Through the ages, the story of David and Goliath has been told countless times. The archetypal tale of an underdog’s triumph, it is the perfect example of how preparation and agility can overcome sheer size and strength.
Embracing the Digital Era
Using a digital‐first approach, start‐ups have been able to get going quickly, on a limited budget, and instantly compete against recognised market players.
Excitingly, they have effected a real change in the industry, offering more and more sophisticated technology that, in turn, increases the digital expectations of consumers – a positive feedback loop that has kept them at the forefront of the industry and
left the traditional businesses scrambling to keep up.
In the financial services sector, this is becoming ever more evident. Unable to simply ‘rip up and replace’ legacy infrastructure, traditional banks are having to work hard to transform themselves into fully digital organisations.
In fact, a large number of businesses across all sectors are now seeing
digital transformation as a top priority for survival in the next five years, with recent research by SAP finding that this applies to 84 per cent of companies worldwide. However, this transformation is not easy or cheap, with businesses required to spend
enormous amounts of money to compete with the leaders.
The “Goliath” banks
Though initially slow to adopt this technology, the financial services industry is now experiencing a rapid rise in challenger banks and the improved and seamless consumer experiences that they can provide.
The big players – traditional banks like Lloyds, BBVA and Intesa Sanpaolo – are now
prioritising ‘becoming a digital business’, with Lloyds investing
£1 billion in its digital capability over the course of 2017. To put this in context, it far outweighs the £750 million they had invested across the three previous years.
True digital transformation
Digital transformation involves a change in processes, with open APIs, agile frameworks, a new focus on customer journeys, and an emphasis on analytics and data insight all combining to help organisations reach new market segments, save man‐hours by automating
routine tasks, and, ultimately, increase margins.
But the problem does not just lie in improving one’s consumer facing, front‐end digital capacity. As one COO
told CEB, “A lot of digital is smoke and mirrors. Customers may make a digital submission, but effectively that is just a digital submission. The processing behind the scenes is the same as it always has been.”
For banks to effectively transform themselves digitally, investment needs to be made across the whole system: front and back.
A number of more traditional banks are now adopting agile processes to improve their back‐end systems, complementing the investment that has already been made in the front‐end (or customer interface). BBVA, for example, is attempting to replicate the agility
of challenger banks and fintechs by reinventing itself as what its executive chairman describes as a
‘digital house’. Having removed its legacy core in 2007, the Spanish bank has instead
adopted interdisciplinary departments – known as ‘scrums’ – to better utilise data analytics and create a more agile framework.
Increased investment for 2018
With today’s society becoming more and more accustomed to technology, the coming year will see both scope and investment in digital transformation increase massively. For many financial services organisations, ensuring your scope is ambitious enough – and
your budget large enough – is a challenge in itself, and seeking the advice of experts would be a prudent first step.
Many banks have, by and large, already positioned themselves as digital‐driven platforms but, by investing and embracing modern systems, the rest of the pack are reorganising themselves to effectively compete and create a more competitive arena for financial
services and consumers alike.