$405 Billion Up For Grabs In Retail Banking Digital Arms Race

Cisco analyzed the financial industry and found that traditional banking providers stand to gain — or lose — as much as $405 billion in the next couple years, depending on how they execute their digital strategy.

McKinsey & Company estimates that financial institutions have three to five years in which to get their digital game plans together. Those who fail to do so could see 35% of their net profits eroded. The time to act is now.

In its own study, Cisco gauges the economic impact to traditional institutions failing to fully implement digital strategies has already totaled $144 billion globally between 2011 and 2015. And Cisco says another $405 billion is at stake… within the next two years alone.

Granted, the financial industry is already more digitized than most other industries, and many banking providers are poised to push further with new digital capabilities. However, Cisco says financial services still captured only 29% of the potential value they could have in 2015. In other words, a ton of money was left on the table. That void will be filled by fintechs, by large technology companies, and by retail banks (even some credit unions) that can innovate the fastest.

When it comes to digital transformation, the real cost lies in not digitizing.

— Cisco

The problem, as Cisco sees it, is that traditional institutions simply aren’t keeping pace with the expectations today’s digitally-savvy consumers now demand — in all channels. Fortunately, developing digital capabilities doesn’t always require entirely new investments. As Cisco points out, investments made to achieve one business outcome can be repurposed to drive digital initiatives.

9 Key Digital Use Cases that Will Close the Value Gap

Cisco published an excellent white paper that explores a range of potential use cases that can drive digital value for banking providers. According to Cisco, consumers are particularly receptive to five core digital delivery concepts that focus on ways to deliver better advice (virtual financial advice, virtual mortgage advice, automated investment advice), and more valuable mobile services (both interactions and payments). By assessing, adopting, and combining the right digital uses cases for their needs, Cisco says banking providers will be properly positioned to claim their share of the $405 billion up for grabs.

1. Sales & Services Transformation ($152 billion at stake by 2017) — Connect and coordinate interactions across multiple channels by enabling intelligent, personalized customer interactions that blend physical and virtual experiences.

2. Next-Generation Workers ($50 billion at stake by 2017) — Drive connectivity across multiple devices to improve productivity, enhance collaboration, and reduce costs for employees in the branch, at call centers, and from headquarters.

3. Payments ($43 billion at stake by 2017) — Enable consumers to use mobile phones to pay for products and services; improve customer convenience; and capture underbanked markets. Horizontal improvements in network efficiency, collaboration, etc.

4. Video-Based Advisors ($38 billion at stake by 2017) — Inform and guide consumers by connecting them with an expert advisor either in-branch or on mobile devices; drive higher customer satisfaction along with upsell and cross-sell opportunities.

5. Connected & Targeted Advertising ($33 billion at stake by 2017) — Deliver targeted advertising and marketing through email, social media, online advertising, mobile devices, and digital signage; leverage analytics and Internet-based technologies for direct and relevant connections with consumers.

6. White-Label Services ($25 billion at stake by 2017) — Expand a bank’s market with a wider range of branded products or services; increase virtual presence in global markets.

7. Product Innovation ($19 billion at stake by 2017) — Leverage efficiencies and insights about consumers to develop new offerings quickly; drive faster time to market, increase customer loyalty, and enhance cross-selling opportunities.

8. Information-Based Consulting ($9 billion at stake by 2017) —Create advisory services based on deep understanding of customer preferences and requirements. Monetize the information you possess about consumers and leverage it in ways that will expand your client base.

9. Virtual Tellers ($5 billion at stake by 2017) — Automate customer questions and transactions with self-service channels; increase employee productivity with lower staffing requirements; improve customer satisfaction through enhanced interactive experiences.

The Three Core Capabilities of a Digital Retail Bank

If they are to offer such services successfully — and continue to evolve and compete — Cisco says all banks and credit unions will need to digitize, starting with these three foundational digital capabilities.

1. Hyperawareness. As Cisco defines it, “hyperawareness” enables banking providers to recognize real-time insights and future trends. A critical component to the level of hyperawareness Cisco prescribes is the ability to see firsthand how products and services are actually being used (for example, by a bank customer generating data while accessing services, whether in the branch or on a mobile device). Or hyperawareness could provide wealth-management specialists with up-to-date information on financial markets, fusing multiple data sources together in ways that create a critical competitive edge. To attain hyperawareness, digital tools — including social networks, connected devices, and sophisticated analytics capabilities — must work, constantly monitoring and sharing critical information.

2. Informed Decision-Making. Traditional institutions need to actively analyze real-time information, and to ensure that it reaches the right people (e.g., front line associates) or the machines needing it most (e.g., algorithm-based services dispensing financial advice). Few industries depend upon fluid decision-making to the extent that financial services does. Data insights provide employees with customer insights and second-by-second market developments for every interaction. According to Cisco, informed decision-making will require a technology foundation that includes knowledge-management systems to organize insights, collaboration systems to facilitate multimodal conversations, analytics systems to deliver evidence-based insights, and dashboards to display relevant information.

3. Fast Execution. Fast execution is about turning decisions into action. Cisco says banks and credit unions must respond rapidly
to ever-changing market conditions and customer demands. This capability depends on analytics and digital connections. It also demands organizational change management to ensure consistent strategy, and breaking down silos and rigid hierarchies. In short, the institution’s culture must embrace an inclusive, action-oriented approach. That can mean empowering a much greater number of employees to respond to real-time customer needs — supported by the automation of workflows and the sharing of real-time data insights.

Where Are You on Your Digital Journey?

Some banks and credit unions are in the early stages of deploying technologies that will enable their digital strategies. They’re seeking IT agility and operational effectiveness. They want to move faster, and they’re looking to reduce their cost structure. According to Cisco, a next-generation workforce, solidifying issues with cybersecurity, optimizing IT, and pursuing call-center efficiencies are examples of key investments for institutions in the “enablement” stage.

Others are using digital to differentiate their strategy, such as by delivering the ultimate customer experience through video advice, mobile payments, and sales and services transformation. They are employing technology for new products and services, and they are redefining some of their business processes.

Financial institutions that are furthest along in their digital journey are harnessing technology to define strategies around entirely new business models. These forward-looking organizations are combining multiple digital use cases. Admired tech brands like Apple, Google, and Amazon (all of which happen to be moving into the banking space) have a proven history of combining technologies in ways that cross industry boundaries and spur innovative new business models.

Technology change is not a solution in-and-of itself. There is no “silver bullet.” It is a process, a journey — one that must include organizational changes, workforce empowerment, and clear leadership.

— Cisco

Ultimately, transformation comes down to people. That means connecting with consumers who are used to intuitive, seamless, and efficient experiences in online entertainment and shopping. Retail banks and credit unions must offer similar personalized, contextual, and efficient interactions.

Top-down leadership is essential for aligning the company culture with customer needs and business outcomes. It can also ensure that as new digital use cases are adopted, they are woven into the workflow with as little internal disruption as possible. Indeed, for a spirit of bold innovation to prevail, technology transformation must go hand-in- hand with workforce and organizational transformation. A willingness to try new ideas, field test them quickly, iterate rapidly, and fail fast if necessary must be instilled at every level.

The real value is in making strategic investments that will drive tangible results. This requires a roadmap rooted in an understanding of where your organization is today and where you want it to go. Your investment plan should allow you to build the digital business foundation that will get you there. The result will be an organization that is both agile and inventive, creating secure experiences and products that reflect the changing needs of consumers.

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