If you are groaning at the thought of yet another article on digital – give me one minute to explain why this one is a must-read.
We have cut through the current hype and noise of digital transformation to get to the heart of what makes a successful digital strategy. We have worked with your peers to identify the real digital pain points you are experiencing.
We are talking to the people on the front-line; to real practitioners – people like you.
To this end we carried out in-depth interviews with banks across retail and wealth banking, speaking with both technology and business influencers. We held market collaboration events with bank CIOs, chief architects, CMOs, heads of innovation and tech heads from some of Europe’s biggest banks to tease out the real issues. We quizzed high net worth individuals and even hit the streets with our clients to conduct ‘vox pop’ interviews - watching a bank CEO approach strangers in the street to develop empathy for real world banking concerns was a real eye-opener. #Humanityrising!
The result was a lot of very valuable information from which six key pain points emerged, common across change agents trying to drive forward digital strategies in their organisations.
Pain point #1: The customer is front and centre of hearts and minds
No surprise here perhaps, but almost all the organisations we spoke to cited connecting with their customers as their most urgent goal. For some, this ranked above cost-cutting initiatives, perhaps because of the growing realisation that cost-cutting, while essential, is a zero-sum game.
There is a real fear among banks of becoming disenfranchised - of becoming irrelevant and losing even more of the trust and connection with customers. PSD2 drives and enables open banking and data aggregation, allowing the GAFAs (Google, Apple, Facebook and Amazon), challengers and non-banks to make further inroads into financial services.
Ownership of the customer relationship is acknowledged as a key asset for banks and aggregation puts this relationship at risk. To mitigate its effects, banks need to gain, maintain and galvanize customer engagement. This means delivering to customer needs and expectations - and ultimately owning the customer conversation.
While we found strong aspirations to become truly customer-centric, all too often follow-through projects were reduced down to interface improvements, some new features and functions or the implementation of a new platform that would achieve cost-efficiencies and hopefully seduce millennials with a slick new look and feel. Less attention was paid to the value proposition and resulting customer experience.
Pain point #2: Legacy culture NOT legacy architecture is the biggest barrier to achieving digital success
“Everyone loves innovation, yet everyone hates change.” This was a perceptive quote from one of our clients.
Legacy culture is still a real problem and the biggest challenge experienced by banking change agents trying to introduce innovative digital programmes is getting buy-in from the C-suite. You will only succeed in creating a new culture that embraces experimentation and delivers change with the CEO’s support and buy-in; with their active participation in and commitment to driving the digital strategy through the organisation.
The pieces of the puzzle are all there: the technology, the innovation, the design team, the Fintech partnerships - and to a certain extent the will and conviction. Yet, if the entire firm, top down, is not singing from the same hymn sheet, digital transformation risks being restricted to a department, rather than empowering and enabling the entire organisation. And change agents are eventually worn down through years of fighting legacy mindsets.
Pain point #3: Collaboration around technical solutions is the new norm
The comment: “We just can’t build everything ourselves anymore” came up time and time again in our research. It’s neither efficient nor effective to build everything in-house and manage the complex large-scale architectures that result. Fast speed to market, original thinking, design-led innovation, fast change cycles, agile delivery - these are the driving characteristics of new world eco-system collaboration. Today’s is a ‘through the looking glass’ world where you play with your competitors, open up your data and believe in the abundant power of collaboration – all without certainty of results. A radical concept indeed.
Yet Fintechs like Starling, N26 and Revolut get this. They identify their ‘magic sauce’, their differentiator and core capability – and then they collaborate to build an ecosystem around it. Speed and relevancy are key motivators for collaboration, which enables them to engage customers quickly and gain first mover advantage.
Many banks already take a collaborative approach to growing their technical architecture through componentised and modular ecosystems, whether through building, buying, partnering or investing. It’s the most cost-effective way – particularly given the host of new niche capabilities now available.
This collaborative approach enables faster change and speed to market, it helps them to create new and relevant solutions to uncharted problems and manage R&D risk.
Having achieved this kind of cultural shift in moving the technical architecture forward, it is now time to extend it to the rest of the business - to people, processes, mindset and vision.
Pain point #4: Confusion around what it means to be digital
While everyone recognises the need to be digital, there is a clear split in the way that digital is understood, with perceptions ranging from the very tactical (it’s being paperless, it’s STP, it’s about developing a great app to attract millennials), to the philosophical and enlightened where innovation leads are fully immersing their organisations in a much deeper and more expansive digital world (it’s everything, it’s a mindset, it’s the entire business model).
The difference between the two poles is between doing digital and being digital. This distinction emerged very strongly in our research. Those who are succeeding are building a digital mindset and DNA into the fabric of their organisations.
Digital is not about having a faster horse.
Pain point #5: So much hype and noise confusing the digital space
Jargon, a plethora of new technologies and hype clutter the digital space. Digital buzzwords are bandied around enthusiastically – yet there is no common vocabulary or frame of reference for creating a digital strategy. The hype and noise around digital is making everyone excited about the possibilities but not helping them to translate this potential into customer value.
Indeed it is creating a real barrier to innovation and progress.
Plus, if you get sucked in by the hype, there is a danger that the digital conversation becomes technology-led rather than focusing on customer experience or customer value. This ‘cart before horse’ approach has a host of negative consequences. The result may ‘fix’ the basics; it may optimise channels and use digital technology to create cost savings. This is all relevant and good – but it’s only scratching the surface of what digital really offers. By all means explore new tech and work out the art of the possible. But anchor this to real-use cases that solve genuine banking problems.
The desire for knowledge and new learning is strong and the desire for some sort of holistic understanding even stronger. Unfortunately, many banking change agents don’t have the luxury of time to create a clear and simple language around which they can grow their propositions, communicate them across multiple functions and craft them into a relevant digital strategy.
Pain point #6: Fundamental shift in the competitive landscape: banks versus non-banks
The competitive landscape has fundamentally shifted from banks competing with banks, to banks competing with newer players: the aspirational brands with strong value propositions offered by the likes of PayPal, Revolut, N26 and Starling - not to mention the rising interest in ‘Bank of Amazon’.
This is not a new trend, but it is becoming more urgent as a greater number of people now use banking services from non-banks.
This nuance between bank and banking was picked up in our research.
Most people we spoke to in our street interviews were unable to articulate what a bank could do for them. Apathy best summed up the attitude many customers had towards their banks: “I don’t really think about my bank”; “We have no expectations”.
Many view their bank as a utility; something that is product-focused. They can’t even conceive of a bank as an advocate of their financial well-being.
The non-banks, on the other hand, are viewed as customer-focused; as fitting into customer lives rather than the other way around. They are winning the trust of their customers hands down.
These new players, are seen as inspirational – even by banks, and it is clear we need to move the conversation from ‘we are a bank and we do this’ to ‘we deliver banking services’.
Hype, confusion, legacy thinking, agile competitors, customers who no longer see you as relevant – these are just some of the challenges banks are battling against.
But the opportunities are ever present and we believe a coherent digital strategy will get you there.
Written by Kam Chana, Senior Digital Strategist at Temenos