“As European consumers move online, retail banks will have to follow. The problem is that most banks aren’t ready. Across Europe, retail banks have digitized only 20 to 40 percent of their processes; 90 percent of European banks invest less than 0.5 percent of their total spending on digital." McKinsey, July 2014
Digital transformation impacts everyone, especially with respect to banking and finance. Digital transformation in banking and finance goes far deeper than simply potential cost-saving because of fintech or insurtech or leveraging new revenue streams. Banking digitalization is about managing and controlling your customer experience – leading your business from your customers’ perspective and rethinking and transforming your legacy business models.
This blog summarizes a few tangible tips on how to succeed for digitalization leaders at banks.
The customer is the king in accelerating the road to digitalization. Customers know what digitalization and excellent customer experience mean. For example, they have already selected their favorite e-commerce, media, and traveling services – they know exactly what they like and what they want from digitalization. The services they prefer are easy to use: they offer 24/7 availability and they are simple. Customers need a seamless multichannel experience and a consistent service, anywhere, anytime. They rate their experience based on three factors:
1. Does the company meet their needs?
2. How easy is it to use the service(s)?
3. Is using the service fun and enjoyable?
The main challenges for banks are to fine-tune and respond to customer expectations by adapting their current services to the changing demands while remaining cost-efficient.
Right technology in the right place
Modern technology impacts everyone. Companies have old, incumbent legacy tools and lots of new applications. The business processes can be siloed, risking the overall customer experience. Most of us have some experience dealing with a bank or an insurance company where the clerk on the line needs to change between multiple applications to get a few simple tasks done, while you wait on hold listening to music. These applications should not be dumped though; there are ways to “mask” the old legacy systems to support the modern B2C experience.
Today’s digital infrastructure provides billions of customers with real-time access to data with mobile devices. Data is the key to improving customer experience; the question is how to leverage it and use it smartly. Cloud computing is everywhere, providing new ways to create cost-efficient infrastructure to build new services on.
New technology and solutions must be deployed fast, so customers can start seeing the benefits faster and give instant feedback. Wrong choices can be converted into assets quickly. Massive IT transformation projects are history, as they usually fail, generate at least two times the predicted cost, and often takes 3 times longer than anticipated without the results being acceptable or sufficient. Companies are in defensive mode, trying to save their reputation, but at the same time customers vote with their feet and switch to competitors and innovative fintech startups for better service and experience.
Technology can also be a threat for banks. Some newcomers and industry outsiders have successfully launched simple financial services by linking data flows between service suppliers and customers. These fintech competitors usually gear their business models to market conditions better and faster, focus on customer preferences, and they avoid the cost-intensive old infrastructure required of the incumbent systems and IT service providers. Blockchain is a good example of a disrupting technology in the industry.
One possible opportunity for banks is to follow other industries and move to the cloud. The benefits are clear: reduced cost, better infrastructure and more investment in service development. Migrations are always challenging. It is important to overcome the common belief that data is less secure in the Cloud (Based on many recent years’ research, industry leaders agree that cloud is just as secure, with the added benefit of enhanced control). Banks are generally good at gathering data, but they are not usually good at utilizing it and obtaining insights from it to provide “cool” new experiences to customers. A big added challenge is that many banks operate archaic legacy systems that lack the required functionality to support the modern intuitive user experience.
“Apply lightweight technology interventions. Banks can generate significant performance gains with surprisingly small targeted investments. Examples include wider deployment of tools like e-forms and workflow systems, which can be implemented relatively rapidly, sometimes without deep integration into complex legacy architectures”, McKinsey, July 2014
One tangible example could be a unified, messaging solution integrated with various client front-end apps (Facebook, WhatsApp, WeChat, Skype, SMS, etc.) into the bank’s mixed service model. This can generate a harmonized, real-time experience and end-to-end process visibility for internal and external users. There are two ways to implement this solution. When done in the traditional way, each channel or application creates an “island” of staffing that is not necessarily following standard processes but is based on practices learnt by customer service personnel. There is no unified experience or view, discussion thread, audit trail, etc. If it’s done in an automated manner, integrating the back-end systems with the possibilities that modern IT provides, the example service could be deployed in weeks or a few months, minimizing financial risk and providing a huge potential upside.
Digitizing information-intensive processes may cut costs by up to 90% while improving turnaround times, and decrease process faults and errors (McKinsey, May 2014). Software allows businesses to collect data that helps to understand process performance, cost drivers, and risks. Possessing this information creates visibility into the structures and processes to be optimized.
Digitalization accelerates global economic growth and creates employment. It also allows companies to save costs and generate revenue from existing and new streams.
Banks and insurance companies do not have a choice: They must meet the challenges of digital structural change and redesign some of their operating models, structures, and teams. If they can strategically connect their businesses and functions with the huge amount of data that is available to them, then they can build significant competitive advantage based on the intelligence of customers’ evolving needs, which will drive value and financial performance.
Industry leaders in banking have announced billions of euros of investment in this area. Others must follow.
Revenues up, costs down, while increasing customer experience and loyalty – it is the perfect formula of the digitalization leader.