• January 21, 2015

3 Years, 3 Things—What Financial Services Sector Executives Need to Know

The financial services industry is heading for a maelstrom of change. With innovative uses of technology raising the bar on service, new entrants and some old-line brands are transforming how customers interact with banks. Customers expect better service at less cost that meets their individual needs, and financial institutions will have to adapt more quickly to the new environment or lose business to more nimble competitors.

Some new entrants are giants in other industries (e.g., PayPal, Google, Amazon, Apple, etc.) and others are nimble innovative competitors such as Moven and Simple. All demonstrate that a traditional physical banking presence doesn’t necessarily equal success. Over the next few years, banks must engage customers to build loyalty or risk losing them to those who will.

When planning strategy, financial institutions (FI) should focus on these three key areas over the next three years:

1. Digital

originalDigital transformation is shifting at a rapid pace from physical to virtual, from person-to-person interaction toward person-to-machine or machine-to-machine. The coordination and integration among disparate and siloed channels will be vital to satisfying demanding customer expectations. This includes looking not only at how financial institutions relate with their customers and ecosystem, but also about the underlying infrastructure and processes required to provide a digital experience.

It is more difficult for banks to reconcile digital with their legacy platforms and how they have been doing business for decades. Start-ups instead launched digital, without any legacy constraints. However, they need to be mindful not to build them as they grow. All banks must excel at digital transactions and online services to serve customers anytime, anywhere, on any device. The customer experience must be secure, seamless, and simple.

2. Customer Engagement

Companies willing to embrace new digital technologies and revolutionize their traditional retail and service model have massive opportunities. Banks must find new ways to enthuse customers about their offerings based on customers’ needs and desires. While payments are the bank’s bread and butter, this is a small component of the transaction value chain. Offers such as cash back, discounts, rewards points, and insurance coverage help attract and retain customers. Some banks tailor products for particular market segments such as credit cards for college students or cards for businesses to manage procurement activity from end to end.

How does a bank ensure that it is providing what customers really want? Involve customers in the design, listen to them, and learn to think from their perspective. If banks give customers the ability to choose the services they want and the way they want them to be delivered, the guess work disappears. In return, customers obtain what they want every time, while banks gain insight and a more valuable and personal connection to their customers.

3. Convergence of Industries—Banking, Telecommunications, and Retail

Consumers’ uptake of financial services provided by non-financial institutions is growing fast. The challenge to retail FIs is being led by big retailers, telcos, and tech firms. Currently most of the offerings are in areas such as payments, remittances, lending, and personal financial management. A new financial services ecosystem is blossoming. In this new model, the primary touch points, and in some cases, the primary providers of financial services and owners of customers’ data, have been replaced by non-FIs. Meanwhile, financial institutions, in many cases, are being pushed to the back of the value chain, playing the function of custodians of accounts and money. To mitigate the threats, focus on strategies to up the game on customized services, innovate delivery systems, and improve business processes.
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Financial institutions must foster a culture of innovation to develop new products and service capabilities regardless of some failures along the way. This mind-set is contrary to the conservative nature of banking where no one wants to be seen as involved with a failed initiative. A culture fraught with fear of failure will be reluctant to innovate, slow to adjust to new market realities, and ultimately lose customers.

Some innovative projects are bound to fail, though lessons learned from them may lead to successful ventures. Managers must not be afraid to test new ideas. Pilot projects rolled out on a small scale can be relatively low-risk proving grounds. Successes can be scaled up, and failures should be studied for valuable insight that can guide subsequent initiatives.

Daniel Biondi

 

 

About the author: As a Hewlett Packard Enterprise Fellow & Vice President, Chief Technologist, Financial Services, Australia  & New Zealand, Daniel Biondi is responsible for helping clients shape their IT strategy for business innovation and growth, whilst delivering technology-enabled business solutions that reduce cost and complexity. Daniel’s 21-plus years of experience include working with multi-national organizations in more than 15 countries across every industry group. His previous leadership roles include HPE Regional CTO for Latin America. Daniel is currently based in Sydney, Australia.