Financial services companies still haven’t worked out what digital means, argues Anton Ruddenklau. Time is running out to do so.
What is digital? You might think financial services companies would be able to answer that question in a flash, given all the time and money they have lavished on digital initiatives in recent years. You’d be wrong: the painfully slow progress firms have made towards real transformation and reinvention tells its own story – they still don’t get what digital is all about.
Some businesses are excited about the tools and technologies. They wax lyrical about the potential for, say, robotic process automation or blockchain to turn the industry on its head. Others make bold claims about reinventing the customer experience – they talk about journeys and personas and archetypes.
In practice, both technology geeks and marketing maestros have ended up in the same place. The changes they make are incremental and concentrated on digitising the business as it currently stands. The focus is all about grafting digital tools on to today’s model, rather than creating a new vision for tomorrow.
This is inside-out thinking. Organizations that are genuinely “customer centric” – another one of those buzzwords – start by thinking about what their customers need and want; then they build a business model to meet those desires. In financial services, we’re doing the opposite: we’re adding digital capabilities to our businesses and then thinking about what we might do with them.
As a result, we now have an industry that is not fit for purpose in this age of digital transformation. Amazon has spent 20 years moving from market to market, building an ever-bigger business by thinking about what customers want in each new space it enters. By contrast, financial services firms are still selling the same old products in the same old way, clinging to the hope that a colourful website or a well-designed mobile app will convince the customer they are doing something different.
You might argue that the industry has got away with it. After all, by and large, despite predictions to the contrary, we have not yet seen new entrants to the financial services industry build businesses at scale that are now taking market share from incumbent providers.
However, this is complacent thinking. It may be that customers feel more comfortable with established brands in financial services, where they are entrusting their financial wellbeing. But this will not endure: not least because the millennial generation shows no signs of the deference to big-name financial services businesses that has protected the industry until now.
Moreover, in this new era of open financial services – and not just in banking – the barriers to entry, whether for challenger-style FinTechs or the technology giants, are tumbling down. Technology-enabled collaborative partnerships operating in a connected ecosystem underpinned by free-flowing data now stand every chance of stealing the incumbents’ lunch.
It is not too late for the established financial services industry to respond. Open financial services offer them just as big an opportunity as the new entrants – arguably a bigger opportunity given their inbuilt advantages of size, brand value and access to data.
In order to capitalise, however, the financial services industry finally has to get the picture on digital – to expand the scale of its ambition. It’s fine to digitise the existing customer proposition, but this is only the beginning, not least because it ignores the opportunity to digitize the supply chain too. More fundamentally, firms must be prepared to step back and think anew about what their customers want.
Be bold and take risks. Experiment with ideas in the knowledge that they can be dropped if they don’t work out. Work with new partners with fresh thinking about the financial services of tomorrow. Ask customers what they really want and then consider how technology can deliver.
None of this is beyond the reach of the financial services industry. But we must all recognise that we have a responsibility – it is the duty to pass on a better range of products and services than we inherited. Digital makes this possible, but not until we get to grips with what it really means.