In the first post of this series, we talked about the business rationale for digitisation. There are some compelling arguments that you can read here. But just because it’s the right thing to do, doesn’t mean it’s something you’re ready to do. So in this post, we’re looking at the underlying requirements to make a success of digitisation. If you can answer yes to the following questions you’re in a good place to start.
1. Do you know what [deep] digitisation is?
An obvious question, certainly, but an important one. It’s often easier to say what digitisation is not. It is not just more automation of manual processes. It is not just the latest step in a technology journey that started with ATMs and has now reached mobile services. It is not about bolting on new channels of delivery to existing offerings. And it emphatically is not adding another tech silo to already overloaded legacy systems.
In fact, digitisation is all about breaking down those silos with their discrete services, databases, infrastructure, and operational fiefdoms. It relies on a single, digital core that acts as a foundation for all delivery channels and simply offers different access points for customers and employees. Some like to think of the digital bank as a technology company with a banking licence. Others’ vision of the digital bank is primarily as an organisation that is a trusted keeper of data, rather than a trusted keeper of money.
But, however you choose to think about digitisation in your organisation, the key thing is that this really isn’t just the latest twist on business as usual.
2. Do you know who you are?
There is a tectonic shift going on in the industry. Sometimes that shift produces explosive results. Sometimes the results take years to appear. But it all requires some fairly deep introspection from incumbents, who may find some of their formerly solid foundations starting to look a little shaky. However, the most important piece of advice here is this: reinvention does not mean throwing the baby out with the bathwater. The existential threat is not as great as some of the more apocalyptic corners of the industry have suggested.
With that in mind, what is your role going to be in this new landscape? Do you wish to be a platform or an aggregator? Credit Agricole famously opened its CA Store, an API platform open to external developers in 2012. Nordea Bank’s open banking initiative now hosts solutions from more than 600 third parties.
Do you wish to remain a universal provider or is a degree of specialisation more realistic? In this, the new competition – challenger banks and fintechs alike – have an advantage. They know exactly who they are because they usually operate in a very narrow field. That also helps them respond to market changes fairly quickly. Can you? Is product bloat holding you back? Do you need to trim your service portfolio?
3. Can you put your customers first?
This is key to the digital bank. At present most customers receive services that make sense when they are delivered by siloed platforms and legacy systems. They make a lot less sense to customers who don’t segment their lives in quite the same way. But to deliver truly customer-centric services, you need to know who they actually are – and not just their KYC profile.
PwC’s Digital Banking Consumer Survey of 2017 gives us some useful insights into today’s bank customers. It tells us that nearly half (46%) of consumers now only use digital channels for banking and that 60% of smartphone owners use mobile banking in some way (including 82% of 18 to 24-year-old). We also know that more than half of all consumers are now customers of at least one non-traditional company. None of this is particularly surprising.
However, PwC also tells us that 62% of customers feel it is important for banks to have local branches. Being tech-savvy does not translate into being finance-savvy: so even younger customers often prefer to visit a branch to open a new account, learn about budgeting, understand retirement options, and to understand and apply for a mortgage. Even in the UK, where consumer and regulatory pressure has created the ideal conditions to launch a series of new challenger banks, more than 70% still bank with one of the four high street stalwarts.
4. Do you know what you want from digitisation?
Crypto-currencies and blockchain have been impossible to ignore in the past six months. But are these much-hyped technologies really where you want your bank to go? According to this year’s Fintech Disruptors report there is a very welcome sense of reality coming back to financial technology in general. Real strategic advantage is winning out over the latest bandwagons.
Mobile services and the possibilities of Open APIs are seen as the biggest opportunities, closely followed by data analytics. And we can reasonably assume that this is the next step in the journey towards integrating mobile into the business and preparing for PSD2. Equally, data analytics, and machine learning (artificial intelligence) are areas that can produce leaner, fitter and more responsive organisations.
But to make the switch successfully, you need to be clear about what you want to achieve. If your business strategy revolves around digital currencies, then that is the path to pursue.
5. Can you commit to innovation?
It’s a cliché for a reason: success takes focus and determination. It’s all too easy for grand ambitions to soar high, and then fall rapidly to earth. Innovation is always a challenge because it’s an iterative process, and there are plenty of hurdles in the way. Operational heads who cite regulation and risk aversion can slow down progress. Front-line managers can delay progress by jealously guarding their budget with dire warnings of slowed growth or compromised customer service. And when IT projects fail to overcome complexity deliver their promised savings they often act as a break to further progress.
All of these are common and recurring problems. So effective leadership is essential: not just to change technologies or business models, but to develop a culture that embraces smart innovation. Modern banking is complicated. It’s often hard to see how it could be anything else. But banks that are starting to make the switch successfully do not use complexity as an excuse to short-circuit their transformation into slimmer, digital-first organisations.
This is the second in a series of blogs extracted from Rewiring Banking an insight paper exploring the switch to digitisation for incumbent banks.