Digital transformation and disruption are very much at the forefront of discussion for business leaders today, but no single industry is quite so central in the eye of the hurricane as the banking industry.
In the coming months and years we will see a significant redefinition of the competitive landscape, and the emergence of new market players who will continue to disintegrate and attack core business processes to target only a portion of the value chain, often the most profitable or the most vulnerable. For example, the payment process has already escaped the traditional banking sector and is leveraged by tech or fintech companies to land and expand their portfolio into core banking.
Without a strategic and holistic approach to digital and a thorough understanding of how value will be created and competitive advantage gained in a digital world, traditional banks could fast find themselves in survival mode. IDC’s survey, The Digital Bank (sponsored by SAP), provides interesting insight into the current state of digital initiatives in banking as well as tangible best practices to surf the digital wave all the way to the top.
What’s in it for the customers?
Over the last decade, digital has changed the face of banking, with innovations to the customer experience such as social payment, mobile banking, and digital pay. However, digital transformation is not a mobile-only initiative–today it is vital for the whole enterprise to stay relevant in the digital economy.
Given the drastic change that digital has brought to a number of industries, disruption of the banking sector will surely follow. To address the upcoming shifts that will redefine the industry, it is imperative for banks to take a holistic approach to the way technology is used in the organization, and to build an infrastructure that enables, not just reacts to, change.
Banks that invest in an end-to-end digital transformation strategy will reap benefits such as reducing costs while also delivering improved and personalized experiences for customers. The Digital Bank surveyed 250 retail and corporate banks across EMEA and identified the following key factors for banks striving to create an enterprise-wide digital strategy:
Take a holistic approach. Banks that want to win the digital race must ensure that innovation happens not only at the front end of their business—i.e., the consumer-facing part—but also at the back end. While 96 percent of banks surveyed had completed some kind of digital transformation, only one in four had created and executed a holistic end-to-end digital transformation strategy. For many banks, digital initiatives are still department-specific, creating “islands of innovation” that prevent them from reaping the benefits of digital transformation at an organizational level.
Assign a chief digital officer. For digital transformation to become ingrained in a bank’s DNA and strategy, there must be a champion: the chief digital officer. Today, most banks still rely on the CIO to drive digital change; only one in five banks surveyed currently have a CDO. While this role is still new and maturing, it should focus on aligning different segments of the organization and different technology processes around one common goal: greater customer engagement and retention. IDC predicts that one in two banks will have a CDO or digital leader by 2020.
Be open to partnerships. To stay relevant in the growing digital economy, IDC found that banks should collaborate with other industry players rather than view them as competitors. 30% of banks still view fintechs as a competitive threat, but it is imperative to understand where partnering in a digital ecosystem can add more value for customers. Whether this means partnering with or acquiring a fintech startup, working with third-party technology providers, or even with non-bank firms, the new reality of today’s financial services market is open, agile, and on-demand.
What does this mean for banks’ customers?
As banks evolve their business models and embrace digital transformation in all corners of their organization, customers can expect a more convenient and efficient banking experience.
By running analytics on customers’ spending habits, banks can offer budgeting tips, end-of-month balance projections, and advice on potential savings with cheaper alternative products and services. Paired with rewards programs, these services can form incentives for customers, engaging them to form more personal relationships and increasing loyalty. By adding mobility and a social aspect to the mix, this could be a powerful tool for banks and customers alike.
Collaboration with third parties, such as fintech startups or technology providers, can also drive innovation. Recently, ATB Financial sent one of the world’s first real-time payments across the Atlantic, using blockchain technology to transfer a payment in only 20 seconds compared to the usual two to six working days. Such technological advancements have the potential to massively improve customer service, demonstrating how banks that take a proactive and collaborative approach can improve customer experience and make themselves relevant for the long term in a digital economy.
For more on digital transformation in banking, see Digital Disruption: Banks Have Their Uber Moment.