The banking industry is beginning to emerge from the COVID pandemic, allowing banks and credit unions to focus on changed consumer expectations and an evolving competitive landscape. While there may be a tendency to wait for a mythical ‘new normal’, or continue with short-term thinking, banking executives must build long-term strategies for the future in a post-crisis world.
Major questions to be considered include an assessment of how legacy back-office technologies can be upgraded, how processes and procedures built for physical delivery can be updated for a digital business model, what the future of work will look like, how to create a culture that is more supportive of innovation, and how money can be made. These questions (and others) must be part of boardroom discussions and strategic planning sessions today and going forward.
It is imperative that financial institutions learn from the COVID crisis, and come out of the pandemic aware of past deficiencies and ready to completely reimagine their business model for the future. It is the time to look beyond short-term quarterly results, reimagining what is possible with a universal focus on speed of digital transformation as opposed to being a fast follower.
COVID-19 has provided a view of the future, where digital transactions and engagement are the new benchmark for success. The new business model goes far beyond simply new apps, requiring a rethinking of how products, services and engagements can be accomplished in seconds as opposed to minutes.
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A Focus on Digital Banking Maturity
Digital banking maturity is no longer defined by how many processes have been converted to a digital application. It is defined by customer experiences. How fast can a task be completed? How intuitive is the design? Can processes be completed without leaving the channel of choice … and if the consumer wants to change channels, can they resume the process where they left off?
Beyond transactional maturity, financial institutions are now expected to fully understand the customer and their personal journey. This requires the use of data and analytics to support day-to-day banking and to expand the relationship with proactive recommendations as opposed to a traditional sales message.
To be a digital banking leader requires long-term strategic thinking as opposed to a ‘check box’ mentality. The customer’s expectations continue to evolve based mostly on experiences with non-financial players like Netflix, Spotify, Amazon, Uber and Waze. The move to mobile and digital engagement caused by the pandemic is not going to be reversed. Financial institutions must combine agile response with a long-term perspective.
Part of the long-term perspective needed to be a digital banking maturity leader is to have a culture of innovation. This is not a comfortable place for many financial institutions steeped in risk avoidance as opposed to creating new value-added products and services, as well as new ways for consumers to transact and engage. There also must be an ecosystem to support this innovation mindset, including APIs for developers, innovation initiatives (accelerators) and partnerships with outside fintech firms.
Expect the Unexpected
For most financial institutions, the strategic planning process for 2021 is far different than any in the past. As opposed to an iterative adjustment to plans from the previous year, this year’s planning must take into account a level of change in technology, competition, consumer behaviors, society and many other areas that is far less defined than before.
The uncertainty about the future requires a combination of a solid strategic foundation with sensing capabilities and the ability to respond to threats and opportunities as quickly as possible. For many banks and credit unions, this will require organizational restructuring, the reallocation of resources, revamping processes, finding new outside partners and a culture that will support flexibility in plans that never was required before.
There is also the need to build a marketplace sensing capability across the entire organization and from a broader array of sources. This includes customers, internal staff (especially customer-facing employees), suppliers, strategic partners, research organizations, boards of directors and even competition. Gathering the insights is only half the battle. There must also be a centralized location to gather and analyze the insights collected.
Finally, unlike normal processes used to support strategic planning, this gathering and analysis component does not have a set timeline, but is done on a continuous basis. By encouraging an ongoing commitment to curiosity and organizational evolution, the institution is positioned to adapt to change quickly, developing strategies that support a stronger competitive position.
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Adopting a Long-Term Mindset
At a time of crisis, investors are anxious about how an organization will respond to disruptive change. Especially in financial services, institutions are under pressure to show how they will reduce costs and increase revenues in the short-term. Adding to this dilemma, most senior executive compensation packages reward short-term results that may conflict with long-term needs.
While it can be argued that a strong short-term action should also be good for long-term results, this assumes that there is an organizational structure that can balance short and long-term objectives. Unfortunately, when it comes to areas such as capital investments for R&D, new technology and even innovation, many financial institutions are falling short of optimal from an ROI perspective.
To get an organization aligned with their boards of directors and investors, there must be a well-defined and articulated long-term strategy, with progress reports provided regularly against these long-term visions. We are seeing much more of this being done by the largest financial institutions, where non-financial results around digital transformation objectives are being shared prominently in quarterly updates.
Long-Term Thinking Begins at the Top
As we move beyond the crisis mentality of COVID, it is more important than ever for organizations to invest in the future, while being agile enough to respond to the present. To move forward, leaders must break free of past paradigms, creating a culture of innovation and change that prepares an organization for instant disruptions.
This may require a purpose greater than profits that supports the long-term survival of the organization. By formulating a clear and compelling business case that can be supported enthusiastically both internally and externally, financial performance will become the byproduct as opposed to the sole objective.