Banks today are in a position of strength when it comes to digitalization. In general, banks still hold two important assets – customers and data.
Banks looking to leverage and innovate in an era of digitalization are increasingly looking at those two asset classes as the key.
Changing expectations in a digital world
Banks are feeling pressure to innovate to respond to shifting consumer expectations. Consumers increasingly expect to access products and services via digital channels.
To deliver what their customers’ expect, banks can take advantage of new collaboration opportunities. By working with financial technology startup companies, banks can maximize new technologies while not losing focus on core strengths and advantages.
Surveying the landscape
There is a clear recognition within the industry that change is on the horizon … and necessary to continue positions of strength. A recent survey of 103 senior executives in banking and financial services found a majority (69%) saw digital initiatives as high or relatively high compared to other strategic priorities. The survey was conducted by The Economist Intelligence Unit, sponsored by SAP.
The focus needs to be squarely on the customer experience, according to those respondents. In fact, of all the industries included in the survey of IT and non-IT leaders, banks and financial services companies were the most focused on using digital transformation to improve the customer experience. Forty-eight percent indicated that of all digital initiatives, the customer experience was the top priority.
In addition, 72% of financial services executives had launched new customer-facing digital channels over the past three years, far outpacing the 55% in other industrial sectors.
The role of IT in digital innovation at banks
The opportunity for IT leaders at banks is profound. At financial institutions, the role of the IT department needs to evolve to meet the demands and expectations of digital innovation. No longer is IT merely about keeping systems running and passwords secure. Today, given the importance of digitalization, the IT team can and should play a vital role in leading innovation throughout the enterprise.
Instead of focusing on system innovation and being seen as a back-office function, IT needs to step into the spotlight. Digitalization provides opportunities for IT leaders to break down organizational silos and lead innovation. IT teams can help disparate parts of the enterprise see what customers need, bringing together product owners and leading the change from within.
That is not the approach most banks are taking today. The aforementioned survey showed that in 51% of companies, digital innovation is led by individual business departments, in 25% by dedicated digital units, and in just 23% by IT departments. Among those initiatives led by a business unit, the IT department fulfills only a support function among 25% of the companies.
The data indicate clearly that in banking and financial services, IT is primarily taking a backseat when it comes to digital innovation. While this is the norm, it is not necessarily the preferred state. Sixty-one percent of the senior leaders surveyed believe that more collaboration between business units and IT will drive success of digital initiatives. Only 10% believe that IT departments are taking a lead role in supporting institutional agility, but 43% would prefer that IT play that lead role.
External partnership opportunities
Big banks and financial institutions should consider deeper partnerships with financial technology (fintech) startup firms as a way to gain the agility they so desire. Fintechs generally have a deeper focus on customer-centric solutions and processes, but lack the large customer bases and data troves that big banks hold.
Collaboration between the two can leverage each organization’s strengths. Banks would be able to deliver to their customers new, innovative, and wanted tools, products, and services. Fintechs would gain expanded market penetration that could fuel growth and expansion.
There would be cultural issues to overcome. Large organizations would need to accelerate approval and implementation processes, for example. Software development, as another example, would need to happen on a collaborative basis, seizing on the speed in which a typical fintech operates while leveraging the industry and customer knowledge that banks bring to the table. Here are a few tips banks should follow when considering such partnerships.
- Focus on the customer. To succeed in these collaborative efforts, banks need to adopt a customer-first approach. At the same time, they need fintech partners that understand the complexities and processes in place in large organizations.
- Look for complements. There are hundreds of fintechs developing applications, software programs, and new tools to reach and serve customers. The key for banks is to find a fintech partner that complements existing development teams and helps fill gaps and needs in the development pipeline.
- Understand needs. Fintechs are looking for significant revenue growth. Banks are looking for changes in approach and process that drive customer acquisition and retention. Banks need to seek out and partner with fintechs that understand the bigger picture.
- Consider timing. Banks need to understand and help their fintech partners understand the importance of timing. Disruption happens best when there is a full understanding of markets and customer expectations. It also requires an understanding of the technology solutions and when it is optimal to launch.
Each of these suggestions carries with it the need for strong IT leadership to connect and implement change. With fintech partners, IT teams serve an even more critical role in serving as leaders and bridge-builders.
It is a heady time for IT leaders in banking. By seeing the opportunities and boldly leading both internally and with key partners, IT leaders can position themselves … and their companies … for extraordinary change.
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