In the race to become the digital bank of the future, mature banks are grappling with the disruption of convergence.
Tempted by the promises of new technology and under pressure from FinTechs attacking traditional profit centers, incumbent banks are spending millions of dollars — and months, if not years — on complex digitization initiatives as they try to out-tech the FinTechs.
Distracted by their disconnected efforts to develop an app here, a mobile platform there, legacy banks may fail to recognize the larger organizational transformation that is required to become a truly digital enterprise.
What’s more, these distractions leave them vulnerable to an even bigger threat on the horizon. As convergence drives new and unconventional partnerships across industries, digital giants are entering traditional financial services markets. Now banks face competition from not only FinTechs but also huge, experienced e-commerce players with large customer bases.
These digital technology leaders have a sophisticated approach to harnessing their vast customer data. They use advanced analytics and artificial intelligence (AI) to unlock actionable insights, not only to predict and propose attractive purchases, but also to reveal ways to better serve their customers’ payment and related financial needs.
By delivering frictionless and accessible payment services (including easy access to credit and payments at point of sale), these marketplaces offer customers an attractive way to bypass their traditional bank entirely. After all, if these providers can remove an obstacle for their customer, why wouldn’t they — especially in a regulatory environment that is increasingly focused on cultivating greater customer freedom?
For mature banks — with legacy systems, underdeveloped analytics capabilities, huge global staffs and slow-to-change cultures — this signals a stealth invasion of massive scale. And it represents a profound crossroads for these organizations: wait to be disrupted by convergence or get ahead of it. But that takes the courage to rethink entire ecosystems and, in doing so, redefine what the digital bank of the future will look like.
What if "being digital" is more than simply "going digital"?
Rather than simply tacking the newest technology solution onto existing challenges, the digital bank of the future represents a complete transformation of business strategy and optimization. Tomorrow's digital bank is less about achieving a specific "end state" and more about living as a highly adaptable organization that deploys technology, data and alliances to offer the personalized and frictionless services today’s customers expect.
This approach to strategy requires banks to reframe their entire ecosystems, embracing new business models, new alliances and the technologies that enable them. They need to identify and anticipate customer needs and behaviors faster and more accurately, then quickly assemble the supply chain (internally or externally) to deliver best-fit solutions.
And then they must live this way, relentlessly and continuously.
For banks, it represents a transformative shift from a business driven by transactions to one driven by information. It relies on embedding the use of data, analytics and related technologies into every stage of the customer interaction to maximize value to customers, employees and shareholders.
The digital bank of the future isn’t an end state; it's a permanent strategy of reinvention
Here are four key steps banks can take toward becoming the digital bank of the future:
1. Articulate a clear vision