The future of banking is digital, so it’s essential for traditional banks to adapt to the changing trends in the industry. With new fintech players entering the market, as well as the rise of digital-first challenger banks, traditional banks are looking at large losses in market share if they do not integrate digitisation into their systems. Here are some of the steps that are integral to developing a successful digital banking strategy:
1. Know what works for you
When it comes to digital transformation, there isn’t a one-size-fits-all solution. While recognizing and adapting to the digital age is essential, it isn’t always necessary to completely overhaul the business in favour of a brand-new digital mechanism. Traditional banks have usually excelled at providing value to their customers, and, with the right support, they can put adapt those skills for their modern digital customers.
For instance, take the case of Barclays UK. Over its long history, Barclays UK had established itself as a high-street bank with a strong reputation of credibility and customer value. When faced with digitization, they adapted and unrolled multiple plans that added to their reputation.
What set them apart, though, is their Digital Eagles initiative. While most of their plans involved addressing the needs of the bulk of their audience, the Digital Eagles initiative was focussed mostly on the fringes. They realized that there was a percentage of their customers that were not confident with technology, and therefore would have difficulty dealing with the new changes. To make sure that they weren’t left behind on the bank’s journey, they started providing training in their branches and through YouTube videos, educating this group of customers on how they can enjoy the benefits of digitisation as well as stay secure.
At the same time, they also looked to the future – the children of their customers. To better prepare them for the requirements of tomorrow, and make sure they know how to stay safe online, Barclays UK set up coding workshops and classes for kids. By doing this, they’ve connected with customers at either end of the spectrum, and have effectively made sure that their evolving business doesn’t leave anyone behind.
Other banks have “looked to the future” in different ways. One of the more popular approaches is setting up an ‘innovation lab’ that will look at not only how to adapt for the now, but also help in defining the tomorrow. Deutsche Bank has set up four Innovation Labs across the globe, with one in London focusing solely on Blockchain technology. In India, Axis Bank opened its first Thought Factory (innovation lab) with the aim of fostering inventions and creative solutions.
These are just a few examples of how banks have chosen to approach their digital transformations. In each of these cases, they first focussed on understanding what made them valuable partners to their customers, and then let that insight guide them in the direction that made most sense for them. When we’ve worked with clients, we’ve helped them identify their core values, and then worked with them on developing a strategy that we can then implement. If you’d like to know more, take a look at our Digital Transformation Playbook.
2. The customer is (still) king
If traditional banks don’t want to be left behind playing catch-up, understanding what the customer wants and expects from their new-age bank is crucial to their success. With a smartphone now in everyone’s hand, real-time transactions and anytime-access to account information have become table stakes. Banks have to push themselves to understand what the customer is likely to need in this ever-evolving environment, and address those needs as soon as possible.
New challenger banks and fintech start-ups are changing the game by offering never-before-seen solutions and innovative benefits. For example – N26. N26 is a digital bank that is just six years old, but already boasts 2.3m users across Europe. The scrappy bank was recently valued at $2.7b, and is swiftly making plan to expand into the US market. They (successfully) built their model around giving customers what they didn’t know they were missing. By doing away with the traditional brick-and-mortar model, they offer a smoother, more efficient experience that allows you to open a new bank account in just 8 minutes and manage your finances through their app.
But traditional banks are not down for the count. If they choose to, they can leverage their strong infrastructure and deep-rooted customer loyalty to pivot towards more innovative offerings that could excite their customers again. A good example of this is DBS. DBS is a51-year old bank headquartered in Singapore, but it has proven time and time again that old dogs can learn new tricks. Awarded ‘Best Bank’ in 2018 by Global Finance, they chose 10 years ago to invest in transforming their business by fixing the basics, and only continued to improve and innovate from there.
Today, the bank has transformed itself into a digital powerhouse, insourcing most of its technology, hardware, data centres, network management and app development. It owns Singapore’s fastest growing mobile personal wallet, has launched digi-banks in India and Indonesia, and have personalised the way their services are offered. Their new ‘Live more, Bank Less’ motto further serves the purpose of invisible banking, an integral aspect in the way banking is being transformed.
By embracing the opportunities provided by digital technology, and keeping customer satisfaction at the centre of their strategy, DBS shows us how a bank can shake off the trappings of traditional banking, and provide just as competitive (if not better) alternative to anything today’s challenger banks can offer. While the journey may be difficult, there is a light at the end of the tunnel – last year, DBS recorded net profits of SGD 5.63b, a 28% increase from the previous year.
3. Embrace changes in culture
One of the major challenges traditional banks face when embracing digital transformation is changing their culture. After having defined and enforced a standardized process and work culture over years or decades, it requires considerable effort and investment in ensuring that the new mindset and culture permeates across the organization, making it a major barrier. This is followed by a lack of understanding of digital trends and a lack of talent within the required fields. A successful digital transformation strategy would need to incorporate these factors along with tech investments. There is a strong aversion to risk-taking, and digital transformations are expensive, time-consuming and a gamble in a previously predictable environment.
This cultural barrier can especially be difficult to deal with when banks look to acquire an exciting new start-up. Start-ups are notorious for being more willing to take risks, and usually, their entire business model depends on their ability to make quick decisions and pivot rapidly. Traditional banks though, with their levels of bureaucracy and focus on returns on investment, are likely to be more deliberate in their actions. A recent example of this culture clash is with BPCE and Fidor. The 200-year old French bank BPCE acquired German mobile bank in 2016, but due to the culture clashes between the management, the deal was unwound in 2018.
This just goes to show the importance of being able to adapt and embrace cultural change. DBS, as mentioned earlier, took 10 years to develop and implement their digital transformation. During this time, they invested in ensuring that their 22,000 employees were brought up to speed on the new working dynamic. They put a spotlight on ensuring that they inculcated a ‘start-up mentality’ in their workforce. To do this, they raised a rather unique rallying cry. They identified Google, Amazon, Netflix, Apple, LinkedIn and Facebook as leaders and pioneers in the digital space, and their initials spelt out GANALF. They then announced they want to be the “D” in that list, making the acronym GANDALF.
While this may not sound like much, David Gledhill, CIO of DBS, says it was instrumental in making the workforce sit up and take notice. The exercise made them realize that they weren’t aiming to just be another bank, but to really transform into a digital-first organization that could hold its own among technology bigwigs. This also helped them open the door to better understand how to implement a design thinking approach to all aspects of their business, allowing them the freedom to groups of people to innovate to implement, so as to create agility at scale.
Similarly, Spanish bank BBVA reconfigured their understanding of banking when they let go of hierarchies and organizational structures in favour of “creating multi-disciplinary teams with clear responsibilities,” as noted by BBVA Global Head of Talent and Culture Ricardo Forcano in 2016. In a later interview from 2017, Forcano stressed again how culture change was crucial for them to advance in their transformation. The new culture would be one that focussed on autonomy and agility, with continuous feedback. As a result, the teams would be better equipped to transform strategic decisions into real products and services, and make a real impact in what they offer to clients.
As more large banks start paying closer attention to the importance of culture in their transformation journeys, we expect to hear more success stories such as those of BBVA and DBS. We expect to see more of a shift towards agility and design thinking in an effort to mirror the kind of development that led tech companies to new heights a few decades ago. Valuing your people and ensuring that they are in-step with your growth strategy is not surprising in and of itself, but what will separate the leaders from the followers is how effectively they implement their strategy.
4. Be flexible, be adaptable
The thing about digitisation is that it’s only just getting started. While we’ve seen a lot of disruption in the industry already, it’s safe to say that we haven’t seen anything yet. New startups and challenger banks are making waves, racking up customers hand over fist. For instance, over 28,000 people open a Monzo account every week – and yet, only four years ago, Monzo didn’t exist. New technology is also forcing the industry to reimagine what the future will look like. Contactless payment, mobile wallets and more have all popped up over the last decade, each making a significant impact to the industry.
The competition is fierce, and players from other industries have already started to make forays into the digital banking space. Uber, Amazon, and most recently Apple have all launched credit cards, which could just open the door for other players like Google and Samsung, thereby blurring the lines between technology and banking. Traditional banks have noticed and are already planning on how to adapt according to how the Apple Card fares.
Traditional banks cannot avoid their digital transformation any longer, especially not if they want to hold on to the valuable customers they’ve gained throughout the years. But that doesn’t mean they can’t ace their digital transformations; they’ve been part of the industry for long enough to have established a level of credibility that few new entrants can match. Using techniques such as design-thinking-based ideation and ethnographic research to recognise what their customer wants and how to provide the same, they may be able to stem the tide of digital challengers before they figure out how to cement their reputations.
Penser is a specialist consulting firm focused on the fintech industry with clients ranging from private equity funds and their portfolio companies to global financial institutions. Our services include strategic planning, digital transformation, and due diligence. Find out more here.
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