Banks and insurers are too slow in responding to the wave of digitisation. While newcomers are continuously launching customer-friendly and innovative products, the financial services sector is incrementally trying to digitise its portfolio and operations. A new report warns that these efforts are not sufficient to maintain market share, or grow. Staying ahead of the pack requires a fundamental new IT strategy, geared at an end-to-end digital transformation.
The financial services industry is sitting on a massive digitisation potential, given that they have been collecting, processing and connecting data on clients and transactions since the very beginning. Despite their first mover advantage, they still struggle with consistently and thoroughly digitising their business processes from end to end. Customers too often are still confronted with below par customer experience, ranging from paper-based application forms, manual processes and correspondingly lengthy waiting times.
The consequence for incumbent players is evident: new, technology-driven providers (online platforms, FinTechs) are capturing certain segments of the market with more customer-friendly digital services, and as a result established financial service providers are falling behind. A recent study by Capgemini found that technology giants are earmarked as the largest threats to the large institutional banks, while another analysis by Bain & Company highlighted the financial risks banks are running if they fail to steer their ship towards future-proof digital waters.
The digital transition
One of the areas in which new players have an edge is the online realm. “Today's customers are accustomed to searching on the internet and buying online,” comments Wolfgang Hach, Partner at Roland Berger. “And they are transferring this experience to the finance industry: what they expect from financial service providers are digital products and services available quickly and easily whenever they want them.” Shoppers for instance expect 24/7 availability, targeted offerings and tailor made propositions based on individual demands.
And while the established players are particularly active in trying to meet the needs of online-savvy clients – most providers have already come up with digital offerings – they tend to lack a holistic approach, says Hach. “An improvement such as a new website with a modern layout and additional online services or an app is not enough to reap substantial improvements in efficiency and customer loyalty. Digital transformation is about much more than isolated optimisations.”
To remain on top of the game, what is needed, he says, is a comprehensive and integral digital approach. This includes dealing with one of the largest bottlenecks of the conventional players – legacy IT. “Many traditional financial institutions are struggling with obsolete IT infrastructures, complex products and diverse processes," says Sebastian Steger from Roland Berger. He adds that tackling the blueprint comes first, driven by an overhaul of the infrastructure and IT strategy behind tech development and maintenance, followed by an elaborate process of execution and realisation of digital plans. And while many believe it all boils down to financial arm power, Steger highlights that smart spending is key, a statement which is in line with findings of a recent study by McKinsey & Company.
7 steps for successful end-to-end digitisation
To support executives in the financial services industry with making the required transition, experts at Roland Berger have come up with a ‘master plan’ for end-to-end digital transformation, consisting of seven steps:
Identify digitisation potential: Simple, standardised products are especially suited as a starting point for digitisation. These lighthouse projects can then be used to calculate possible savings potential and create the basis for further digitisation measures.
Define targets: The targets are identified on the basis of typical buying behaviour (when and how do customers gather information; when and how do they first make contact; when do they conclude the transaction). The aim here is to link all of the process steps together in such a way as to eliminate disruption and enable largely digital and automated processing.
Involve relevant corporate units: Important units like Sales or Product Development need to be involved in order to initiate the necessary technical modernisation steps. The company will then be able to systematically link IT investments with its strategic ambitions.
Develop a sustainable digitisation strategy: Besides digitising products and processes, companies should do the same to their control, risk and reporting instruments. They also need to review their strategy regularly and make adaptations flexibly.
Create manageable work packages: Implementation needs to be tackled step by step. Doing so will help companies avoid overwhelming their organisation and enable them to better prepare their workforce for the digital transformation.
Modularize product offerings: If digitisation potential is to be realised extensively, it is vital to base the product portfolio on standardised modules. This approach allows products and services to be individualised and offered to clients more flexibly – in the retail and wholesale business alike.
Establish 24/7 service capability: Product offerings and transaction possibilities need to be available day and night. This calls for all parties involved in the digital information and transaction flow to be integrated closely so as to facilitate fast feedback or automated decisions.
"Digitisation presents huge challenges for the finance industry. Only if financial service providers tackle the digital transformation quickly and drive it consistently as an end-to-end solution will they be able to survive the intense competition they face with new, digital providers,” concludes Hach.