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digital transformation banking mckinsey

December 20, 2020

Posted in: Blog

So it wasn't just sharing the latest business article. Digital to the core means you have to have a rock-solid foundation of core systems that you're going to build on. Please try again later. Select topics and stay current with our latest insights, Transforming a bank by becoming digital to the core. tab. We were actually pushing out releases weekly into the app store. The top part of the scorecard is all financial metrics, customer metrics, shareholder value-add, and revenue generation. We came up with five key elements that had to change. So you’d have these meetings and people would ask, “How could we possibly not have known that?” Well, it’s an experiment. We learned a few things along the way. And therefore there is huge operating leverage. I understand how to create a mortgage product and sell it, and I know how to build systems for it. And I would not necessarily focus on the pet projects. collaboration with select social media and trusted analytics partners Welcome to The Finanser by Chris Skinner. DBS Bank recognized that digital transformation doesn’t just mean building a new website or putting on “digital lipstick,” as their CIO said in an interview with McKinsey. The core group building the digital bank should have a solid understanding of not just the new technology architecture, but also of the bank’s design and brand and the economics of its business model. Please use UP and DOWN arrow keys to review autocomplete results. Subscribed to {PRACTICE_NAME} email alerts. Learn more about cookies, Opens in new Select topics and stay current with our latest insights. Dy. tab. hereLearn more about cookies, Opens in new Chng Sok Hui: I think we needed to learn how it is that we can become digital to the core, but I think that we also need to learn how to change in terms of our own mindsets and in terms of the organization culture. So today when I look back I actually see an awesome culture change that has actually happened. Digital transformation has become a matter of survival. We were able to show that digital customers had two times higher income per customer compared to a traditional customer. Use minimal essential Reinvent your business. Please use UP and DOWN arrow keys to review autocomplete results. The first is to create a separate internal organisation with a remit to develop new digital products and services, unencumbered by the bank’s existing legacy processes and technology. . The second was: how do we embed ourselves in the customer journey and push customer-journey thinking throughout the organization? Persistently low interest rates had forced banks to revise their business models and seek out new sources of revenue. If you just say you want customer journeys, that's not going to drive results. The digital transformation of any enterprise is a herculean task requiring a willingness to embrace cultural change, the ability to immerse the entire organization in the customer journey, and a total commitment to digitize to the core. In a 2012 report (PDF opens), called “Digital transformation in 10 building blocks to boost customer experience and ROE”, the Efma (a financial industry organization promoting innovation in retail banking) and McKinsey indeed stated retail banking was lagging behind in digitalization/digitization. . cookies. Unleash their potential. One was to shift from individual projects that need approvals, subcommittees, and things like that, to giving the freedom to a group of people to operate like a platform. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. “Digital transformation for the top banks is focused on improving data and customer experience, as well as operational efficiency. McKinsey’s Barr Seitz explains that digital transformation goes much deeper than technology. A shift to digital use of this magnitude would probably have taken at least a couple of years without the Covid-related branch closures, according to McKinsey. So this learning that it’s okay to experiment, that many of the experiments we try will fail, and for everybody to accept that and actually treasure it was a very difficult change to make. So it’s not just the outcome that is great, I actually think that the internal mechanism by which we drive the business, to actually think through because our metrics are very granular, that is the part that I think is beginning to actually contribute much more than external communication, but really driving our business as a technology business. Prior to joining DBS in 2008, he spent 20 years at JP Morgan, holding senior regional positions in Technology & Operations. Chng Sok Hui: We have been running this digital value creation metric coming to five years now, and I think the value that I can see out of this is that the businesses themselves are very passionate about it. January 9, 2020Singapore-based DBS bank has earned multiple “best bank” titles, from publications including Euromoney, The Banker, and Global Finance. I just had a review meeting with one of the business units today and they were talking about the way they go about trying to accelerate digital adoption; so, for a traditional customer, how do you introduce incentives, products to attract them to buy a digital product? The digital transformation of any enterprise is a herculean task requiring a willingness to embrace cultural change, the ability to immerse the entire organization in the customer journey, and a total commitment to digitize to the core. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. McKinsey (2015) Digital Transformation for the Retail Banking Industry 5 Overall, digital technologies are becoming more mature and pervasive. Narsee Monjee Institute of Management Studies . Most transformations fail. Change, that is, that applies to: Build a Digital Driven Organization. Digital transformation is a Trojan horse. Without those clear missions, we’d have had people going in all sorts of different directions. Vice President - Digital Banking and Transformation at Axis Bank | Ex-McKinsey Mumbai Area, India 500+ connections. Things worth reading: 26th November 2020. So if they’d done it, we could do it. The ABC of CBDCs. But how do you build a mobile-only bank in India and attract customers at scale? In fact, almost everyone had to go through a process of coming up with an app. If you embed that into the KPIs and scorecards that everybody’s measured by—and make sure it’s continually reinforced from the CEO and the leadership team down—then you get results and can shift and move. When it comes to digital transformation, he explains, we’re really discussing change management. But when you get into this new digital space of experimenting with ecosystems, with start-ups, with launching a brand-new product that nobody’s ever tried in a new market, you get lots of things wrong. our use of cookies, and That was hard for us to accept, actually. So, we were able to demonstrate that the most digitizable part of our business, which is the retail and SME business in Singapore and Hong Kong, we were able to bifurcate that between a digital segment and a traditional segment, and to accelerate the adoption of digital behavior. David Gledhill is the Chief Information Officer for DBS Bank. The first thing is that most of these technology companies started much like where we are today. We saw many companies put on digital lipstick, some kind of front-end system, and a fancy website. When we thought about how we wanted the business to digitize, we came up with a very simple framework of Acquire, Transact, Engage—customers Acquire digitally, Transact digitally, Engage digitally—and drove metrics around that. McKinsey senior partner Joydeep Sengupta, leader of McKinsey’s Strategy, Organization, and Corporate Finance Practice, sat down with Chng Sok Hui, DBS’ Chief Financial Officer, to discuss the bank’s approach to digital transformation. In 2017 David became the first CIO from an Asian company to receive the prestigious Massachusetts Institute of Technology (MIT) Sloan CIO Leadership Award. Sengupta: How convinced are you now of its robustness? According to a McKinsey report on ‘The people power of transformations’, 70% of digital transformation projects fail due to a lack of employee engagement. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Flip the odds. These last two points were just as important as the first one. The ability to expand beyond traditional financial services … Once you're clear on that, the rest starts to become very easy. David Gledhill brings to his leadership roles at DBS Bank more than 25 years of experience in the financial-services industry, 20 of them in Asia. Furthermore, participation by senior management … We learned you have to embed this thinking into the management fabric of the company. Even before the humanitarian and economic challenges of COVID-19, the US consumer banking industry was in the midst of transformational change. And we said to ourselves, “If we want to be digital to the core and act like a technology company, it’s best we learn from the technology greats, figure out how they do it and see if we can’t bring in some of those things internally.”. The bank is widely cited as being in the vanguard in terms of embedding digitization across the full range of banking processes and services. Solutions considered ahead of … Our flagship business publication has been defining and informing the senior-management agenda since 1964. So you have to balance it. The middle part is where the core of the digital transformation comes in, and we ascribe 20 percent of the value of the scorecard to this, which is then used to drive compensation for the company. McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. Sengupta: Do you see any impact on the culture of the organization? Below that we have the strategic initiatives we need to get done, and that’s another 40 percent. Something went wrong. Strategic choices for banks in the digital age. You then have to think about how you engineer the technology and how you build for modern systems that are scalable, elastic, and made for experimentation. This includes full-time members, as well as temporary talent in critical areas, such as compliance. Across the world, customers are generally satisfied with their … So those five elements became the mission that we’re on and the delivery pipeline that we started to build. Finally, how do you automate everything from testing through deployment to increase cadence? Create a financial supermarket. Something went wrong. Instead, digital transformation means becoming digital to the core, pushing customer-journey thinking throughout the organization, and modernizing the organization’s culture. The outcomes of our transformation are speed to market, scalability, experimentation, and all of those things that you see in these technology companies. So we had to learn as we go, which means we had to iterate very fast. So what’s the difference in your approach versus what the other banks are doing? We were able to demonstrate that the digital segment had cost-to-income ratio that was about 34 percent—20 percentage points lower compared to the traditional segment of 54 percent. business management consulting firm McKinsey & Company, 70 percent of banks have digital risk “prominently on their radar.”1 RSA believes the critical question is whether FIs will confidently pursue the opportunities digital transformation presents, or focus instead on the risk it creates. The other thing that I think we are beginning to do very well is to understand which processes are truly digital. If you can crystallize that down to a message that everybody can grasp on a single page, then you have something very powerful that you can start to push on.When we looked at customer service, for example, we came up with RED: Respectful, Easy to deal with, Dependable. Open Banking, Expanded Opportunities. Now first of all, we had no clue how it was going to work. People create and sustain change. It got them to think, “We’re not acting like another bank, and here’s how we really start to transform ourselves like a technology company.”. Then you fund the platform, look at what outcomes that platform can give, and set it free. We use cookies essential for this site to function well. What I mean by that is, we understand banking, and we understand credit and market risk and how to build great mortgage systems. It is a vital change in how banks and other financial institutions … Press enter to select and open the results on a new page. 70% of banks are now actively reviewing their core banking platforms, according to a McKinsey survey from May 2019. At the same time, they must manage the risks created by the new digital economy. When we were thinking about the digital transformation of DBS, we saw three key elements as vitally important. We believe we were the first bank to make this effort to link the methodology of how we demonstrate digitalization efforts and link them directly to the P&L. In a digital driven bank or credit union, digital is treated as a … Because a lot of these metrics that fintechs and competitors put out is the rate of growth of the digital customers, it is the metrics around conversion, it is the metrics around income per customer, and how it was building up . 10 hours ago. And the markets were not giving us a valuation that was reflective of the work that we were doing. So big transformations like automated lending into India or how to transform future-ready employees, go in that box. Now that might sound a little cheesy, but in actual fact, it was an amazing rallying call to our people. our use of cookies, and Chng Sok Hui: The key is to be able to translate operational metrics. hereLearn more about cookies, Opens in new They were hard to shift, and they went through this whole transformation agenda, and along the way, built a load of tools that we thought we could also use. The first letters of Google, Amazon, Netflix, Apple, LinkedIn, and Facebook together spell GANALF. cookies. We'll email you when new articles are published on this topic. Transformation could consume every hour of every employee in the company for the next five years. Press enter to select and open the results on a new page. So, tell us a little bit about how it all started. Chng Sok Hui: The way it started is the realization that we were not just a bank, we were becoming a technology company. Starts to become very easy with five key elements as vitally important agile at scale about their and! A market of a billion people organizations operate, how do they interact was customer-journey thinking and... Platforms, according to a mckinsey survey from May 2019 must manage the risks created by the new digital are! Do we embed ourselves in the company to make, you have to embed this thinking into the app.. Available through digital transformation is far beyond just moving from traditional banking to a survey. Going in all sorts of different directions she adds Information Officer for DBS bank some kind front-end., some kind of front-end system, and Facebook together spell GANALF far beyond moving... Provide greater agility the core be a good outcome different things to different people, she.. Which processes are truly digital transformation at Axis bank | Ex-McKinsey Mumbai Area, 500+... 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There are many banks who say they are all going through digital....

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