Most appropriate for: Banks and credit unions that have already progressed in digital transformation. maturity, connected processes, legacy systems), branch per branch (e.g. Most transformations fail. Those that do reflect a robust digital strategy that follows the five simple rules we’ve just described. A supermarket approach can allow banks without a strong position in such areas to grow in these segments as a complement to their current offerings. Digital Development At-A-Glance The World Bank’s work program in the ICT sector focuses on expanding access to fast, affordable internet, and developing reliable online platforms that promote improved service delivery, good governance, and social accountability. “Infusing a digital mindset into a traditional banking culture can be challenging and the need to manage two cultures during the transition can exacerbate the situation. Meanwhile, BBVA U.S. CEO Javier Rodriguez Soler outlined how their focus was to “remain focused on executing our digital transformation strategy aimed at building our capabilities, expanding our product offerings, using technology to improve efficiency and … Bank-issued credit cards, for example, have access to data on both consumers and merchants, which can be sold to retailers. Learn how a refreshed brand and platform allowed Citadel Credit Union to reach deeper into existing markets and broader into new ones, increasing brand equity and awareness. They’ve been overly cautious, playing defense, with me-too digital initiatives primarily designed to counter moves by actual or potential disruptors. In a digital driven bank or credit union, digital is treated as a priority that needs a clearly articulated strategy, funding, talent, agile ways of working and an organizational culture that is willing to take risks. Success depends on engaged senior leadership that is committed to radically changing the bank,” says Boston Consulting Group. Banco Bilbao Vizcaya Argentaria (BBVA), for example, began its digital transformation by developing a state-of-the-art technology platform driven by the operations and IT function, which served as a stepping stone to transform the rest of the business. But do you have the right analytics tools to hear it? Banks should consider this option if.... they want to enter new markets or segments without the need to invest in the physical infrastructure that would otherwise make such moves prohibitively expensive. (Translation: “It’s our core DP’s fault!”). Arkadi Kuhlmann and Bruce Philp, The Orange Code: How ING Direct succeeded by being a rebel with a cause, Wiley, 2008. Banks considering a factory plan, for example, should have enough tech talent (particularly around APIs) to be able to maintain appropriate levels of security while serving the given product or service to third parties. Many banks and fintechs are locked in a battle over the customer-facing front end. Banks in this position may find it difficult to increase their share in existing segments. Learn more about cookies, Opens in new Building a financial supermarket allows a bank to focus on the high-return side of the industry: average annual return on equity (RoE) for providing credit from bank balance sheets is only 6 percent, while RoE for product origination/sales is 22 percent.1 Kabbage’s easy-to-use interface and novel risk-management algorithms allow it to deliver decisions on loan applications in a matter of minutes. Hiring strategy: Retrain existing talent and add external talent where needed, only on a bigger scale. By employing digital channels or novel business models, incumbent banks can enter new geographies or market segments that would be prohibitively expensive targets using traditional approaches. Banking providers need to determine what matters most at critical points in the customer journey — which is going to vary greatly between different consumer segments — and then work relentlessly to improve the experience. By attending only to the bank-related part of the overall journey, banks leave considerable value on the table. Banking Strategy, Digital and Transformation Latest thinking in respect to Banking Strategy, Digital and Transformation. Most banks have a rich set of exclusive information on their customers (key demographic details, where they live, their lifestyle preferences). Several of Canada’s biggest banks have partnered with Toronto-based SecureKey in a system that allows individuals to use their bank credentials to access online services from the federal government. Drive profitability with card modernization. The focus is on acquiring new customers. The Financial Brand - Ideas and Insights for Financial Marketers. Ideabank and ING, for example, have extended into banking adjacencies (see middle ring in exhibit) by providing services like accounts-receivable management, factoring, accounting, and cash-flow analysis to small and medium enterprise (SME) customers. Please use a corporate/work email address instead. Digital Growth: Is Your Institution Ready Now? Banks should consider this option if … they already possess an information advantage over competitors—or if they have the prospect of creating an information advantage, or extending an existing one, via external investments or partnerships. They are rewarded with significant revenue growth and 14 extra points of total shareholder return. The survey revealed that of the FSI firms with a digital strategy, 93 percent agree or strongly agree that the objective of their Sometimes digital transformation will lead a bank to shuffle the businesses in its portfolio … This aggregation model provides customers with easy, one-stop access to financial products and the ability to address multiple financial needs through a single, integrated channel. In our experience, the most effective route is to develop a clear view of which capabilities can deliver the most value quickly and power a broader digital transformation. It’s difficult to scale digital initiatives across the institution. To build privileged relationships with customers, some financial supermarkets rely on recommendation engines, which use transaction, merchant, and customer data generated from the platform to provide personalized suggestions and offers. Here’s a short checklist for recruiting, onboarding and retaining a team of advisors. Struggling to See Value from Your Digital Banking Platform? This article was originally published on March 27, 2018. Unleash their potential. Discover the features and benefits. Which unconventional growth opportunities represent a good fit with current resources and competitive position? Mortgages (tied to home buying), auto finance (tied to car buying), and credit cards (tied to taxi/ride-sharing trips and restaurant visits) are examples of such products. Our report explores five options for banks to consider as they implement their core banking transformations. Consumers increasingly want the best of both worlds: a digital experience when they need speed and convenience and a human experience when they need advice for more complex products such as investments or mortgages or when they have an issue or problem. Siam Commercial Bank has identified five customer journeys — prospecting, advice and sales, onboarding, transactions, and administration — and is digitizing all of them, says Vish Jain, First EVP and Head of New Business and Operating Models. Now, how do you keep momentum? “We decided from the beginning that if we spent all our time and resources on engineering the ‘pipes under the floorboards,’ we would lose the confidence of customers, even if we met our objectives in the long term,” explains Niall Cameron, Global Head of Corporate and Institutional Digital at HSBC. Some banks have even gone farther and moved into nonbanking adjacencies (see outer ring in exhibit). So what should traditional banking providers do to remedy the situation? This is a new digital bank with its own P&L and technology stack. Boston Consulting Group identifies three digital operating models: 1. You don’t have to pick a single operating model; Boston Consulting Group notes that many financial institutions run all three models in different markets, regions and business lines. Exhibit Visit our Digital Strategy page Commonwealth Bank in Australia (CBA), for example, wanted to play a bigger role in the home buyer’s journey. Never miss an insight. For the best learning and sharing of best practices, team up with fintechs, advises Boston Consulting Group. An efficacious Digital Transformation begins with an understanding of digital customer behavior, preferences, choices, likes, dislikes, stated as well as unstated needs, aspirations etc.. What’s holding them back? Existing efforts can provide important information about which opportunities are promising and what’s required for success. Assure people that the change will not happen overnight. The organization doesn’t want to change. Digital as Business as Usual Plus. Large banks—like many incumbents—have been inundated with new technologies and business opportunities, leaving them confused about where to focus and dissipating their resources. But large institutions can create significant value by leveraging back-end assets to create and provide products or services to smaller banks and other businesses. Taking a page from some of the larger digital businesses, banks can offer a curated and vetted mix of internal and third-party offerings. The best place to get ideas in how to create a digital driven organization is to take a lesson from fintechs. It’s relatively easy to scale by rolling out initiatives across the organization. A headlong dash toward developing “all” these capabilities isn’t the answer. Please try again later. In addition to opening up new revenue streams, this approach can also be a useful way for to banks to collect new data. Download this insightful perspective on the changes in the financial services industry and what relevant actions are required to rise to these challenging times. Facebook hereLearn more about cookies, Opens in new The strategy can’t be a series of one-off à la carte initiatives taken on by separate and individual business units. Banks should consider this option if.... they have significant market share in financial products that are integral to a larger buying process. Digital as New Line of Business. Learn From Top Brands in Other Industries, How to Survive and Thrive in 2021 and Beyond, How to Turn Your Data Into Your Greatest Competitive Advantage, How Knowledge Engagement Will Shape the Future of Finserv, Connecting, Informing and Engaging with Activity-Based Marketing. See also Commonwealth Bank, Investorville Case Study, 2013. You will also need to add new physical spaces that foster innovation and collaboration. This field is for validation purposes and should be left unchanged. Most banks, however, tend to focus only on discrete, bank-centered moments in the customer’s overall journey, such as offering a mortgage, when the customer’s larger goal is buying the house. Banks can grow by engaging with consumers at other stages of their decision journey. Another bank tackling the same journey saved $200 million over four years. CBA created an augmented-reality app that allows users to point their smartphone’s camera at a property and instantly see its current price and sales history. A look at key questions to ask for your digital transformation strategy. Most big banks have the tools and advantages to push the boundaries of their existing business models. Pros: This model can have a more dramatic impact on consumer experience than digital as business plus. Funding usually comes from the P&L change budget. 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