Digital transformation is more than just providing functionality online and on the mobile. Financial service providers ought to combine digital pace and productivity with human experiences which are both compassionate and sensitive at critical moments in the customer experience. Here's how to do it.
Four out of five financial firms believe that digital will drastically alter banking and completely transform the competitive landscape of the industry. Yet according to the Boston Consulting Group study, fewer than half (43 per cent) say they don't even have a digital plan. And when it comes to digital, an amazing one-in-five banking execs recognise their bank or credit union to be "market-leading."
What is it that holds them back? The vast majority of them refer to their current technology infrastructure. (Translation: “It’s our core DP’s fault!”)
And what will mainstream banking service providers do to fix this? Just like any major transformation initiative, you should start with a strategy — digital isn't the other way around.
"Any financial service provider's starting point will depend on its business strategy, market role and capabilities," says Boston Consulting Group. But everyone needs to consider how to reshape their delivery models, strengthen their value propositions and build end-to-end consumer-centred journeys to maximise growth and customer satisfaction."
The approach can not be a series of one-off à la carte initiatives taken by separate business units as well as individual ones. The endeavour will require financial service providers to reach beyond their comfort zone; rather than uncoordinated efforts, they need to address digital transformation as a holistic, enterprise-wide strategy — one that the C-suite leads from its very top, with the CEO firmly at the helm. Without a top-down, holistic approach involving every part of the organisation, general banking services will fail to take advantage of innovative emerging technologies like automation, big data, AI and blockchain.
Boston Consulting Group recommends that financial service providers focus on four priorities-or pillars-to build a digital transformation strategy:
- Reinvent the road for customers
- Taking advantage of data power
- Redesign the operational model
- Building a Digital Organization
1.Reinvent the way for customers
The customer path does not get any less frictionless than the one-click order from Amazon-see it, like it, press it, buy it. And for many consumers, this is the purchase journey with which they expect from everybody they do business.
Imagine what's going through the minds of customers when faced with a trip that takes days or even weeks at their bank or credit union. Consumers are likely to believe that banks and credit unions have had plenty of time to find out what Amazon is doing right and mimic it — for example, "Why is my bank not operating like Amazon?? When are they going to be getting their act together?
Banking providers need to evaluate what matters most in the customer journey at crucial moments – which will vary significantly between different consumer segments – and then work relentlessly to improve the experience. The end goal is to digitise the consumer journey entirely from start to finish, BCG says (think: fast digital onboarding and automated digital lending decisions).
A digitised journey not only makes consumers happy, but it also liberates staff for more valuable tasks such as cross-selling and building relationships while at the same time saving the financial institution money by enhancing productivity. That is triple victory.
So what does the consumer journey look like when digitising? Antony Cahill, NAB's COO, explains it as "basically re-imagining and redefining all customer service."
"We do things in a way that has the consumer at the forefront of everything we do," he says.
According to Vish Jain, First EVP and Head of New Business and Operating Models, Siam Commercial Bank has established five consumer journeys — prospecting, advice and selling, onboarding, transactions and administration — and digitises them all.
The bank used to monitor beneficial owners manually through company holding systems, for example, and then manually measure owners against six separate databases for sanctions. The process could take days to complete. Onboarding only takes three minutes by digitising the process.
Trying to map and change numerous consumer journeys is too overwhelming-and costly. Boston Consulting Group suggests that you start with a few main missions with the best potential to have the most significant impact. Financial institutions that digitise major consumer journeys can increase revenues by up to 20% and reduce costs by up to 25%.
Boston Consulting Group says you need to be doing your research to find the most effective consumer journeys.e.g., look at customer transaction history, call centre logs and online data to identify those points on the mission that cause the most pain. Learn how to digitise the first trip or two, then tackle the next one.
Even the transformation of just a few travels can make a significant difference. According to Boston Consulting Group, one large bank has modified its credit lending journey and halved the time frame from application to funding, cutting costs associated with the process by 30 per cent. Over four years, another bank tackling the same route saved $200 million.
2.Taking advantage of data power
Data analysis enables banks and credit unions to understand consumers truly, identify business performance and reduce expenditures, says Boston Consulting Group. Advanced analytics enable financial institutions to predict potential defaults on loans or to find consumers who, due to over-zealous discounting, are underpaying and then repay those goods and services. Another concept is by using granular cluster analysis to compare this same individual consumer product range with the average for that consumer type and to use that information to cross-sell and deepen relationships.
Banks and credit unions could use data mining for best prospecting and customer targeting. On the prospecting side, identify leads and establish links between current and prospective customers. Using behavioural analytics to classify consumers who are at risk of flight and then create individual action plans to keep these consumers loyal.
"Data mining could enable banks and credit unions to transform themselves as partners providing highly tailored solutions to their clients, rather than vendors attempting to sell goods that may not meet customer needs," says Boston Consulting Group.
Siam Commercial Bank used to rely exclusively on its banker's networks to provide prospects for its customers. Currently, the bank is also testing payment networks to identify non-customers that are associated with their existing clients. The bank, after which these non-customers were contacted to extoll the cost and acceleration benefits, will be on the same Siam Commercial Bank platform as its business associates. The bank also uses data mining to build profiles of its best clients and uses contrary views to identify similar trends.
Banks and credit unions may use data mining to raise costs. In addition to providing adults who still are paying introductory student fees—30 years later — data mining can evaluate and discover consumers who may be paying for services that they do not care about and receiving other services that they would be willing to pay for free. One European bank increased day-to-day banking revenue by almost 15% by tailoring the market value of the bundle to customer preferences.
3.Redesign the operational model
Customers frequently want the best of both worlds: digital experience whenever they need speed and convenience, and human experience if they need advice on more complicated systems, such as investment or mortgages, or when they have an issue or a problem. Boston Consulting Group estimates that the percentage of consumers seeking hybrid experience has risen to 43 per cent from 37 per cent in 2015.
Banks and credit unions that integrate human interaction alongside digital and self-service functionality in what BCG calls a bionic network can expect a revenue increase of up to 15%, a decrease in branch costs of up to 35% and an increase in customer satisfaction of up to 15%.
The sizeable Australian bank has been using advanced location technique to evaluate which digital, human and hybrid services were the most in supply for which branches. They decided to open, closed and redeveloped branches and cut their branch footprint by 30%.
The Boston Advisory Group describes three digital business models:
- Digital as a business as a regular plus. The leadership team will stay in place and concentrate on bite-sized developments. Funding usually comes from a budget change for P&L.
- Pros: Fast early gains and cost savings.
- Cons: It's hard to alter a business model that is already siloed inside the same business unit. Since P&L remains in a single market or business segment, there is little opportunity to expand across business lines. And legacy networks remain a matter of concern.
- Particularly suitable for: banks and credit unions at the early stages of digital transformation.
- Hiring strategy: retrain current talent and, where possible, add talent pools.
2. Digital as a new business line. The bank or credit union shall set up a new business unit and shall appoint a digital head. The division owns digital projects but uses the shared services of IT, HR and others.
- Pros: This model could have a more dramatic effect on the consumer experience than a digital business plus. There is much more accountability, too, because you can blame the head of the digital when things go wrong. It's relatively easy to scale by implementing initiatives across the organisation.
- Cons: A new type of work is a more big organisation. Digital will also compete with other IT services business units. And legacy systems will remain a matter of concern.
- Most appropriate for : a financial service provider that has already made progress in digital transformation.
- Hiring strategy: retrain local skills and add talent pools where needed, only on a larger scale. You will also have to add new physical spaces to encourage innovation and collaboration.
3. Digital natives: This is a new digital bank with a P&L and a technology stack of its own. The focus is on the acquisition of new customers.
- Pros: New economies and new capabilities are likely to have a rapid impact. There are no legacy systems in place to get in the way. The new institution can quickly launch off-the-shelf products.
- Con: The current bank remains intact and it is challenging to motivate existing bank customers to move to the new bank.
- Most appropriate for: financial service providers that have already made significant progress in digital transformation.
- Hiring strategy: the sky is the limit. Since the best talent usually wants to work with innovative digital platforms, it will be easier to employ.
You don't have to choose a fixed operating model; Boston Consulting Group observes that many financial institutions operate all three models for different markets, regions and business lines.
4. Building a Digital Organization
A digital bank or credit union is viewed as a priority that requires a clearly defined plan, resources, expertise, agile operating practices and an organisational structure that is willing to take risks. It's not easy to do that, but it can be worth the time and effort. Banks and credit unions that digitize can attain a 20% growth in value and a 30% decrease in expenditure.
"Infusing modern thinking into a conventional banking culture can be difficult and the need to balance two cultures during the process will worsen the situation. Survival depends on the dedicated upper management that is dedicated to fundamentally reforming the bank, "says Boston Consulting Group.
As BCG dive into digitisation, numerous banks and credit unions are unimpressed by the initial results. Implementation is always slower than expected. Digital initiatives around the institution are challenging to scale. They may not have the talent for the digital and cognitive abilities they need.
The organisation doesn't want to make any changes. And the straightforward truth implications are much smaller than they thought it would have been. As a result, initial enthusiasm has decreased throughout the project.
Challenges are becoming obstacles. The integration of digital applications with legacy systems is a particular sticking point. One banker informed Boston Consulting Group that 80 per cent of their digital initiatives were invested in integration with legacy systems.
APIs allow legacy applications to communicate with digital applications, but the problem that some financial institutions end up making is that they integrate multiple systems at once. Instead, prioritise business value-based APIs.
Smaller scales can be better in many other ways. Instead of undertaking on a large-scale, long-term digital transformation, go for quick hits to create momentum and keep awareness (and funding) secure. That is the approach that HSBC has taken.
"We have decided from the outset that if we spent all our time and resources on engineering 'pipes under floorboards,' we would lose the confidence of our customers, even if we met our long-term objectives," explains Niall Cameron, Global Head of Corporate and Institutional Digital at HSBC. We have found that a balanced portfolio of short-term, high-impact — mainly channel-based — initiatives, alongside long-term reorganisation, is the way forward.