That’s the dire warning Forrester issues to banking provider who aren’t prepared for the changes occurring in the marketplace. In the report, “Predictions 2018: Financial Services Companies Get Serious About Digital Transformation,” Forrester says financial services firms must make the internal adjustments needed to differentiate their organization.
In their forecast of the financial services environment for 2018, Forrester shares 16 predictions and recommendations regarding external threats, competitive opportunities and organizational shortcomings, as well as recommended strategic action plans for each prediction. Many of these forecasts are closely aligned with Forrester’s free 2018 predictions guide for companies in all verticals.
Few Organizations Will Embrace Open Banking
While regulations in Europe will provide a springboard for a new era in banking, with other countries following closely behind, most organizations will not have a clear idea of how to proceed. As opposed to seeing these changes as a ‘cost of doing business,’ Forrester recommends leveraging the prospect of APIs, digital technology and the sharing of financial data as an opportunity to redefine business models.
Understanding that the loosening of regulator constraints is only the first step, financial institutions can create innovative financial and non-financial ecosystems that will improve the consumer experience and better position organizations to compete with large tech firms like Facebook, Amazon, Alibaba, Google, Tencent, etc. These changes also open the door for partnerships inside and outside financial services.
( Read More: Will Digital Disruption Trigger The Next Financial Crisis? )
Millions Will Join the Digital Economy
Advances in digital technology has expanded the awareness of the benefits of conducting financial transactions online or with mobile devices. At the same time, digital advances have provided access to financial services for billions of previously unserved and underserved consumers worldwide, especially in less developed economies.
With lower distribution costs and simplified engagement, the movement from paper to digital is picking up speed and increasing consumer expectations. This provides traditional financial institutions the opportunity to transform legacy delivery options, while also challenging the business case for existing physical infrastructures.
The digitization of financial services also will improve identity management through enhanced biometrics. This will impace the access to banking services in underserved markets and improve traditional payments and global money movement.
( Read More: New Digital Technologies Will Disrupt Banking Forever )
Digital Transformation of Back Offices Will Increase
The banking industry can no longer ignore the ‘elephant in the room’ regarding the need to update legacy operating systems. Beyond consumer-facing digitization, organizations must change back-end processes and people, investing in systems that will streamline transaction processing, customer support, credit processes, etc.
According to the Forrester report, “Leading financial services groups such as BBVA, Intesa Sanpaolo, and Lloyds Banking Group are already spending hundreds of millions on digital business transformation; Bank of America also intends to spend $3 billion annually for new software development alone.”
It is clear that operating systems that were installed four or more decades ago are not sufficient to support today’s digital transformation. The gap between those organizations that are embracing digital transformation and those continuing on the same path is growing, with the cost of ‘catching up’ becoming more prohibitive. Many firms risk being left behind.
( Read More: Being a ‘Digital Bank’ Goes Beyond a Pretty App )
Legacy Organizations Will Embrace Disruptors
“Incumbent financial firms are gradually realizing that they need to partner with fintech startups to improve their existing business, offer new services, and reach new customer segments — and vice versa,” states the Forrester report. 2018 will be a year that partnering will move beyond just small fintech firms, to also include large tech firms like Facebook, Amazon, Alibaba, etc.
We are already seeing banks partner with Alibaba to provide payment services to Chinese customers. The challenge will be the definition of the parameters of such partnerships, as financial services organizations try to avoid becoming too dependent on ecosystem competitors.
( Read More: Banking vs. Fintech: A Business Case for ‘Coopetition’ )
Financial Institutions Won’t See Half of Their Customers
The migration away from physical structures, agents and advisors began years ago and will escalate in 2018 as digital engagement becomes easier, personalization becomes contextual and consumers put a higher premium on their personal time. In fact, according to Forrester, most organizations will not see half of their customers, members or clients in 2018.
With almost all shopping for services beginning (and sometimes ending) on digital channels, the majority of rudimentary engagement will no longer require humans. And, as AI and advanced analytics improve the ability to anticipate and respond to needs, the value of the human (and digital) interactions increases exponentially.
Contextual engagement will become a source of differentiation, with the impact of automation and the ability to integrate digital and human interaction becoming a consumer expectation. This will require the hiring and training of both front-line personnel and back office data analysts to replicate the level of personalization received from the most advanced retailers and high tech organizations.
( Read More: Banking Industry Fails to Meet Personalization Expectations )
Succeeding in 2018 … and Beyond
The speed of change in financial services will not slow down. Consumer expectations will continue to rise as digital innovation defies what we can imagine today. From AI and IoT, to chatbots and voice activated banking, it will be harder and harder to keep up – or catch up.
As mentioned by the authors of the Forrester report, “Consumers and prospects don’t care about a bank’s clogged-up digital backlog or an insurer’s problems with its legacy systems.” Stop-gap solutions will no longer suffice. Significant investments in infrastructure and a internal shift from a legacy culture is needed that embraces the opportunities of the future.
In the end, it is about value creation for the consumer, who will reward those organizations that make their daily life easier.