Which Aspects of a Bank's Digital Transformation Should Be Evaluated before Investing in It

Denis AstapcheniaHead of Financial Services at AndersenJul 21, 2020

Nowadays, the growth in the efficiency of the banking enterprise directly depends on its digital transformation. Larger investment capital is received by those banks that have a digital strategy and augment their success by automating the business for customers and employees.

We spoke with IT Directors of Eastern European banks to figure out the following issues: how an investor can recognize whether a bank is really on the path of digital transformation, how this path differs from conventional digitalization, and what non-obvious things one should pay attention to before investing with a bank.

How much will it cost for a bank to go digital and how can this be calculated?

A bank's ambitiousness = the volume of investments in its digitalization, where digitalization is the creation of a new/innovative process/product, not just its digitization.

We interviewed representatives of ten banks and came to the conclusion that the amount of investments needed to increase the process’s profitability should be about 10% of the bank's annual costs during the active transformation phase.

The active phase lasts on average from one to three years. Later on, the volume of investments may gradually decrease. However, it is necessary to understand that digital transformation is a process that cannot be stopped once launched. This process requires constant financial support.

Problem: Many IT Directors cite the challenge of justifying and hence receiving investments as the main hindrance for the large-scale transformation of the bank. One of the main mistakes of those who advance arguments for the size of potential dividends is an excessively straightforward approach. Shareholders receive a cost estimate, and as a rule, few of them are mentally prepared for the figures.

How to avoid this?

Focus not on costs but on indicators. These are what reflect the influence of investments in digitalization that the bank will receive: the money and time saved, labor productivity growth, etc.

Role of the Digital Transformation Director

The role of the Digital Transformation Director is not new but is still popular. The position of Chief Digital Transformation Officer or CDO appeared in Western countries back in the 2000s due to the leap forward in technology and the emergence of social media.

Today the question is, how to evaluate the result of a CDO’s work. Obviously, the evaluation should be based on specific metrics, such as increased penetration of digital channels, growth of the customer base and customer satisfaction, the effectiveness of products/channels, and a number of others.

It can take quite a long time before the metrics, which the company considers necessary KPIs, are reached. Therefore, it is important to identify specific intermediate indicators. After all, speeches at conferences, promising articles in industry publications, presenting grandiose plans in front of top managers - all this is not a digital transformation of a bank.

From this angle, most transformation directors are not able to seriously influence anything; rather, they perform a marketing function, presenting the bank as a modern financial institution in the eyes of customers and competitors.

How to check this?

Digital transformation is unlikely to last less than three or four years. Take a look at the previous jobs of a potential candidate for this position and see if they managed to finish the process.

Digitalization is not equal to digitization

It makes no sense to change the bank's business model by changing only its facade. In the same way, you can’t replace the digitalization of a bank with its digitization. The key difference between these terms is that digitalization involves the creation of a new/innovative process/product, while digitization is simply an improvement of existing processes/products.

As a result, digitization doesn’t lead to significant savings. Let’s consider the loan issuance process, for example. Today, the process of application submission is digitized by many banks, and a client often doesn’t need to visit a branch. However, the processing of the request and making a decision on it is performed by the bank employees and takes hours or even days. This approach can be called digitization. At the same time, there are many examples when the lending process is fully automated, and thanks to the decision-making system, the loan is issued almost in real time and without the participation of the borrowing customer. Such a lending process is quite consistent with the concept of digital.

In most cases, banks choose a less thorny path and try to digitize existing business processes in a straightforward manner, passing it off as a breakthrough.

What to pay attention to?

Anyone who stands for the digitalization of a business should, first of all, think about how to make the processes truly effective. The measure of this effectiveness can be the depth of exclusion of the human factor from business processes.

Has the bank developed a unified approach to creating business processes?

Our respondents noted that 90% of the processes used by the bank had been created by an “unknown specialist”. This statement is based on the way certain processes usually appear in the bank. The chain often consists of three steps:

  • The bank regularly faces the problems of launching new products, low profitability of existing ones, overly long decision-making time on a product, complaints and customer dissatisfaction, etc.;
  • Managers set tasks of solving the above-mentioned problems for subordinates;
  • The contractor follows the path of least resistance and creates a process that is convenient primarily for themselves, simply copying what they did at their previous place of work.

The problem is that contractors don’t always have the necessary out-of-the-box thinking to build a process that is both convenient and coordinated with other departments. That’s why, when coming to a new place of work, a new employee wants to fix many processes as they seem imperfect.


A solution is to involve third-party consultants, as well as specialists from other departments of the bank who are not the “owners” of the current business process, in the restructuring/revision of processes.

Top managers of the bank and their understanding of the need for digital evolution

This is perhaps the most difficult of all cases. Not many leaders manage or want to accept the fact that IT is the "locomotive" of our time. Projects are very expensive, and the don’t-touch-it-works approach is still there. So why change anything?

The absence of understanding leads to the absence or lack of support from those charged with responsibility for projects.

Another blocking factor noted by the IT Directors is the security service. Especially when it comes to transitioning to the cloud or the hybrid model. In other words, when there is a feeling of insecurity.

But what can help here is if there is at least one person on the board who is the advocate for going digital and knows that cybersecurity is now a priority.

What is the level of the bank's IT team?

Quite often, the IT team thinks in the AS IS terms (“let’s leave it as it is” model). This leads to resistance to the introduction of new technologies and platforms due to insufficient understanding of them. All IT Directors can be divided into two types: those who build IT around data and are ready for the transition to cloud technologies, and those who are used to starting from an infrastructure approach. In the second case, evolution will be slow, will encounter resistance, and, most likely, turn into digitization.

Sergei Sochinsky from Alfa-Bank Ukraine noted that “personnel, i.e. the bank's IT specialists, play a key role in the digital evolution of the bank, and the driver of the process must be someone who knows the bank from the inside. The opinion that an external consultant can become one is self-deception."

I agree with this thesis, and I believe that the best result will come from synergies between the bank's team and third-party contractors.

To sum up

The investment attractiveness of a bank today is largely determined by its manufacturability, the state of IT, and the determination to make changes for the transition to digital.

At the same time, such evolution, as follows from the points above, is associated with a number of challenges. And, as our interlocutors noted, there is no single correct path to it. Investments, competent personnel, lack of support "from the top" - these are the problems that banks and IT Directors in particular face.

In ancient Rome, the saying "the path will be overcome by the person walking it" ("Viam supervadet vadens") was popular. We and our interlocutors adhere to the same opinion in 2020. And readiness for changes is often more important than their scale, but investors should receive clear signals about which path the bank has chosen.

Denis Astapchenia

Denis Astapchenia

Head of Financial Services at Andersen

My name is Denis. I am the Head of the FinTech department at Andersen. We are engaged in the development of IT solutions for banks, as well as investment, insurance, and FinTech companies.
If you have any questions, contact me using this button.


See the opportunity to Banking and Consumer Finance easy as never before

Discover the full power of Financial Services software developed by Andersen.