www.financedigest.com/popcorn-containers-market-important-changes-in-industry-dynamics-during-2017-2027.html "Popcorn Containers Market  Important Changes in Industry Dynamics during 2017-2027") takes place: this is also the hardest part. It’s advisable to select one or two areas that can become exemplars for the rest of the organisation and change those first with visible results. This initial success can [create a “movement” that facilitates change](https://www.financedigest.com/entrepreneur-investor-dale-w-wood-shares-how-he-is-using-his-funds-to-create-change.html "Entrepreneur & Investor Dale W Wood Shares How He Is Using His Funds to Create Change") across the wider organisation. An example of the Evolve model in practice, shifting from a product to [customer centric value](https://www.financedigest.com/the-value-of-customer-centricity-to-c-suite-financial-strategy.html "The value of customer-centricity to C-Suite financial strategy") stream can be seen with ING. They reshaped e2e to scaled agile and now, delivers in days as opposed to months.

**Jump**

Jump centres on platform modernisation: core-system transformation, modular architecture delivery, [data and analytic](https://www.financedigest.com/top-5-data-analytics-trends-for-2023.html "Top 5 Data Analytics Trends for 2023") platforms. With no definitive case study from a [large bank](https://www.financedigest.com/swiss-national-bank-makes-another-large-draw-on-fed-swap-line.html "Swiss National Bank makes another large draw on Fed swap line") of it’s success as of yet, this experimental model is the riskiest of all three approaches but also, potentially offers the highest reward. This is less about incremental change and more about ‘jumping’ in feet first. It involves creating a new shell onto which the existing business can migrate onto. In order for this method to be successful, a step-change in cost-to-income ratio and [customer experience](https://www.financedigest.com/the-next-generation-of-customer-experience-in-banking.html "The next generation of customer experience in banking") is crucial. By adopting new strategic platforms and ways of working, with continued but reducing connections to the existing business, this model requires a willingess to trial new approaches, in turn, decommissioning the legacy systems.

**Attack**

The Attack model [focuses on driving](https://www.financedigest.com/elon-musk-focused-on-getting-self-driving-teslas-in-wide-release-by-year-end.html "Elon Musk: focused on getting self-driving Teslas in wide release by year-end") quick incremental revenue; launching a new enterprise with a self-contained business core. [Adopting a ‘digital attacker’ mindset requires legacy banks](https://www.financedigest.com/why-banks-cant-adopt-digital-identities-fast-enough.html "Why Banks Can’t Adopt Digital Identities Fast Enough") to recreate the dynamism of fintech startups within their organisations through innovation labs, as well as partnerships with external technology providers. Initiatives such as these allocate [space to incubate ideas internally](https://www.financedigest.com/latest-four-member-spacex-crew-docks-with-international-space-station.html "Latest four-member SpaceX crew docks with International Space Station") with considerable time and investment. They also [overcome the cultural issues](https://www.financedigest.com/9-issues-in-corporate-finance-and-strategies-to-overcome-them.html "9 Issues in Corporate Finance and Strategies to Overcome Them") that big organisations create by building small teams in the company to develop new competing platforms. New, self-contained enterprises within the [business should focus on addressing a unique customer need](https://www.financedigest.com/pstn-isdn-switch-off-what-businesses-need-to-know.html "PSTN/ISDN switch-off: what businesses need to know ") instead of on delivering a new product.

For these to work, it’s crucial that the teams prioritise a ‘digital first’ design and are not encumbered by a need to integrate with the existing [bank – thereby leaving](https://www.financedigest.com/societe-generale-says-two-senior-executives-to-leave-bank.html "Societe Generale says two senior executives to leave bank") them unconstrained by legacy.A great example of the Attack model in action is Anglo-Gulf [Trade Bank](https://www.financedigest.com/investment-banks-trading-revenue-likely-to-shrink-barclays-boss-says.html "Investment banks’ trading revenue likely to shrink, Barclays boss says") – the world’s first digital trade bank that was launched in the second half of this year – in partnership with Public is Sapient and Microsoft, in a matter of months. This digitally-enabled bank, built entirely from scratch was designed to serve the SME market, disrupting the UK & [UAE trade](https://www.financedigest.com/uaes-adnoc-to-open-swiss-trading-office-next-year.html "UAE’s ADNOC to open Swiss trading office next year") corridor and in turn, closing the $1.5 billion trade gap. This was done by building a lightweight cloud-based platform [supported by architected and lean business](https://www.financedigest.com/factbox-reaction-to-uks-energy-support-package-for-businesses.html "Factbox-Reaction to UK’s energy support package for businesses") operations. Hosted entirely on the cloud, Anglo-Gulf Trade bank simplifies trade [finance](https://www.financedigest.com/trade-finance-the-small-brush-to-paint-the-big-picture.html "Trade Finance: The Small Brush to Paint the Big Picture") to boost financial inclusion. It is both [reimagining and rebuilding institutionalized trade finance](https://www.financedigest.com/gary-mcgaghey-explains-how-cfos-can-strengthen-decision-making-processes-and-reimagine-the-finance-model.html "Gary McGaghey Explains How CFOs Can Strengthen Decision-Making Processes and Reimagine the Finance Model") for clients. Anglo-Gulf Trade Bank saw an [opportunity to create a bank of the future](https://www.financedigest.com/blood-thawing-systems-market-analysis-growth-opportunities-future-demand-and-leading-players-updates-by-forecast-2030.html "Blood Thawing Systems Market Analysis, Growth Opportunities, Future Demand and Leading Players Updates by Forecast 2030") and build a digitally enabled, client-centric enterprise.

So, in order to [compete with challenger banks](https://www.financedigest.com/can-banks-compete-in-the-digitisation-race-without-effective-data-integrity.html "Can banks compete in the digitisation race without effective data integrity?"), legacy banks need to ensure that they implement a strategy that combines evolving the organisation’s ethos and structure alongside creating a separate digital enterprise. While natural inertia will make most organisations focus entirely on fixing current issues via Evolve, we feel that it’s important to have a more [holistic approach where investments](https://www.financedigest.com/a-holistic-approach-to-esg-is-the-best-chance-of-success-in-a-competitive-private-equity-investment-market.html "A holistic approach to ESG is the best chance of success in a competitive private equity investment market") and time are directed towards Jump and Attack models to future proof their businesses and drive innovation.


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