Before online and digital banking became part of daily life, every transaction, including shopping for financial services, opening an account, making a deposit or withdrawal, and even checking an account balance or interest payment required a phone call, a branch visit, or maybe both. Digital transformation enabled consumers who prefer a simpler way of banking to perform most such tasks in the comfort of their home or on a mobile device.
But, have we gone far enough to simplify the consumer’s daily life? More importantly, have banks and credit unions changed the underlying processes and legacy cultures, or simply used new technology and advanced devices to “polish” legacy banking? And, has our focus really been on delivering an improved customer experience – or just to find ways to chop delivery costs?
When we compare the offerings from most fintech and bigtech firms to legacy banks and credit unions, we can quickly see the difference between completely rethinking banking versus only reconfiguring delivery. Look at Venmo, Acorns, Stripe, Robinhood, SoFi and Credit Karma, among others. Each of these fintech leaders have built seamless solutions on a digital platform designed for the 21st century as opposed to a platform built more than 40 years ago.
The simplicity of design and delivery built from the ground up are strong competitive differentiators for new players. Examples in other industries include Netflix, Uber, Airbnb, and Amazon. Each of these firms completely rethought an entire industry the same way that successful fintech firms have.
Can traditional banking organizations can move to the post-digital age the way many other industries have? Can legacy banks and credit unions rethink solutions from the inside out for digital-first consumers? Can they avoid internal “turf wars” and disrupt the status quo?
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Unprepared Leadership and Culture Gaps Hold Back Traditional Banking
The scale of change needed in financial services is greater than most industry executives are prepared for – and the gap keeps growing wider despite the investment made by most banks and credit unions. Rising consumer expectations, growing competition, increasing regulations and new technology advances are happening faster than most organizations can respond.
As a result of this, financial services firms have admitted in a Capgemini survey that confidence in their own digital capabilities is dropping. Financial services executives believe they have a “shortage of skills, leadership, and [the] collective vision needed to shape the digital future.”
Capgemini reports that 41% of financial services firms said they had the digital capabilities they needed six years ago. Today, only 38% of banking organizations believe they have the required capabilities. Most concerning is that in 2012, 51% of financial organizations said they had the leadership capabilities required for transforming successfully. Confidence in leadership fell to 41% in the most recent research.
Leadership capabilities included “having the necessary transformation vision, a governance model to lead the journey, necessary information technology and business relationships to produce results, and employee engagement throughout the journey.”
Adding to the leadership challenges, financial institutions also believe that cultural issues present significant roadblocks to digital transformation. In fact, the research showed that only 31% of banking organizations believe their organizations are free of bureaucracy when it comes to employees submitting ideas, as compared to 36% in non-financial services organizations. In addition, only 33% of banking thought their leaders were adopting new behaviors required for transformation.
Banking in the Background
To move forward, the banking sector must rethink priorities and the pace of change. There must be an understanding of customer journeys, a doubling down on data and advanced customer intelligence, and a rethinking of overall organizational structure that eliminates a product-focus in favor of a customer focus. The objective should be to make banking as simple and frictionless as possible, integrating with a consumer’s daily life.
Taking the concept of “simple” further, banking must become intuitive – using advanced analytics to provide advice and solutions before the consumer is aware of the need. This provides the highest value proposition in a crowded marketplace, serving as a “financial concierge” for optimum deployment of funds and delivery of services.
What the consumer wants is proactive financial advice and contextual solutions that respond to location, life stage, recent events and financial opportunities. They want their financial institution to know them, look out for them and reward them … in real time. They want recommendations and “invisible” decisions made on their behalf.
This form of engagement requires both trust and permission. The consumer must believe you are working on their behalf and that the decisions made “in the background” are aligned with the decisions they would make on their own. This requires a level of analytics and solution deployment not seen in most financial institutions. It is the foundation of fintech organizations like Acorns, where savings are accumulated based on “excess funds.”
Consumer expectations with all industries show the desire for proactive insights and decision making. In much the same way that Google uses a history of communication to help complete sentences in the Gmail app, or Amazon uses previous purchases to rank order products when a person shops, consumers want their financial institution to simplify their life.
Most legacy financial institutions may not be able to create these experiences on their own. Collaboration with third-party providers will often be required to shift toward banking invisibility. This will require a complete disruption of banking as we have known it in the past to a new focus on product design, delivery and agility that centers on the consumer as opposed to product goals.
Moving Beyond the Conventional Concept of Digital Banking
According to the Capgemini research, several digital and leadership capabilities are needed to keep pace with expectations and to move beyond digital banking.
First and most importantly, banks and credit unions must focus on placing the consumer at the center of the organization, with product silos eliminated in favor of teams aligned around the customer journey. According to the research, 64% of the banking sector’s digital masters have “created personae and journey maps to identify and serve customers better.”
Beyond that, it will be imperative to create an agility and flexibility in delivery similar to what exists in fintech and bigtech firms. This will most likely require changes in the composition of boards, top leadership and departmental management who can see banking from a new perspective.
New operating models will also be required that will include the collaboration with third-party providers. There also needs to be support of open banking APIs that will enable the offering of new products both within and outside financial services.
Bottom line, the infrastructure of banking as well as the perspective of banking’s role in the consumer’s life must change. According to Capgemini, 64% of banks are actively working with a wide ecosystem of partners – such as startups, incubators, technology firms, and even competitors – to co-develop solutions. For the industry to be prepared for the future, this number must increase.
Finally, and potentially most importantly, the “culture of banking” must shift to support both a customer and employee centricity, with a support of innovation and experimentation. Organizations need to encourage the creation of new ideas and simplify the funding of these advances. In conjunction with this transition, “financial institutions will need to implement digital tools and technology platforms that enable rapid development, and provide a platform for employees to execute those ideas,” states Capgemini.
To move from an era of digital banking to a delivery of financial services that is both intuitive and invisible, banking organizations will need to embrace a culture of testing and learning, with ongoing measurement of customer satisfaction and engagement to provide a path for ongoing improvement.