Why 70% of Digital Transformations in Finance Fail – And How to Succeed

Digital transformation is becoming unavoidable in every corner of financial services. Even wealth management, historically slower to embrace digitalization, is now under pressure to adopt emerging technologies and increase its digital capabilities. 

Despite the urgency, experience suggests that the majority is struggling with digital transformation. Research by McKinsey & Company shows that 70% of such projects fail, highlighting a gap between ambition and execution. This is no surprise, considering the complexity and disruption that a transformation is bound to bring. After all, true transformation requires meaningful change and that never comes easily. 

Competitors, clients and operations necessitate digitalization for wealth managers 

While digital transformation has so far proven to be complex and prone to failure for wealth managers, ignoring it is no longer an option these days. Various factors are reshaping the industry, making digitalization not just an option, but increasingly, a necessity.

These factors include operational pressures, increasing competitive pressure from challengers, evolving client expectations, and rapid technological advancements. Here’s how these factors are putting on pressure on wealth managers to act: 

• Operational squeeze: In the last few years, increasing competition in wealth management resulted in fee compression, a trend that is exacerbated by the growing preferences for passive investing. Meanwhile, the cost of complying with regulatory requirements and attracting top talent has been growing consistently. 

• Competitive pressures: Digital-first and hybrid players have found ways to efficiently cater to unique client needs through the extensive use of flexible and modern digital platforms. Increasing M&A activity also created large players with scale advantages.  

• Quick technological advancements: In the age of AI agents and open banking, wealth managers are under pressure to provide personalized experiences to clients through modernized IT systems, leveraging API-led integration and cloud computing. However, only a few firms offer truly seamless digital experiences. 

• Evolving client expectations: Fintechs and Big Techs have created a new standard for digital financial services and UX/UI for consumers. This led to higher expectations for wealth managers to provide the same service quality and customization. The continuous generational shift only intensifies this demand. 

Failure by design – what goes wrong in digital transformation 

As mentioned before, around 70% of digital transformation projects in the financial sector tend to fail. Clearly something is going wrong, right? In fact, a lot of things could go wrong: a comprehensive transformation has many tumblers and messing up one or two of these can already derail the whole project.  

Thus, it is worth examining the available literature on what tends to go wrong with transformations before getting started. In the following, we will use three simple categories to sort common mistakes into: technology, people, and strategy.

• Technology – A fundamental part of any digital transformation, technology is difficult to get right. First, the right technology needs to be identified, its implementation planned, and then executed, all while needing to keep up with the pre-defined timeline and budget. There are a lot of opportunities for failure, including: 

• Following current hype and using the wrong technology. 

• Not preparing a Proof-of-Concept (POC). 

• Lacking understanding of the limitations posed by legacy systems. 

• Lack of data consistency, poor data mapping.  

• Chaotic integrations, implementation becoming too costly. 

• People – Employees are among the most ignored stakeholders during a transformation, a grave misstep considering that they are tasked with executing the ambitious plans laid out by leadership. Common mistakes include: 

• Not ensuring buy-in, leading to resistance to change. 

• Ignoring talent transformation and skills gaps. 

• Poor or no collaboration between cross-functional teams. 

• Neglecting the culture change necessary to operate under the new terms. 

• Lack of strong product owner and dedicated team responsible for transformation. 

• Strategy – Strategy is the foundation on which the house is built, including the technology, integrations, partnership, and the organizational setup. Naturally, shaky foundations lead to a crumbling house, usually for one of the following reasons: 

• No clear ‘why’ for the project, no long-term vision and alignment with existing goals. 

• Poor definition and tracking of metrics, not adapting them to new technologies. 

• Too much micromanagement, not enough on documentation. 

• Planning too much or not enough before starting. 

• Lack of executive sponsorship, poor communication with people. 

To exit the 70%, firms need to acknowledge they are part of it 

The last decade in the financial sector was full of high-profile transformation projects, with many of them earning outsized attention due to their ultimate lack of success.  

Not getting it right the first time is not the end of the world. The key question to determine whether a given institution can innovate effectively in the long-term is whether they have the intention and capability to decipher what went wrong previously and actively utilize those insights the next time they try. Here are a few institutions that have been refreshingly open about the causes behind failed transformation efforts. 

Deutsche Bank 

After acquiring Postbank in 2010, it spent over a decade and billions of euros attempting to integrate the two institutions’ infrastructures. The replacement of a particular IT system was delayed by 13 years in the process due to unforeseen complications with regulatory requirements. Ignoring the worries raised by employees and a perceived lack of thorough due diligence before the acquisition also contributed to the costly misstep.  

ANZ Bank  

In its push to innovate, ANZ launched two separate mobile apps — one for everyday banking and another for wealth — only to find the split confused customers and hampered user experience. By prioritizing speed over strategic planning, ANZ became a rare example of a traditional bank trying to innovate too quickly. Eventually, the two apps were replaced by a single, unified platform that received significantly better reviews. 

Australian Securities Exchange (ASX) 

ASX set out to replace its settlement system entirely with blockchain. The project failed in part due to its overly ambitious scope – aiming for full replacement – and a cultural mismatch between the exchange and its fintech partner. Poor planning also plagued the effort, with repeated underestimations of resource intensity. To its credit, ASX was highly transparent, commissioning a detailed Accenture report that shed light on the project’s shortcomings. 

Dorsum’s advice for a successful digital transformation 

So far, we have examined the factors that make digital transformation unavoidable and the reasons behind the low success rates of such projects. Now, it is time to throw our own hat in the ring and share some pieces of advice for any wealth manager that is looking to stay competitive and future-proof its operations.

We will return to the three key pillars of technology, people and strategy and offer insights from our 30+ years of operations, 80+ financial institutional clients and countless completed transformation projects. 

• Technology: 

• No implementation project should start without a POC. While it takes additional time, it serves as a crucial milestone to confirm the validity of your objectives and tailor them to reality. 

• Avoid locking in with a single vendor, thereby becoming too dependent on their roadmap. 

• Also avoid chaotic API integrations, create a dedicated orchestration layer, prioritize data mapping and scale gradually. 

• People:  

• Everyone must sign up for the project. Without widespread buy-in from talent and executives, eventual disappointment is guaranteed. 

• True transformation rarely happens without a culture shift. Think about what that would look like in your case, define the principles and stick with them.  

• Always ask for feedback. Listen to unhappy employees and customers as they often have the most useful questions and expectations. 

• Strategy: 

• Know your destination before take-off: where are you going, why are you going there, why are you travelling the way you are. 

• Don’t end the planning phase just because it is resource-intensive, but don’t overdo it either. Usually, it is better to start the implementation when you have 70-80% of the things figured out, and you will find the rest in the process. 

• Find the right metrics for your specific project, track them vigorously and stay flexible when the data points to a need for finetuning your approach. 

We truly believe that by following these tips, your chances of success far exceed the average 30% in the industry. If you are interested in hearing more on this topic from us, keep watching this space as we will be sharing detailed case studies of Dorsum’s previous transformation projects at some of our largest clients.  

Should you be interested in utilizing Dorsum’s experience and state-of-the-art solutions during your company’s transformation journey, reach out to us via any of our contact details. We would be glad to assist you in avoiding the pitfalls that cost millions to financial institutions worldwide. 

Authors: Botond Bátorfi, Hannah Buckle