Pierre Boulay, head of CEE at Backbase, discusses how banks in Central and Eastern Europe can pivot to better align with customer demands and stay ahead of the curve

When it comes to digital innovation, banks across Central and Eastern Europe (CEE) are facing a significant challenge: balancing the traditional business approaches that have historically worked with the need to modernise for today’s customer base.While banks in the region may have the technical capacity and capability to ‘do digital’, the way that they are approaching digital innovation is not optimised to deepen existing customer relationships and facilitate future growth – a problem they cannot afford in today’s digital era.

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This begs two critical questions: What is the source of this challenge? And how can banks pivot to better align with customer demands and stay ahead of the curve?

Fear of the unknown
As with any hurdle, to resolve it we must first understand its cause. So where does this mindset issue originate?Unsurprisingly, it is rooted in simple behaviour and habit. First, the fact is that many well-established banks fall into the trap of saying: “This is how it has always been done.” They are most comfortable with their historic ways of conducting business; they are successful banks for a reason.

Second, taking leaps of faith to adopt new technologies is inherently risky – it is difficult to predict exactly how changes will be received by the bank’s employees and customers alike. Innovation costs time and money, and it is natural for senior bank executives to worry about whether their investment will ultimately pay off.

However, adaptability and calculated risk are the keys to survival in this fast-paced digital era. To overcome risk aversion, bank leaders should look to the example of neobanks and fintechs that are putting all their chips on innovation. These businesses are succeeding at delivering satisfying customer experiences at a relatively low cost, and with strong leadership and a firm belief in the benefits of digital transformation, incumbent banks can as well.

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From a leadership standpoint, bank executives can further help overcome fear of the unknown by incentivising innovation among their employees. By rewarding those employees who embrace digital transformation – and actively looking for employees who will help advance innovation goals – bank leaders can help build smart risk-taking and forward-thinking approaches into the fabric of their organisations, in turn making change feel less fraught.

Regional aggravators  

Of course, risk-aversion and traditional mindsets are not unique to CEE banks. However, in this region, they have led to a secondary hurdle: the adoption of a waterfall methodology.While the CEE region overall has a strong track record of forward thinking when it comes to software development, its banking sector tends to prefer a linear approach. Banks in the region tend to have a strong understanding of all the technology necessary to put them at the forefront of the digital transformation race, but a waterfall development approach has left them with a complicated, inefficient architecture that renders them inflexible.

This contrasts with an agile methodology, which comprises a more iterative, speedy approach that incorporates a cyclical and collaborative process. Many of these banks will claim they do the latter; the reality is very different.

Agile is not just about doing two-week sprints. Rather, it requires the entire organisation to embrace nimbleness and flexibility – from procurement, legal and compliance all the way up to the management team. This type of top-to-bottom cultural change may feel risky, but in reality, adopting an agile approach is often less risky and more cost-effective, as it facilitates faster development cycles and more successful deployments.

An additional complicating regional factor is the regulatory environment in CEE. Unlike Western Europe, regulators in CEE have been slower to embrace pro-innovation regulations such as open banking or digital signature for onboarding. This lack of external pressure to evolve can contribute to an overall sense of industry inertia across the region.

Finding a solution: baby steps
It is clear that for CEE banks, the digital mindset issue is deeply embedded and complex, and will require time and iterative education to resolve.But for many, the temptation to leapfrog the basics straight to impressive end-user results is irresistible. A common problem, for instance, is that banks will build feature-rich mobile applications – with an underlying infrastructure that is monolithic.

However, because switching to a modern, agile infrastructure would likely result in a temporary rollback of features, banks are apprehensive of true modernisation, even if it comes at the expense of a long-term, enhanced user experience.

In practice, the first step towards a more iterative approach to innovation would likely be an internal program that will enable a bank to become more agile at scale.

Starting with small, internal teams will allow a bank to acclimatise to manoeuvring nimbly, test hypotheses and prototypes with small groups, and  – critically – remove siloes to ensure that each cog is proceeding in a compatible manner to avoid accruing technical debt.

An iterative process
While speed is crucial to innovation and digital transformation, it is equally important for banks to proceed thoughtfully, observe their customers’ reactions to new products and digital experiences, and action feedback in real time.In order to get a comprehensive view of your users’ experience, you need both conscious and subconscious feedback. App store ratings and feedback, combined with tools that aggregate this feedback as well as sentiment online, will provide a strong overview into customers’ conscious thoughts.

Meanwhile, in-app analytics that integrate directly into mobile applications provide insight into users’ subconscious via their actions – for example, what features they are using the most, where bottlenecks exist, and how many clicks it takes to get to an end destination.

This 360-degree view of user experience allows banks to create effective roadmaps that truly incorporate what their users want and need – saving time and money, and making their users feel valued. Innovation and new features are only as valuable as your end-user finds them. Iteration is essential to digital transformation.

Adaptation: the only option
Any innovation comes with risk and requires a leap of faith – but in this increasingly digital, competitive landscape, it is the best possible way to pull ahead of the pack and ensure long-term success.There is no doubt that the hurdles that traditional banks across CEE are facing when it comes to digital transformation are complex and will take time to overcome. To effect real change, then, banks must go big in putting a digital-first, customer-centric perspective at the core of everything they do.

Currently, there is still a lack of decisiveness hidden within budget decisions. For example, in some extreme cases even large banks in southern Europe have only invested 1% of their budget to digital. Skimping on solutions in the short term and not treating digital projects at a strategic level will result in banks losing time, money and, ultimately, customer satisfaction in the long term.

Banks need to break down internal siloes, facilitate effective communication and collaboration, create a single rhythm between all teams and elements of their ecosystems, and – most importantly –continuously invest in these ongoing programmes.

Digital is not a one-time project or expense; it must become the core of every bank’s business. Building a solid foundation on digital innovation is the most powerful way CEE banks can ensure they thrive for decades to come.