Financial services companies are facing significant challenges while disruptive new entrants who are unencumbered by legacy business processes, coupled with rising expectations of networked consumers, accelerate the need to embrace Digital.
These companies embark on their Digital journey loaded with expectations of many benefits. They can engage more intimately and frequently with clients or customers. They can pick from a wide range of technology options, offering the chance to re-think business processes. They can use data from non-traditional sources to better target communications and reduce risks.
Extensive financial services business process evolution occurs along the Digital path. However, it is the surprisingly fast pace at which customer expectations, data analytics and technology mix together that creates the overriding challenge for companies with Digital transformation underway. To make Digital a success requires not only grasping the key factors permitting such speed but then also innovating at the new rhythm.
Consumers increasingly are taking the lead in defining and then clearly articulating their desired Digital experience, thanks to broad exposure to advanced services that are iterated frequently until they become easy-to-use. Rapid innovation in smartphones fuels this process. In the US market, smartphones took about 8 years to grow from a niche market to near-full penetration of the adult population, where cellphones had previously needed 15 years to reach the same point. Baseline technologies essential to launching biometrics-based identity have moved even faster, with 50% of phones equipped with cameras reached within 5 years and fingerprint sensors within 3 years.
Technologies automating the home and personal transportation have recently begun their own growth trajectory and will be worth tracking closely given data analytics taking a front-and-center role and their proximity to consumers. This closeness occurs at the most-intimate moments and offers the ability to capture highly contextual information as well as deliver very-focused services.
Nimble, young companies are starting with customer use of digital channels as a baseline and building services on top of them. They use novel approaches to apply data analytics, often from non-traditional sources, and condense the insights generated into formats that are highly contextual to the customer’s situation. Furthermore, such companies have developed bot capabilities that automate collection of customer financial data across multiple traditional banking relationships. Mint was one of the first movers 10 years ago, launching a personal financial management portal that attracted 1.5 million users within 2 years—leading it to the altar with acquirer Intuit—and had reached 20 million users by 2016. Meanwhile, Moven launched in 2011 with more-sophisticated analytics and has expanded to several countries, both entering partnerships with traditional banks as well as white-branding services on top of a licensed banking platform, CDW Bank.
For legacy financial institutions, these trends encourage and make it easy for customers (or their bots) to begin interacting with them at unexpected touchpoints. This potentially shifts the focus for where customers will have their ‘moments of truth’ in the banking relationship. It also changes where the institution’s back-end IT systems—amidst being redesigned for a cloud-computing environment—need to perform at their most-demanding levels. Regulators in both Europe and the US are attempting to adapt to these new developments with frameworks accommodating the realities of new technology and interactions. The implementation of Directive on Payment Services 2 (PSD2) effectively reduces the barrier of entry to new digital players. It will require banks to open up their internal payment and account information services to third parties, thereby allowing those players to compete with existing services currently offered mainly by the banks. Meanwhile, the US Office of the Comptroller of the Currency (OCC) which announced a new licensing category for online institutions.
Consumer protection considerations of cybersecurity and personal data also play a role in defining the frontier of what is possible. New York State’s Department of Financial Services has instituted cybersecurity regulations with a consumer-centric remit, while the European Union will tighten already stringent privacy rules with the General Data Protection Regulation (GDPR).
While the consumer financial sector grabs many of the headlines about changing habits and innovation, financial services aimed at businesses are beginning to take on some of the fast-moving characteristics pioneered in the mass market. The trend begins with the consumers already familiar with these services who are at the same time clients and decision-makers in corporate financial services relationships. “Digital natives” –Millennials, Gen Z, Centennials or the iGeneration—aging into this group will add further momentum.
One area of consumerization leaking into business services is online credit to small and medium businesses. Kabbage is one example of the online lenders that not only uses alternative data sources when analyzing credit risk but also extends the data collection through digital, real-time interfaces to a loan recipient’s business accounting system. This streamlines the loan approval process and lowers risks for Kabbage.
How does a company take advantage of these many developments to optimize the process of going Digital? We at Axis Corporate draw on our own experience in Digital and in advising our clients during their transformational journeys to highlight important considerations: