How digital Transformation is driving a Change in Service Delivery

In an era defined by heightened market volatility and intensifying regulatory pressures, financial institutions find themselves navigating an increasingly complex landscape.  At the same time, declining deal volumes are plugging growth opportunities. All these factors emphasise the need for significantly improved operational efficiencies. Financial institutions must explore sustainable pathways that lead to revenue while helping them save costs. 

Amid these shifting dynamics, technology stands as a vital lever for transformation. The rapid evolution of digital solutions, especially with the emergence of large language models (LLMs), presents unprecedented opportunities for financial services, particularly in addressing some key aspects: 

• Customer experience – to increase customer engagement and experience; legacy systems are not able to handle these requirements 
• Operational efficiency – to improve operational efficiency by addressing issues such as scalability, security, old application programming interfaces (APIs) and non-expandability of current systems 
• Staying competitive – particularly against new digital entrants
• Enhancing innovation – by fast-tracking idea generation, prototyping, etc. 

For financial institutions, first-mover advantage in technology integration can fetch significant efficiencies and competitive advantage. These efficiency gains will allow firms to rationalise operating models and sharpen time to market, research capabilities and applicability of products. 

The rise of AI/ML and generative AI (Gen-AI)

The financial services industry has been at the forefront of using AI/ML at scale to gather immense benefits. However, certain tasks within the front, middle, and back offices had been considered unsuitable or unviable for AI/AL. The advent of Gen-AI, though, has changed the game. Today, every business with a modern outlook wants to leverage the potential of Gen-AI. That said, nobody has as yet clearly understood or envisaged the full extent of its real-world application. 

Financial services institutions must identify how and where to use emerging technologies for maximum advantage. Not everyone has the budget or ability to conduct the necessary backend research and assessment of their existing IT estate and processes. 

Moreover, traditional players are not technology companies at their core – their workforce is unlikely to have the technological know-how and attunement to understand the pace or extent of change. These shortcomings can hold them back from selecting the processes that are right for automation and deploying technology to effect that change. While focus on tech innovation is necessary, only a few leading market players have the means to maintain enough in-house talent that can bring it to fruition. 

Leading change in service delivery 

As service delivery paradigms move from being focused on improving efficiency to enhancing effectiveness and to finally becoming experiential, technology will play a vital role. However, not every emerging technology will fit seamlessly into existing processes, and early-stage technologies come with inherent limitations. 

To navigate these complexities and manage some key challenges in the transformation process – such as complexity of the whole process, the long duration of change, understanding and selection of vendors/tools/platforms and managing costs – financial institutions could consider enabling the transformation and service delivery through a trusted third-party partner. 

This can allow them, for instance, to gain more flexibility by staffing on a need basis while also addressing the technical talent gap. In effect, their core in-house staff is free to focus on revenue generation and client-facing activities instead of being held up in desk-oriented, backend research. Doing so also brings greater work-life balance to their employees, which makes for better retention.  

At the same time, relying on the technical acumen brought in by external service providers helps minimise risks linked to adopting new technologies or building innovative applications. In turn, this helps financial services institutions generate cost and operational efficiencies. 

The role of service delivery partners 

Financial products are unique and require specialized knowledge tailored to banking, private equity or asset management. Successful integration of technology depends on marrying specific product changes with broader market needs. In-house teams may struggle to achieve this balance, resulting in isolated improvements that fall short of expectations.

While adopting technology, institutions must be able to integrate specific and angular changes in products with the macro needs of the market for more extensive efficiency improvements. For example, banks using Gen-AI for the transition may require LLMs to be trained on specific needs (say, banking) to generate process efficiency. If the bank tries doing this in-house, changes may apply to a few products but not across the board. While considerable effort would have to be devoted to developing/enhancing a product, it may not be seeing the expected results and within the timelines laid out. 

In contrast, using the right service delivery partner can help ease this transition. The bank can leverage the partner’s abilities to consolidate industry best practices gleaned from expertise and experience in dealing with diverse clients. The key advantage is they do not have to reinvent the wheel. Such a partner also has the pedigree and technical dexterity to navigate complex challenges specific to the industry through greater process efficiency and standardisation. The risk of experimenting with technology for product development is shared or deflected onto experts who can help develop better products independently or in partnership.

A strategic path forward

Financial services institutions undergoing digital transformation must stay on top of technological change and gear up for challenges on that journey. To manage change better, they must look at areas that offer exponential gains from technology deployment. 

The first step is to introspect on key questions around priority issues and expected gains. They should also measure the success of their digital transformation efforts using specific KPIs, whether efficiency or cost saving.  

While change is inevitable, a methodical and mindful approach is key to thriving in a dynamic environment.

Authored by Sumit Chhabra, Chief Delivery Officer, Acuity Knowledge Partners