The term “digital divide” first entered the corporate lexicon around the turn of this century. Coined by Lloyd Morrisett, the former president of the Markle Foundation, the term is used to describe the gap between those who have access to new services of the information society and those who don’t.
While the expression is most typically used to describe consumers — for instance, those who have access to the internet vs. those who don’t — there is also a dangerous digital divide widening between financial institutions.
According to Forrester, there are those institutions that are embracing digital transformation — real digital transformation — and those that are not. And the cracks between them are becoming increasingly evident.
Those institutions that continue to do business as usual don’t understand their customers. And that’s the crux: the digital haves are investing in foundational digital initiatives to become “customer obsessed”. Any institution that isn’t obsessing over customer journeys and the customer experience will struggle. They will find themselves distracted by bright and shiny objects that look great, but don’t truly transform their organization — at least not in the ways that matter.
Forrester notes six trends that are driving the retail banking industry, all of which could widen the gap between the digital haves and have-nots.
1. Low interest rates. Banks that rely on interest income got a bit of good news when interest rates crept ever so slightly upwards, but the yield curve is the lowest level in almost a decade. Any institution relying on rising interest rates will be rewarded—at some time. In the meantime, it’s a good idea to find new sources of revenue.
2. Regulatory uncertainty. Will the Dodd-Frank Act be scaled back? What’s the future of the Department of Lending’s Fiduciary Rule that legally obligates financial professionals to act in consumers’ best interest? Will the CFPB be here today and gone tomorrow? Who knows? Many institutions were counting on the Trump administration to roll back regulations but there is concern that the administration won’t be able to fulfill their campaign promises of regulatory relief. As a result, financial institutions are hedging their bets on the regulatory environment by holding higher amounts of capital.
3. Fintechs are moving away from B2C to partner with banks and credit unions. When fintechs first hit the scene, their business model was to go direct after consumers — an expensive proposition that’s difficult to scale. Today, fintechs are opening up their technology to financial institutions as a way to get their technology out into the market. Moven, a mobile money tool that gives consumers instant feedback on spending patterns, partnered with TD Bank. OnDeck, an online small business lender, teamed up with Chase. SigFig Wealth Management, a robo advisor, is working with Wells Fargo. Financial institutions can get access to innovative technology that consumers want without having to do the expensive and time-consuming R&D to bring these products to market.
4. Consumers want more relevant digital experiences. It’s nothing new that consumers want access to financial products and services from any device that suits them at that moment. But consumers are a demanding bunch, and instant access just isn’t cutting it anymore. They want interactions with their bank or credit union to be personalized. They want institutions to not only meet their needs, but to anticipate those needs, maybe before the consumer even knows they need it. Firms like Moven that offer personalized money management tools do this really well. If your institution is offering generic financial advice, you are not delivering what consumers want.
5. Millennials are ready to spend, spend, spend. The Millennials are now 18 through 35 years old — and entering their prime spending years. Think houses, cars, and all that goes along with those purchases, such as insurance. But remember as you design products and services that Millennials still like to visit the branch when they have questions or need advice on complicated financial topics such as buying a home or saving for retirement. Look for the right opportunities to inject human help into your digital touch points.
6. Optimistic uncertainty. There’s a lot of talk about “Make America Great Again” but U.S. consumers aren’t convinced that the current administration will be able to deliver its promises of job growth, tax relief, and increased wages. Business confidence seems to be up, but the longer it takes for infrastructure spending and tax breaks to become reality, hopes will diminish. Uncertainty will likely continue to drive the economic outlook going forward. If your financial institution is hoping for increased consumer confidence to drive profits, you may be rolling the dice.
Don’t Become a Digital Dinosaur
Forrester suggests a few ways retail financial institutions can protect themselves from becoming one of the digital have-nots, starting by fundamentally changing the mindset in how they will deliver better digital experiences for consumers.
Put the “person” back in personalization. Don’t focus on business outcomes such as an increase in deposits but focus on the consumer. It’s about them, not you. Analyze the consumer data you mine from different angles to understand their intent and the context of their behaviors.
Most financial institutions say they personalize their interactions with consumers when actually all they do is determine the next cross-sell opportunity. Think about the next best action or the next best conversation based on consumers’ life events, what they just did, where they are, and what device they are using right now.
Your business isn’t a set of products and services that you provide digitally to consumers. Instead, Forester recommends that you view your bank or credit union as a part of a consumer’s personal value ecosystem that consumers can piece together based on their needs, wants, and desires.
Assemble the troops. To create new value for consumers, you’ll need to partner both inside and outside your organization. Internally, the digital teams should collaborate with customer experience, customer insights, marketing, sales, and product teams to better understand consumers. Externally, don’t be afraid to partner with disrupters, vendors and even competitors.
Build a strong digital foundation.There’s lots of shiny new technology out there that you can slap onto your existing business, but much akin to the old adage about putting lipstick on a pig, you’ll be a digital have-not — even with leading edge technology.
The best banks and credit unions — and Forester calls out Ally Bank, Bank of Montreal, Citi, and USAA as being some of the financial institutions that get digital transformation right — are investing in their digital foundation. These institutions are revamping culture, funding models and data silos that can stop their organization from taking advantage of emerging technologies such as artificial intelligence and the Internet of Things (IoT).
These financial institutions are changing their structure from functional silos to cross-functional teams. They are also investing in back end systems, data infrastructure and application programming interfaces (APIs), because no mater what new technology unfolds, the digital haves will hold the key: a unified, real-time view of their consumers.