Raman Sapra, Executive Director and Global Leader of Dell Digital Business Services
According to the British Banking Association, the number of people going into branches to do their banking is falling dramatically (by around 30% since 2012). In fact, a recent survey from the Millennial Disruption Index showed that 73% of millennials now source bank offerings from Google via online search. The challenge, not only for banking, but for other financial services institutions, is how to win new customers in a world where reputation can be quickly defined online via social media, and also how to deliver the everyday services customers expect via digital and at the speed they demand.
While many traditional banks have taken steps towards embracing digital change, the complexity and size of the challenge has left many institutions threatened by newer, more agile, tech-savvy entrants to the market. This article explores the key drivers that are shaping the digital landscape for financial services, and suggests a number of ways for organisations to embrace digital transformation.
Demanding millennials: how customer behaviour has changed
As discussed, a major driver of digitalisation is changing customer behaviour. Consumers are accustomed to digital engagement in most areas of their life and expect these interactions to work quickly and on demand. They assume they will be able to find what they want easily and have it delivered at a time of their own choice. When someone logs in to their bank app they expect the same level of service they would experience using Amazon or Facebook. Banks are going to have to rise to this challenge to allow customers to manage their money in the way they want.
Relaxed regulatory barriers fosters new digital players
Since May 2010, 14 new banks have emerged in the UK, with 21 new banking licenses expected by the Prudential Regulation Authority (PRA) in the UK in next two years to predominantly digital players. For Banks, that creates a need for rapid change when looking at digitalisation of services. Examples include current account switching figures, which were up 22% in the first full year of the 7-day Current Account Switch Service’s operation. New digital players, such as Tesco and Virgin Money have been able to come to market quickly and with more flexible products. Tech-centric peer-to-peer lending has also shot into focus, with 17 new platforms launched in 2014, and a further 8 expected to launch through 2015 –. While there are emerging alternative digital players, traditional banks are custodians of valuable data pertaining to the socio economic profile of their customers. This history puts banks in a powerful position to be able to act as a trusted recommender for products ranging from travel packages to grocery shopping. “Digitalisation” sits at the centre of any change initiatives within a bank, be it building omni-channel experience, analytics driven ‘next best actions’ or implementing a mobile first strategy.
Leveraging technology for efficiencies and scalability
There is huge potential for financial services, particularly banks to embrace the cloud for more efficient operations. Industry wide, only 2% of mission-critical applications are being run on cloud. Given that cloud spending by banks is set to top $26.4bn in 2015, many more institutions will focus on off-premise transaction processing as the next wave of development.
Digital has opened up so many opportunities for innovation, but adoption across the banking sector remains low. Institutions have so many areas to focus on, and that makes prioritisation hard. From mobility and social media, through to predictive analytics and machine learning, there are numerous opportunities to deliver smarter services and efficiencies to customers.
Change: fail fast and move on
All change including digital transformation, needs to be strategic. It needs to involve everyone on the board . Many business units within successful digital organisations and banks are already acting like technology start-ups. Just like startups, banks need to learn not to fear failure. The mantra ‘test, fail and move on’ may seem an unusual one for a financial institution, however, learning from mistakes in a test environment is acceptable and should be encouraged. Failing fast is about exploring new business models and innovating. Banks won’t get it right every time, but the very nature of digital means it is ripe for testing and it will drive change in terms of business models and organisational culture. After all, digital banking should be all about simplification, and putting the customer at centre of everything you do. Retail banking is actually a very simple business and lends itself well to the digital.
Starting on the digital journey
Before embarking on any change process banks need to understand what their customers, employees, partners and other stakeholders desire. The next step is to map the journey of the consumer vis-à-vis the various touch-points they have with the bank and analyse the quality of experience and identify potential customer experience challenges. By creating a Customer Journey Map, banks will be able to better visualise the aspects of business that they should focus on for improvement as well as identify and exploit potential opportunity to offer auxiliary services. Building customer journey maps could lead to realignment of investments, technologies and business models so that banks can engage effectively with their customers. Once the focus areas are identified, mock up “digital solutions” around these problems, leveraging the digital enablers like cloud, social media, analytics ,omni channel and mobility and this is where the ‘test, fail and move on’ ethos is played out.
This phase is an opportunity for ambition to meet creativity, and to bring in experienced people who understand digital implementations. Providing the consultancy and understanding to mesh the pieces together is the part which really drives value and benefit to the business.
If institutions are to win with digital then they need to take a step back. Rather than being swept away with industry buzzwords and ‘the next big thing’, they need to look at the end goal of helping customers do more, improve processes and ultimately save time and money. Forrester analyst Peter Wannemacher describes the need for banks to ‘Merchandise around customers’ needs and journeys rather than product silos.’
The move to digital is truly a revolution, and the financial services sector now has little choice but to react, due to the demands of their customers and, the arrival of competitive disruptors that are changing the way we think about doing businesses. Becoming more agile, creating new business models, driving efficiency and delighting customers are real tangible benefits of embracing digital. Organisations must be brave and not be afraid to get it wrong while at the same time balancing the risk with expert consultancy from within and outside the boundaries of the organisation if they are to really capitalise on the true potential of digital.