Digitalise or Die

The word “digital” is today imprinted in bold on the strategic plans of many credit institutions. However, I was somewhat surprised when ahead of putting my fingers to the keyboard, I asked a few colleagues in the banking sector for their views on banking and the importance of digital transformation. Their replies to digital transformation strategies very much centered around the development of online and mobile functionality to customers. Surely there is more to that, as traditional banks also need to combine digital speed and convenience with human interactions, that are both thoughtful and caring at crucial moments in the customer journey.

I have recently come across a compelling research by Boston Consulting Group, where four out of five financial institutions believe that digitalisation will fundamentally change banking and completely transform the industry’s competitive landscape. What’s worrying is that according to this research, less than half of those interviewed (43%) don’t even have a firmly anchored digital strategy. This research is even more compelling as it emerged that one-in-five banking executives consider their bank to be “market leading” when it comes to digitalisation. This is far from the truth.

In this fast-changing technological and digital environment, a number of Banks are somewhat at a loss and evidently so. Over the last two decades thay have clearly underinvested in their technological platform capabilities, resorting to one-off uncoordinated initiatives driven by individual units within the Bank, as against the development of a holistic digital transformation program covering a comprehensive enterprise-wide digital strategic plan.

The starting point has to be modeled on the Bank’s business strategy, market position and capabilities, keeping an open mind how to reshape the distribution models, improve the value propositions in the process and develop end-to-end consumer-centric journeys to increase growth and customer satisfaction. The strategy has to be driven and spearheaded by the CEO, who needs to be at the helm of the process driving a top-down and integrated approach that involves every aspect of the organization.

Today’s bank customers have developed a strong affinity to digitally enabled banking and financial solutions. In come digital wallets, mobile and internet banking platforms and the latest fintech driven app solutions that are changing the face of traditional banks, if not gradually disintermediating them. Within this context, clients are seeking the necessary confidence and functionality control to bank online, with a strong degree of peace of mind – not necessarily through a Bank.

This is easier said than done, particularly minded of the guarantees that clients expect from their banks to protect their money against online fraud or losses and equally important for their digital payment instructions, that they process through their mobile and internet banking platforms to be paid on time and in a highly cost-effective manner.

In the process, clients are becoming increasingly sensitive on the need for their personal information to be safeguarded through the presence of strong encryption and security protocols, with GDPR placing further onerous responsibilities on the Banks insofar as data breaches and data control and processing are concerned. To make matters increasingly complex, in also come powerful new tools such as robotics, big data, AI and Blockchain. So this context begs the question – what should traditional banking providers do to address their changing customer preferences? Just like with any major transformational initiative, having a clearly articulated digital strategy is of critical importance. The strategy can’t be a series of one-off à la carte initiatives taken on by separate and individual business units. This is the kind of undertaking that will require banks to tackle digital transformation as a comprehensive, enterprise-wide strategy — one that is lead from the very top by the C-suite, with the CEO firmly at the helm. Without a top-down integrated approach, that involves every aspect of the organization, traditional banking providers will struggle to take advantage of powerful new tools such as robotics, big data, AI and blockchain.

There are various initiatives that need to be undertaken by the banking sector, but two key initiatives revolve around, firstly the need to re-engineer the consumer journey, and secondly to leverage the power of data mining.

Re-engineering the consumer journey requires banks to completely detach themselves from legacy processes and procedures – to think without the box not just outside of it. Frictionless is the most common term one comes across in the customer journey process parlance. I find it very compelling to compare customer journey processes at a Bank, with those in non-bank outfits and clearly a compelling one is Amazon – a customer journey as frictionless as it can get through one-click ordering platforms – see it, like it, click it, buy it. Revolut is another classic example of the benefits of digitalization and has become one of the fastest European companies to reach the so-called “unicorn” status. It is not surprising that Revolut now manages around $1.5 billion in transactions every month, up 700 percent year over year, and this number should increase as well as Revolut plans to launch in the U.S., Singapore and Australia later this year, with India, Brazil, South Africa and the UAE also in sight.

Now try to transpose this frictionless process within the banking sector and you come across a “friction-full” process, taking days and sometimes weeks to be provided with say a credit card, a loan and opening of a bank account. Through enough, the current regulatory environment has not helped, apart from the customer deep pocket syndrome with litigations flying against banks – “because they can afford it” which has brought about a document fraught process.

Despite all these challenges, coupled as well with the legacy IT architecture which is today not fit (or possibly not fully fit) for purpose, justifiably, consumers are looking at the likes of Amazon and asking why banks are not trying to replicate their processes and completely digitize the consumer journey from start to finish, by introducing rapid onboarding and automated digital service and product propositions. The ramifications of such a solution frees up staff for more valuable tasks, like cross-selling and relationship building, while simultaneously saving the institutions money by streamlining processes.

Maybe the million dollar question revolves around the way to digitize the consumer journey, which in essence revolves around and requires, a carte blanche re-engineering process, which is completely driven and centered around the UX – the user or customer experience. Here again, easier said than done particularly considering the complexities of multiple system architectures found in banks. As the new CEO of Deutsche Bank had pledged in his address when newly appointed, he vowed to “untangle the spaghetti ball of its operating systems and scores of applications and platforms that had built up over the years”. Let’s be clear that it is surely an overwhelming and costly process to try to map and change multiple consumer journeys, and why it is strongly recommended that this is done in a phased approach.

The second most important initiative in the digitalisation process revolves around the benefits of data mining, which is underestimated and found to be a challenge by the banking community as a result of the presence of multiple disparate IT systems. Data mining capabilities should not only be used from a business development angle, but through the use of behavioral analytics identify the next best offer to clients in different clusters and at the various stages of their lifecycle. Data mining is an invaluable tool for banks to manage risks, such as that inherent in loan portfolios in order to better anticipate loan defaults.

In conclusion, the journey to morph a traditional bank into a digital-driven one requires a clearly articulated strategy, funding, talent, agile ways of working and an equally important organizational culture that engages senior management ensuring they are fully committed to radically changing the bank. Fintechs are first class case studies and deemed to be important partners, for traditional banks seeking to scale digital initiatives across the institution. Challenges will be abound particularly driven by the inability to integrate digital applications with the legacy infrastructure, in a relatively straightforward manner even through the use of APIs1. Nonetheless, the message is clear for the Banks – Digitalise or Die. This requires a discipline phased execution, of channel based high impact projects within a holistic digital strategic plan.

Footnotes

  • 1Application Programme Interface
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