What holds back banks today? What is their biggest challenge? If we indulged in a little armchair analysis, the low-hanging answer would be that they are playing catch up with rapidly evolving technology. Look a little closer, and we see that this is far from true.
If we looked at a timeline of computer history, it is evident that banks have been the frontrunners in adopting new technology. And once money became electronic, technology began to play a large role in the way business is conducted in financial institutions. As conventional financial instruments found their way into the digital realm, ever more complex ones evolved, spurred by technological advances.
The challenges that banks face today have therefore less to do with catching up or keeping up with technology itself, and more because of the emergence of non-banking players who are able to utilize that technology better. And these players themselves did not arrive out of the blue. They are but a symptom of a powerful phenomenon – a fundamental shift in the benchmarks of customer experience.
Today’s customer doesn’t compare his experience at a bank with that of another bank. His points of reference are the intuitive, addictive relationships he has with an Amazon or a Netflix. Such enterprises have exploited technology in ever more unique ways to manage and run their business, and to splice themselves deeper into the customer’s life.
Is that what ‘Digital’ is all about? To ‘integrating into the customer’s lifestyle’? It is definitely desirable, but also broad and quite unhelpful from the point of view of financial institutions. It is as generic as saying ‘we keep the customer in the centre’. What does it truly mean? What are the implications on business, operations, and the bank’s own technological resources?
The first principle of Digital is this – Technology for the sake of technology fails miserably. This means that we cannot take a technology-first or technology-only approach. We need to take a step back and get inside the fabric of financial institutions, and by understanding them, understand their digital aspirations.
One Size Does Not Fit All
The second principle of Digital is this – it is effective only when tailored, not when mass produced. Of course, before we move into crafting bespoke digital solutions for every enterprise, there are some broad strokes to cut through the clutter in the industry. Here are four personas of digital aspirations.
Think fund management or insurance company. Great at creating products themselves, with a strong focus on research and product design. Top concerns are to minimise risk, maximise return and optimise operational efficiency. For such enterprises, Digital Aspirations are to undertake and manage research and risk, to minimize human intervention – to automate operations, manage partners – agents, for instance – for selling and distributing their products. Blackrock, BNY Mellon, Allianz Group, AXA and the like.
Financial advisors, P2P (a bit of a stretch) lenders, Robo advisors. These enterprises traditionally make money brokering between service providers and customers. Their key focus is to understand the customer and to personalise services. As an advisor, they would need the right kind of partners who can provide products their customers want. Digital Aspirations would hence revolve around extreme personalisation, partner management, a robust means of benchmarking service providers and the services on offer. RobinHood, Merrill Edge, Fidelity Go to name a few.
Arguably in the toughest area of the spectrum, Universal Banks already do it all – they create their own products and may also sell products from other asset management or insurance firms that they don’t create themselves. Their key focus is an authoritative understanding of their customer base, and quality and scope of their partner ecosystem. Digital Aspirations of such an institution would include a richer and stickier user experience, higher automation, partner benchmarking, and to keep operations as lean as possible to keep costs down. Capital One, CitiGroup, basically any large bank you can recall in three seconds fall into this category.
Enterprises like Baidu, Alibaba and TenCent have evolved into behemoths that completely envelop their customer’s lifestyle into their ecosystem. While they have a keen eye on the financial quotient of the consumer, their goal is to be part of his life, from something as mundane as a commute, to long-term goals like higher education and investments. Every moment in life that is lubricated by a transaction, these enterprises become part of it. The Digital Aspiration of such an enterprise would be to become the go to place for the customer, whatever the need. A heavy reliance on technology to plug into supply chains, to distribute proprietary products, to manage merchant ecosystems and to run crowd-enabled benchmarking systems.
As the reader might have surmised, these aspirations are non-exclusive. A universal bank might choose to adopt a more ambitious goal of benchmarking its performance against the financial health of each of its customers. A product distributor might choose to deploy proprietary products, a pure play product creator might get into distribution, and so on. However, the finite set of value propositions that an institution would choose, will determine its digital recipe.
It is the job of the Chief Digital Officer to work with business and mature the Bank’s digital aspirations, before being enticed by a flashy technology spiel.
In the next blog, we look at the inflection point where a bank chooses to embrace digital transformation, and the top priorities in that journey. Stay tuned.