Digital transformation has become a buzzword but its meaning still remains rather ambiguous. In the financial services industry, the term is used at scale. Long-established institutions are more or less beginning to approach the issue of their digitization and wonder whether or to what extent technology-driven innovation is going to affect their business model and market performance.

As the scope and implications of digital transformation remain unclear, it is tempting for the executive management of incumbent organizations to consider it as another overestimated trend. In the context of such a mindset, it is easy to ignore the urgency of changes that need to be implemented. Indeed, some executives fail to realize how fast and radically things are changing in all markets or estimate that there is no substantial commercial interest in changing for their organizations.

An increasingly volatile environment

The truth is that the world is being transformed at an accelerating pace and various markets are being disrupted forcing traditional players to change in techorder to adapt to the new context. This shift is driven by technology advancements, namely the exponential increase in computer power that drives practically all other technologies. Furthermore, the boundaries of these technologies become blurred as their applications converge in previously unimagined ways to create new capabilities, services and business models (e.g. the use of finger print as a means to authorize a payment using a mobile phone, the use of drones for the delivery of goods purchased on line, the use of data analytics and predictive modeling for competitive personalized health insurance offerings). As once disruptive science advancements gradually become usable at scale, markets are being disrupted. It is an illusion to believe that the financial market is sheltered from this phenomenon.

Society’s familiarity with advanced digital and mobile services that offer a seamless customer experience redefines the market of financial services. Customers compare the services they get by their financial institution, not only to those of its competitors but also to the ones offered by service providers in other markets. Today, companies like Amazon, Apple, Facebook, Google and Uber drive customer expectations in the financial industry. The situation becomes more challenging for traditional financial institutions as new market players like the ones previously mentioned gradually launch their version of financial services enriched with additional innovative functionality.

In addition to society’s increasing digital maturity, financial institutions’ digital reform is encouraged, if not imposed, by the evolving regulatory context requires extensive digital efficiency to ensure compliance. In addition, this context no longer protects the traditional players’ core business as, unlike in the past, it does not exclude new market entrants (FinTechs, start-ups).

It is true that the driving force behind the innovation initiatives launched by financial institutions is often their strategic decision to keep up with competition “going digital”. In other cases, the starting point is mainly the need to remain compliant with a new disruptive regulatory context (e.g. PSD2, GDPR, MiFID II / MiFIR). This is a turning point, as traditional market players need to decide whether they should treat new-era regulations as a mere call for compliance or a unique opportunity for business development based on new business models and strategic collaborations.

For example, the new Payment Services Directive (PSD2) defines a context for business alliances between financial institutions and technologically advanced players (FinTech start-ups) for the provision of innovative services, enriched with state-of-the-art functionality for example, through the use of APIs (Application Programming Interfaces). Similarly, the General Data Protection Regulation (GDPR), being a challenge for most organizations, can be also viewed as the starting point for an efficient handling of customers’ data, thus creating new business opportunities.

The true essence of technology driven transformation

It seems that in a world being technologically disrupted, the digitization of financial institutions becomes a no brainer. But what does digital transformation really mean for financial institutions? Surely, it encompasses more than the development of state-of-the-art web services and mobile applications or the enhancement and dematerialization of processes. It takes more than the launch of isolated initiatives such as the development of a modern Customer Relationship Management (CRM) system, the application of advanced business analytics or the launch of chatbot services. All these are just parts or results of an organization’s technology-driven innovation.

The true essence and goal of digital transformation is, in fact, a profound change. It is all about the creation of a new internal infrastructure that will make it an everyday business for the financial institution to adapt to the external environment, profit of new technologies and cooperate with new market entrants under new business models, now and in the future, without being seriously disrupted. In other words, incumbent organizations need to re-invent themselves in terms of technology, organization, skills and culture always respecting and adding value to their traditional market profiles.

A bumpy road to follow

Being an ongoing change and evolution process that has a deep impact on the core of the institution’s infrastructure, culture, skills and business model, technology-driven transformation can be quite a demanding journey.
The first challenge for the organization to overcome is the definition of its unique digital strategy that adds value to its market profile and history, respects its core values, supports its broader strategic commercial goals and meets the expectations of the clientele.

The creation and implementation of the consequent implementation roadmap can be also difficult due to conflicting priorities fueled by budget and resource limitations that usually exist in organizations. Another factor that usually hinders change is the lack of a strong sponsorship explicitly expressed by top management or of a consensus among executives regarding strategic digital priorities.

Even in the case of strong sponsorship and abundant resources, decisions concerning yearly roadmaps to be implemented are, sometimes, delayed because institutions have difficulty in deciding which are the technologies and services to develop. The challenge is to choose from all the existing alternatives, those initiatives that really make sense for the clientele, as they respond to their specific needs. Institutions with different customer profiles should follow relatively different roadmaps.

Last but not least, there is the issue of corporate culture. The management of resistance to change is a common challenge for large organizations attempting their transformation. This reluctance to do things differently may be shared by all levels of management and employees. Organizations are built to resist change and unless special caution is taken, the current system’s inertia drives forces that attack innovation initiatives. The lack of knowledge or skills often drives and feeds this process.

The ROI trap

In many cases, investments in digital innovation cannot be clearly correlated to high returns on investments in the classic sense of the term (specific figures of future revenues or cost savings). Consequently, the Return On Investment of such projects is often questioned especially in cases of significant budget needed.

Other returns such as customer attraction, retention and satisfaction as well as a positive impact on market performance and profile must be estimated and promoted instead, to back up transformation projects and get top management’s approval and strong sponsorship.

Ingredients of success

There are some tested-under-battlefield-conditions practices that can help organizations going through digital transformation deal successfully with all the previously mentioned challenges.


In order to increase the chances of success of innovation initiatives, it is crucial to secure a strong top-management sponsorship, instead of trying to put all efforts on the shoulders of some lonely heroic evangelists of change. Trying to get leadership fully engaged is a task that sometimes takes time and proves to be quite challenging as it may require a complete change of mindset to be encouraged through focused education and the exposure of management to the external environment (e.g. training workgroups, market reviews, studies on customer needs and opinions, consultancy on market benchmarks and trends). In a rapidly changing environment, it is essential for top management to look outside the organization and the financial market anticipating change, and, proactively, prepare the organization for the next steps to take.

The second ingredient of success has to do with strategic planning. It is essential for each organization to define its own change strategy instead of falling in the trap of blindly keeping up with competition. This means a strategy that has continuity and added value because it specifically responds to the needs of the clientele of the organization and matches its particular profile and long lasting values. The launch of modernization initiatives that are neither linked nor based on a longer term strategic context are just amateurish attempts to respond to competition, have little or short term impact and end up as a waste of money. It usually takes time and effort for long-established institutions to redefine themselves in the digital era and plan their strategic path ahead. Although this is an approach that might be demanding at the beginning, it pays off greatly in the future, as it protects the organization from strategic and roadmap shortfalls delivering a series of choices that are planned carefully and proactively and come from a place of reason instead of panic (need to respond immediately to competition, quick wins, etc.).

In addition to management sponsorship and proactive strategic planning, the development of an innovative mindset across the organization fuels the process of transformation. The creation of a change-friendly culture is an effective way to deal with resistance to change and can be effected through a number of complementary initiatives aiming at increasing the level of digital maturity within the organization and re-motivating people. These can take many forms: workshops training employees on key digital transformation principles, educational material, staff support through a dedicated and specialized contact center and finally, recruitment of new talent and reshuffling of teams, roles and skills. Additionally, the involvement of all key stakeholders from the early stages of transformation projects is an effective way to deal with resistance to change and develop enriched holistic innovative solutions. It is also important to share both responsibilities and successes with all key players and award top achievers who have strongly embraced change.


The need for institutions to adopt to a fast and ever changing environment calls for a human force disposing a game-changing set of hard and soft skills that seem to replace in importance other more traditional skills. The ability to collaborate across networks, to take initiative and innovate, to assess information, to be agile and adaptive, and finally, to remain curious and inventive are some of these soft skills. To maximize the productivity of employees possessing such skills, an internal working environment based on the transversal collaboration of matrix teams instead of the classic top-down hierarchy approach is needed. In this new agile working context entrepreneurship and failure have a place, as they are part of the innovation process.


Another way to safeguard the survival and evolution of transformation initiatives is to launch them outside the core of the organization and allow them to grow until they achieve critical scale. Once this happens, these cells of disruptive innovation can be fully incorporated into the organization to propel change. This approach proves to be quite effective in practice mainly for two reasons. First, it gives organizations the time to work on the evolution of their culture. Secondly, it allows innovation initiatives to grow strong enough to survive internal resistance.

The advantages of a digitally evolved organization

The good news is that digital transformation can mean a lot more for financial institutions than a mere struggle to adapt to the environment and survive. New technologies enable organizations to think differently when serving their customers and build trusted life-long relationships with their clientele. This means shifting from a product-centric to a customer-centric business model and culture.

It also means that emphasis should be put on finding the needs of the customers and the best ways to meet them, instead of focusing mainly on operational efficiency for cost reduction purposes. The offerings may need to change and evolve over time but the financial institution’s profile as a trusted partner will remain and get reinforced. Technology advancements that converge to produce new previously unimagined service possibilities in a regulatory context that encourages the collaboration among traditional financial institutions and start-ups offering technologically advanced FinTech solutions can create new business opportunities for all financial market players.

Now is the time for action

Digital transformation does not happen overnight. In many cases, it requires traditional organizations to take a long challenging road. Consequently, the established actors of the financial market should focus on their future in the digital era and launch their transformation initiatives without delay. It is essential for established organizations to become inherently agile, as their ability to adapt to the external world and redefine themselves through innovation will decisively affect their market performance in the future.