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The Digital Personality of Financial Services: More Than Skin-Deep Transformation
Firms which are conscious of the need to reinvent themselves and take advantage of technological advancements are exploring multiple methods of delivering value to new customers. Have a look:
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For the “digital native” generation, it is imperative for any financial offering to grab their attention by being easily accessible 24/7, besides being convenient, portable, instant and bite-sized. People in this demographic are more familiar with keypads than pens, better equipped for digital interactions than face to face, and have a longer wishlist competing for their time and wallet share.
Customers are today aware that traditional banking institutions are no longer the only solution for their financial management. They can easily compare the charges, fine prints and the pre-requisites across the wider spectrum of digital solutions available on their gadgets from the comfort of their home or office, during transit or over dinner. They understand that specialized fintech players can cater to their specific requirements better and more efficiently while being as trustworthy as a long-established bank, without the need for a lengthy interactive process.
Moreover, financial data is being used to devise innovative solutions with non-fiscal purposes as well. Restaurants are partnering with payment platforms and rolling out offerings for customers based on their spending on fine dining. The lifestyle industry is also looking to tap into this gold mine of financial data to increase transaction volumes rather than following the historical methodologies of primary research and seeking to retain a loyal customer base. The open banking regime is expected to further revolutionize and expedite this transformation of both financial and non-financial markets.
These and other industry shifts are causing financial services players to scramble to transform themselves both in terms of capabilities as well as mindset. Traditionally, firms had placed more focus on the user experience as a way of gaining market share. But today, they understand the need to revamp their organization and operations as well, from risk management, policies, and procedures, to logistics or interactions with third parties.
Firms which are conscious of the need to reinvent themselves and take advantage of technological advancements are exploring multiple methods of delivering value to new customers. These include:
- In-house platforms
For players who want to retain control over their innovations and costs, and prefer not to share their technology with the rest of the market, developing proprietary solutions in-house is the preferred method. They may still hire digital and technology partners to provide the needed expertise, time to market and cost savings, but they will continue to conceptualize, build, own and operate their own solutions. This model is gradually losing ground. However, it is not unusual for the largest firms with deep pockets, a large existing customer base, legal expertise to protect their innovations, and the ability to hire top talent to adopt this model. Thus, some areas where in-house platforms are the best option include strategic or differentiating offerings, such as proprietary trading platforms for niche structured products.
- Partnered platforms with inter-firm co-operation in R&D
Firms typically venture into the partnered platform when experimenting with a bleeding-edge technology and creating an application for the entire industry. Since the risk of technology failure can be high in the initial stages due to the length and cost of learning curves, firms often collaborate to initiate the R&D and act upon mutually agreed upon ideas that address key business challenges.
The most crucial advantage for such an arrangement is that any invention is typically useful for the whole eco-system and makes inter-firm interactions and processes easier and faster, ultimately benefitting the end customer.
- Unbundling of the value chain
The financial eco-system is transforming to banking-as-a-service model (BaaS), where banks are willing to share their data and application services to third parties while forging symbiotic partnerships. Banks are now collaborating with fintech players, enabling them to maintain control of their financial products and compliance, while the fintech provider delivers the front-end interface and experience to the customer. Underscoring this model is the fact that it is easier to generate ideas than it is to create a commercially viable business out of them. Market viability and scalability are being brought in by third parties, helping to facilitate access to markets. One key example is payment services and instant disbursal of personal loans through e-commerce websites on large ticket purchases, such as high-end smartphones.
Unbundling of the value chain is currently one of the most disruptive trends in both the financial and the digital worlds.
- Open innovation paradigms
When a leading financial institution creates a core platform and opens it up for innovation by all or many, it tends to be driven by a strategic vision of that market leader and a willingness to accelerating innovation through open collaborations. This enables other players to be prolific on their platform and the entire industry to improve with them for the benefit of all participating firms. Because open innovation paradigms require a different mindset at the highest executive levels, these efforts are often times driven by regulators more so than market participants. For example, regulators are mandating open banking APIs in Europe and Australia, as well as payments APIs to enforce standardization and portability in Singapore and India.
- ‘Coopetition: Cooperation between competition’
The digital transformation of the financial eco-system is changing the relationship between competitors as well. Firms are increasingly conscious of the fact that they thrive only as long as the whole eco-system thrives. The domino effect of the 2008 financial crisis is a lesson hard learned. Market participants are increasingly collaborating on standardization and interoperability to ensure greater efficiency and transparency. For example, banks are allowing competing banks to access to their systems through applications and payment systems. Standardization protocols are being worked on together (such as credit reports in the EU) to be consumed by competitive platforms. While this requires the need to strike a fine balance between teams focused on protecting intellectual property such as new products and competing for market share, other teams can work to partner with competing entities to gain synergies that may result in revenue sharing.
The future of financial services
In addition to process and cost efficacy, strengthening collaboration and partnership arrangements are helping firms share the burden of innovation while staying competitive as technology and client demographics rapidly evolve. These partnerships are critical to deliver and create scalable, seamless value while accessing the larger market faster.
Although this dynamic market disruption has its advantages, it also brings forth new challenges. Forging new partnerships requires technological compatibility as well as strategic and positioning decision making. ING’s CEO Ralph Hamers expressed that he wants ING to be seen as a tech company with a banking license – a growing sentiment echoed by financial CEOs and COOs around the world. The mindset is clearly changing to one in which technology is gradually becoming core to financial business models rather than just an enabler. More than skin deep, this shift is altering the digital personalities of the financial institutions.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.