7 steps to successful digital transformation in banking

Consumer expectations for banking are rapidly changing. Digital transformation helps banks evolve and stay competitive.

August 12, 2021

Tom Sullivan Pic
Tom Sullivan

Tom is a fintech industry writer who creates whitepapers and articles for Plaid. His work has been featured in publications like Forbes, Fortune, and Inc. He's passionate about the freedom that the union between financial services and technology can create.


Consumer expectations around financial services are changing rapidly. For modern financial institutions, the challenge is to meet and even exceed those expectations as they continue to evolve. 

According to a 2020 survey, 14% of US consumers were actively looking to change banks, with 43% wishing to do so within the next 90 days. Investing in digital, on-demand experiences can help financial institutions attract these ready-to-switch consumers (or incentivize them against leaving) by exceeding their expectations. 

Disruption to the financial services industry has been accelerating in recent years as tech companies like Amazon and Netflix have created an on-demand culture. This culture has expanded into financial services through the rapid growth of fintechs that are filling gaps in areas traditionally overlooked by financial institutions, such as overdraft protection and early access to paychecks. This presents a challenge for large financial institutions, as they know they need to innovate but are entrenched in an industry that is notoriously slow to adopt change.  

Although most financial institutions have already begun investing in digital transformation, many are still struggling to keep up with consumer needs. The suggestions below focus on how to accelerate or revamp existing efforts to make a more meaningful impact. 

1. Make sure leadership prioritizes innovation

Digital transformation requires a cultural re-vamp that leads to new, innovative ways of thinking. For innovation to be successful, it needs to come from the top down and be embraced into the company vision. This often requires bringing in new leaders who have proven innovation experience.

To foster innovation, leadership must lead by example and be willing to take calculated risks. These change-oriented leaders should focus on long-term ROI and building a lasting competitive advantage rather than attempting to avoid the short-term costs of making impactful, structural changes. This kind of innovative leadership sets the company up to lead through disruption instead of reacting to it. 

For Wells Fargo, digital transformation comes from the top down. In 2019, Wells Fargo hired Saul Van Beurden as Head of Technology. Van Beurden oversees 40,000 tech employees and a $9 billion budget; his role is to set the innovation strategy for the entire enterprise. To make sure the organization understands his strategy, he breaks it down into six focus areas: 

  • Skills: Build teams that possess the skills for today while growing the skills for tomorrow. 

  • Security: Gain customers' trust by protecting their sensitive financial data. 

  • Stability: Create resiliency in IT systems to ensure that digital and online apps don’t experience downtime.

  • Scalability: Always be able to scale up or down to meet on-demand service requirements. 

  • Speed: Instead of handing projects off from one team to the next, cut times in half by creating multifunctional teams that handle projects on their own.

  • Satisfaction: Ensure that customers are satisfied with the end product; anything less is failure. 

By using an actionable framework to outline the strategy, Van Beurden makes it easier for others in the organization to bring it to life and transform how Wells Fargo can deliver delightful customer experiences.

Wells Fargo's Control Tower gives customers insights and actions to help them control their financial life. Source: Wells Fargo

2. Unlock data silos 

Older software systems were built without data integration in mind, keeping customers’ financial data in silos that can’t easily be accessed outside the company. And that’s important, because people increasingly expect their money to be available instantly, everywhere. 

They want to use apps like Coinbase to buy cryptocurrency and Venmo to send money to their friends. If a bank can’t connect to those apps, many customers will start looking for one that can. 

To make data more accessible and enable better online experiences, financial institutions should invest in a centralized data-linking system. These systems pull many of the different types of financial data (e.g. account balances, recent transactions) and assemble it into a unified platform that can be used to generate personalized insights or build value-added products. 

To get a data linking system, financial institutions can either build one themselves or choose to partner with a vendor such as Snowflake Data Cloud, which enables siloed data to be utilized for insights via a cloud platform. The digital bank Chime was able to use Snowflake to link together 14 disparate types of data, which gave them access to the financial data they needed to create personalized customer experiences.

→ Need a faster account opening and onboarding flow? Plaid Auth provides instant bank account authentication when users connect with their bank account credentials. 

3. Forge data partnerships 

While internal data is valuable, it doesn’t provide the full picture of your customers’ financial lives. To offer the best products and services, you’ll also want to be able to access permissioned data from financial accounts they hold elsewhere.

Until recently, accessing permissioned consumer financial data from outside banks was difficult or impossible. But, in the last ten years, a cohort of technology companies has emerged to do just that. Plaid (our company), Yodlee, MX, and Finicity are all examples.

Plaid makes it easy for banking customers to select outside accounts

For retail banking customers, linking an external account is relatively simple. They select their outside bank and enter the username and password associated with those accounts. What differentiates one provider from another are things like:

  • User experience

  • Speed of account linking

  • Institution coverage

  • Conversion rates

  • Uptime/latency

  • Ease of integration

  • Customer support

Data partnerships can reveal the totality of a customers’ financial life, giving banks the ability to build products and services that speak to their unique goals and challenges. For instance, helping them refinance their mortgage at a lower rate or offering targeted savings tips.

Partnerships can also help new customers more easily fund their accounts. First Tech Federal Credit Union was struggling with this, as they had a high-friction onboarding process that relied on manual processes that took days to complete. Partnering with Plaid made it faster and easier for customers to fund new accounts, which increased the average initial funding amount from $144 to $717. 

In addition to data partnerships, banks can also consider other infrastructure partners like Jack Henry and Green Dot, who offer off-the-shelf onboarding flows. Partners like these can be a good solution for resource-limited banks that want to focus on strategic priorities.

Beyond the credit card

Learn why more consumers are choosing to pay with their banks.

4. Prioritize recruiting technical talent 

Technical talent is critical to digital transformation. Without it, financial institutions can’t build the cutting-edge experiences that customers increasingly expect. 

Recruiting high-performing product managers, designers, and software engineers starts with building an innovative company culture—one that can compete with the likes of Google, Apple, and Amazon. One reason these tech companies have been so successful in recruiting the best technical talent is that they inspire their workers: they’re plugged into a culture of innovation that promises to tackle the world’s hardest problems and build leading-edge products. 

By contrast, financial institutions are not typically seen in the same light, which makes it harder to recruit top talent. In fact, 50% of financial institutions say it’s difficult or very difficult to find IT talent, while only 12% say it’s easy. 

Source: The Financial Brand

At Plaid, we’ve found that one great way to foster a culture of innovation is to hold “hackathons.” At these semiannual, weeklong events, employees drop their usual work and come together in cross-functional teams. Then they hack together solutions to big, persistent problems the company faces. In fact, some of our best innovations have come out of these events.

But it takes time to shift corporate culture, so creating special incentives for tech workers may present an appealing near-term solution. First Republic Bank does this by offering to pay off their employees’ student loans

An even simpler solution is to offer a salary that competes with what companies like Google and Amazon are paying. This may be the only way to recruit many tech workers, and possibly the most effective. 

5. Solve customer pain points by offering new solutions 

Once a financial institution has the data and people they need, it’s time to identify the gaps that digital transformation can fill. In practice, this means analyzing internal data to identify where customers are getting stuck, then figuring out how to address these pain points. 

For example, a bank’s data team might find that a significant number of customers are failing to complete a form during the onboarding flow. Perhaps the language on the form is confusing; or perhaps they simply can’t find the button that takes them to the next screen. This is a chance to address a pain point with a new solution. 

Addressing this issue could involve working with designers and engineers to rebuild the form or partnering with a vendor like Q2 to leverage their off-the-shelf onboarding flow.

A great example of addressing a customer pain point comes from the Royal Bank of Canada (RBC). Five years before the COVID-19 pandemic, RBC committed to digital transformation across their entire service catalog. It paid off, in particular when the pandemic forced their customers to rely entirely on digital banking channels. 

As a result of these efforts, RBC created the NOMI online platform, an AI-based assistant that offers insights, budgeting, savings opportunities, and a Q&A chatbot. NOMI has become a valuable tool for customers, helping them better understand their finances, while deepening their engagement with the bank, especially during the pandemic.  

→ Need to build a complete view of users’ investments? Plaid’s investment API connects to all investment accounts—including crypto exchanges and wallets—to help you provide in-depth insights and analysis. 

6. Adopt a product mindset  

Of course, digital transformation is never fully accomplished; it’s an ongoing process. Staying abreast of evolving customer expectations requires adopting a product mindset:

  1. Identify a key performance metric to improve upon

  2. Get to know the target audience and the problems they’re trying to solve

  3. Generate ideas about how to solve the problem for the target audience

  4. Identify the top 1-3 ideas and build prototypes to test them

  5. Measure the impact of those tests and evaluate their results

  6. Lean into what’s working—and begin again

For example, a near-term priority may be to increase the number of newsletter signups for a company blog. With a product mindset, the next step is figuring out who’s reading the blog today and who should be reading it in the future. Then, generate ideas on what types of content would help this audience solve their problems. 

After brainstorming many ideas about how to increase newsletter signups, it’s time to whittle the list down to the top 1-3 winners. For example, launching a new content series, offering an incentive (“enter to win a $150 gift card”), or A/B testing alternate versions of the signup form.

Adopting a product mindset means being rigorous about measuring success and continuing to iterate over time. After implementing the best ideas, it’s time to track key metrics such as the net impact on newsletter signups, how many signups are coming from the new content series, and how many people are opening emails and clicking the links. This allows the team to figure out what’s working and what isn’t—enabling them to lean into the ideas that make the strongest impact on newsletter signups. 

Measuring the success of an overall digital transformation program is no easy task; it will be different for every financial institution. But, as a general principle, Gartner recommends tracking 5-9 key performance indicators (KPIs): single, impactful metrics to anchor the business decisions. Common KPIs for financial institutions include things like:

  • Account sign-ups

  • New accounts funded

  • Time to fund new accounts

  • Initial funding amounts

  • Monthly sign-ins

  • In-app actions taken

  • Customer retention/attrition

  • Customer acquisition cost (CAC)

  • Customer lifetime value (LTV)

  • Customer net-promoter score (NPS)

These KPIs are a new solution’s north star. They help an organization decide what to prioritize and show whether or not digital transformation initiatives are successful.

→ Want to fight fraud while handling KYC requirements? Plaid Identity Verification is the lowest friction identity verification experience available.

7. Know when to build vs. buy 

At JP Morgan Chase, the annual budget for digital transformation is $11 billion, and there are thousands of on-staff technical employees to help make JPMC’s vision a reality. But few financial institutions enjoy such extensive resources.

For most banks, the challenge is how to deploy limited resources in the most impactful way. That means ruthlessly prioritizing the product roadmap; it also means deciding when to build solutions in-house vs. finding a technology partner. 

Say a bank wants to update the online application for personal loans. Here are a few of the options:

  1. Build. Staff a team to build and maintain a new application flow

  2. Partner. Hire an agency (e.g. Bottomline, Finastra) to build and maintain it

  3. Buy. Buy an off-the-shelf solution (e.g. Jack Henry or Green Dot Business Solutions) and integrate with it

It’s likely a bank will end up pursuing all three of these strategies at different times, depending on their goals, priorities, and available resources. In most cases, the scarcest resource will be the bandwidth of in-house technical talent. Institutions can make the most of their in-house talent by deploying them to what they’re already great at, which helps create a bigger competitive advantage. 

For example, if an institution has an amazing onboarding flow, they should have their engineers spend the bulk of their time optimizing it to be even better. If instead they have an amazing budgeting tool, they can spend their scarce engineering bandwidth there. Leave other priorities to vendors and partners.

Digital transformation can overcome industry disruption

Financial services is in the process of being massively disrupted by forces like fintech and cryptocurrency. Under such circumstances, history has shown that only about a third of incumbents come out thriving. The rest go out of business, get acquired, or muddle their way through a gradual decline. 

The good news is that companies that succeed through disruption tend to come out stronger and more valuable than before. By thoughtfully stewarding their resources and investing in digital transformation, financial institutions can build and maintain a competitive advantage in a constantly disrupted industry. 

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