digitalisation
digitalisation
Expert Talk

Expert Talk

Expert Talk presents insider opinion, industry insight and expert advice directly from finance guru in the City and beyond.
Expert Talk
Martin Zahner
Martin Zahner

Digitalisation is impacting all walks of life – both business and consumer. Subsequently, all sectors, from travel to books or music face the same threats and opportunities. This includes the world of banking and wealth management.

As a result, the financial sector is facing a critical challenge; banks and wealth managers must assess whether their current mind-set and approach towards digital fits the business and if not, what are the strategic consequences?

Consumers tend to be less loyal and multi-banking has become very common

Digitalisation has empowered consumers with the capability to compare one company’s product and service offering with a competitor’s, at the click of a button. When services become comparable the risk of switching to a competing business is far higher.

At the same time, consumers tend to be less loyal and multi-banking has become very common. This is despite the traditional bank-client relationship in which one main financial institution is the main point of contact for a client. So how to address this challenge?

Increased competition requires a new strategy

digitalisation

Fintechs, with their often purely web-based financial services offering, are fuelling the threat of easily-accessible online competition. The ease at which it takes to set up an account was cited as the top reason for using a Fintech in a recent survey of banking clients[1].

The research also revealed access to different products and services and a better online experience are key motivators in the adoption of Fintech services. Ultimately though Ernst & Young states it is the simplicity involved in using Fintech products and services that is driving adoption.

With clients just one mouse click away from moving to a competitor’s offering, banks and wealth managers need to adapt their competitive strategy. As part of this strategic review, financial organisations are faced with a choice of how they differentiate themselves. They can either win a client with a specific offering and then upsell additional services in order to increase profitability, or focus on a specific niche market and differentiate by providing an attractive offering. The latter option is most likely to enable a financial services organisation to become a client’s primary bank. Therefore, improving and differentiating the client experience must become an integral element of the competitive fight in today’s digital age.

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Simplify the life of clients

Most successful companies have something in common: They focus on the users’ needs. If the organisation understands the complete consumer journey and anticipates future trends they will be far better positioned to become the preferred service provider. In a relationship based on human interaction, this can be achieved by having well trained senior advisors service the clients. In a digital world, a stand-alone banking transaction does not unveil the true objective of the client. But, perhaps the client would love to get the support from your organisation to make their life simpler.

Whether a client is buying a car, getting married or purchasing a home, banks and wealth managers have an opportunity to become an integral part of these life experiences. By adding value to the experience a financial services provider is in prime position to not only be used for day-to-day banking, but also when the next significant event occurs.

In every landmark event there are a series of financial factors which are essential to the success of the occasion. For example, when a person gets engaged, the first step is to start thinking about their wedding day and how they want to celebrate. This means a budget needs to be created and managed. A decision then needs to be made on where to get the financing.

digitalisation

The next step in the journey is to organise the wedding. At this point project management support tools can help to eliminate the many stresses associated with wedding planning. A bride and groom also need to think about their guests, most of whom will want to gift them a congratulatory present. Many couples will therefore welcome the capability to enable guests to easily contribute a gift.

By integrating the financial advice and the financial products sourcing smoothly within the client journey, banks and wealth managers can add value to ensure the client can focus on their own primary needs while the financial solution is seamlessly proposed during the journey.

Competence of partnerships

Traditional financial service institutions often lack the expertise and focus to create digital systems which create this personalised level of value add to clients. Such applications are not built the same way as banking applications. They use different technology, often have a very different design and follow a different implementation pattern than standard banking applications.

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The way forward is to work on a culture of partnerships. The financial institution selects external providers which focus on certain aspects of life or business processes and package them into their client offerings. The wave of Fintech-entrepreneurship is instrumental in this by increasing the potential offerings which can be integrated.

The impact of digitalisation in the financial services sector is outlined in a report from McKinsey[2].  The report analyses the potential threats and opportunities in the sector and the subsequent impact on net profit for retail banks.

Threats such as innovative new offers from competitors and margin compression are weighted against opportunities including increased revenue from innovative new digitalisation offers or business models and increased revenues from innovative new products and using data to cross-sell. According to McKinsey, the potential opportunities are greater than the threats.

Successful financial offerings can win the market in a very short space of time

To truly capitalise on the opportunities of digitalisation and add real value to clients throughout their journeys, many banks and wealth managers are therefore realising the benefits that can be gained by integrating the digital innovations of third parties, such as Fintechs. These partnerships provide banks and wealth managers with three key benefits:

The three key benefits of partnering with Fintechs:

  1. Creating new opportunities to provide improved services to clients.

Banks and wealth managers can aggregate multiple services and products. However, they must also consider their value network and how they will provide services going forward. Banks and wealth managers can choose to produce solely in-house, focus on being an aggregator and use third parties, or combine a mix of the two.

  1. Differentiate the client offering through a wide choice of niche providers

The growing number of digital providers in the market is providing banks and wealth managers with the opportunity to select from a wide choice of niche providers to enable them to differentiate their offering.

The basis for the digitalisation partnership can be based upon an entirely unique score card of requirements. Ultimately banks and wealth managers will consider whether the focus of the score card should be the return on investment, or are more ‘soft’ factors, such as culture, a high priority?

  1. Competition stimulates business
    Banks and wealth managers are being challenged to switch their focus from offering products to focusing on clients’ primary needs.
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Client engagement has become a key measure of success in the industry and it is easy to understand why. Client journeys which encourage loyalty and engagement mean further relevance can be added to the client as more is learned about them. There is then a far lesser threat of being replaced by a competitor, and a far greater chance of doing more business together.

Adapting to the digital age

In the digital age, client experience feedback is critical to success, not least because clients are just one click away from a competitor’s offering.

Successful financial digitalisation offerings can win the market in a very short space of time, but those who do not react to changing client needs can lose a client base equally quickly and to competitors who are seizing the opportunities of digitalisation. Therefore when it comes to evaluating the return on investment in digitalisation, the potential financial loss of not doing anything must be added to the equation.

Reacting to the digital change becomes even more essential as the marketplace becomes filled with a growing number of offerings. Competitors now include innovators such as Google and Apple, who bring with them a completely different type of DNA.

Traditional e-banking, even if responsive, is therefore no longer solely enough to cater for the changing needs and demands of today’s clients. Financial organisations not only need to expand their digital offering, but in addition, their entire culture needs to adapt to the focus on clients needs and providing value add.

By packaging the digital innovation of third parties such as Fintechs, banks and wealth managers can differentiate through their digital innovation offering, while still retaining a reliable and solid technical foundation of core banking activities, bolstered by customer relationship management (CRM) data.

Ensuring such additional digital services are centred on the clients will enable banks and wealth managers to provide more value added services which are unique to a client’s individual journey. Such an offering will expand the brand experience and therefore cement brand loyalty.

Amidst the digital revolution currently taking place in the industry, it’s vital financial organisations are setting themselves apart to ensure their digitalisation success. It will be those who reap the rewards of cutting-edge, next generation technology which will remain competitive and increase growth rates.

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