Antoine Hemon-Laurens has a strong expertise in Digital Transformation and Customer Engagement solutions. His role at Quadient is to drive product strategy and to conceive innovative solutions helping insurers and banks to better engage with their customers. He focuses on mobile solutions, customer engagement, digital signatures and new technologies such as blockchain and artificial intelligence to help enterprises grow their revenues and reduce their operational costs
New start-ups and competitors are starting to make a noticeable impact on the financial industry’s staid traditional retail and investment banks. The smartest traditional banks though; see it as an opportunity and are already embracing the trend of investing towards in-house start-ups or experimenting with mobile-first banking apps but most are hesitating to cross the new technology adoption chasm.
Every day the FinTech scene is growing in numbers with more than 12,000 of them having received $12bn investment funding in 2014 vs $4bn the year before. What then differentiates them from traditional banks, is their agility to address specific pain points like payment, loans, mortgages, wealth management, risk management, remittance, personal finance, etc... Like Uber for taxis, Netflix for videos on demand, or AirBnB for hotels – FinTech firms are bringing convenience, simplicity and more affordable rates by cutting out the literal middle-man.
Already some of these FinTech firms are getting traction with significant revenue and usage. McKenzie & Company believes that up to 60% of the traditional banks profit and revenue will go to these FinTech firms in the next 10 years!
Despite CEO and other C-Level board members imploring the business to adopt digital transformation faster, today’s traditional banks seem unable to move at “responsive web” speed in order address these threats. There are two main reasons for it:
Organisational: Banks are large in number of staff and organised in silos. Internal communication reflects on their ability to respond fast to their customers and adapt to market changes. For instance, a mortgage proposal will need a few weeks to be processed and returned to customers. All the stakeholders within a mortgage department, legal, risk and compliance have to agree to certain conditions before returning a proposal. In the meantime upstarts like Rocket Mortgage are proposing to deliver a response back to customers in less than 30 seconds!
Technical: Banks carry a huge amount of legacy systems and busy IT teams. Hundreds of legacy systems have accumulated over the years. These systems are heterogamous and even sometimes redundant. I have seen banks undertaking consolidation projects reducing legacy systems by a few hundreds but still managing redundant systems as some are business-critical systems built using technologies no longer supported. As a consequence, IT teams spend more time and efforts in maintenance work rather than in customer experience projects.
In order to overcome these road blocks, retail and investment banks still have strong cards to play beyond financial assets, market position or regulatory compliance in order to fight the FinTech battle:
Leverage the trust people have in a bank’s brand and other differentiating assets such as branches to manage moments of truth. As a matter of fact, despite the 2008 crisis nobody considers seriously to ask other institutions but banks to manage their savings. Banks proximity with their branches and call centres make them the first partners of choice when customers need to make personal and critical decisions such as buying a new house, a car, borrowing for their children, etc. Unlike online access, about 80% of customers prefer to engage with a “flesh and bones” bank representative at the moment of truth for the purchase decision.
Providing best in class customer experience at these very moments will make a huge difference. As a customer, picture the difference:
I call my nearest branch who offers a meeting with a bank representative at their branch. I make the effort to book the aforementioned appointment with a bank representative to discuss an investment in a pension scheme. I go to the branch, I wait to meet with the rep. I have half an hour conversation where I am explained with brochures products suitable products. There is little personalisation and I am proposed to come back the following week to complete the process once I have made up my mind.
I call my nearest branch who offers me to meet with a bank representative at my place. The bank representative comes to meet with me at home. He is using a tablet to show and explain me all the products that are suitable to me. There are complementary videos to explain how the products work. The rep is advising me. I choose a product, customise the offer according to my needs and sign the contract on the spot.
Setup small, dedicated and “self-contained” teams to implement digital transformation. “The Silicon Valley is coming” says Jamie Dimon, JPMC CEO in the 2015 shareholder letter. The ingredients of successful upstarts are: agility, speed of execution, right to fail, inspiration in changing the status quo and tons more. One question that most CEOs of banks wonder about is: How can I make my company move at “FinTech speed” with thousands of staff members to convince, legacy systems to manage, etc. The straight answer is: IMPOSSIBLE.
Instead, successful digital transformation projects I have seen have been driven but small teams shielded from the rest of the organization with one single objective: make change happen! The success of these teams will vary depending on the board support they will receive and their own ability to embrace the challenge. Key success factors will be in leveraging what the banks does best and not reinventing the wheel for each of the solutions they implement.
Think mobile first, the rest will follow. It has been long since the iPhone was launched in 2007. I remember the WIRED magazine cover story showcasing a nuclear bomb mushroom cloud image with this title: “This is what iPhone will do the phone industry”. Certainly, the phone manufacturers like Nokia, Lucent or Blackberry have suffered first but other industries have also seen their landscape shift in front of their eyes because of smartphone usage. Not even 10 years later, this prediction is truer than ever. Smartphones are in more than 80% of people’s hands and banks see mobile as the prime channel to interact with customers. Société Générale CEO, Frédéric Oudéa recently said that 64% of customer interactions are mobile-based today and some other market experts believe that this rate will go up to 80% by the year 2020.
Banks need to think about what kind of mobile solutions they want to use depending on their goals. While native mobile applications are very effective to maintain a strong lines of communication between customers and banks, they would be less when engaging with prospects that have not yet been vetted. Responsive web applications are then the answer. There are fewer barriers for adoption when browsing mobile web sites as prospects consume content in an instant with no download or registration. As a result, bank’s marketing departments tend to use mobile websites to better engage with prospects and convert them to clients. Another trend is around field agent mobility and mobile solutions to support them. As customers seek out convenience and simplicity, some banks develop tablet applications for their field agents. It helps them to operate from client sites whether online or offline and with need to process paper based documents.
Adopt Cloud solutions to go faster! Cloud solutions are growing fast in an industry that has long resisted change. In the last few months GMC Software is getting more and more enquiries about Cloud-based solutions. Requests for Information (RFI) or Requests for Proposal (RFP) are often bringing the topic on the table. Often driven by the lines of business or marketing departments, forward thinking financial institutions understand the advantages such an approach brings. They see cloud-based solutions as a way to:
- benefit from business capabilities in an instant not months
- scale business operations instantly
- relieve their IT team from maintaining yet another system
- benefit from other solutions available in the same ecosystem (marketplaces)
However, enterprise class cloud-based solutions do not come for free. In order to make them effective they often need to be integrated with core backend systems. This is often expensive to do but there are ways to fast track integration leveraging legacy outputs.
Resistance around data ownership is another big topic. As financial institutions manage highly sensitive data compliance, legal and risks departments are often reluctant to move in the public or even private cloud. Nonetheless, GMC Software sees a trend in banks’ willingness to adopt cloud-based solutions to design customer interfaces, business rules or documents while keeping private data on their own servers for the time being. This way customers’ access data from the banks’ servers but the business users benefit from the latest solution capabilities. This refers to a hybrid cloud solution.
Incubate, invest or adopt in the FinTech space
As the financial industry consolidates, talents decide to take on new ventures coming up with disruptive new ideas to change the status quo. As mentioned above, already 12000 upstarts have received $12.2bn of capital investment. Like the “gold rush”, FinTech firms have almost become an industry in their own right. However, banks investment in the FinTech space seems to be harder than first thought.
(Chart: Reactions of global banks to the development of Fintech companies as of February 2015, source Statista)
On the one hand, FinTech firms want to keep a certain level of freedom to remain agile and attractive for future investors. FinTech owners’ appetite is to cash in when they will sell their business. Having a bank as an investor may significantly reduce the potential and attractiveness of some FinTech firms. Why would a bank buy a FinTech that would make its competitor richer if this one already owns it? Owners are instead looking for investors that would not jeopardise the potential value. On the other hand, bank staff may see FinTechs as direct competitors going after their jobs. They become unwilling to adopt these new services that could make them redundant. Change management is a hard thing that takes months if not years to implement.
Successful banks have board members setting a clear vision, explaining the reasons of their choices and motivations. They explain why their enterprise needs to incubate, invest or adopt in FinTech firms. They play bold and fair with both FinTech owners and their own staff - this way they leverage and manage their risks embracing a whole new revolution about to hit the banking industry harder than ever before.
To read Antoine's previous post on the disruption of the banking industry > Banks Beware: the Impact of PSD2 and XS2A - Accelerating Digital Disruption