A growing number of financial institutions are concluding that they will have to transform key parts of their business to reduce costs, enhance customer experience, support digital innovation and remain competitive.
Global consulting firm Accenture recently surveyed some 800 bank and insurance industry executives across Europe, Asia and North America and found that more than half of the institutions plan to increase their investments in major corporate transformation initiatives, or change programs, over the next 12 months, primarily due to cost pressures, new regulations, increased customer expectations, and digital disruption.
Simon Moss, managing director of the financial services advisory practice at accounting firm Grant Thornton, warns that financial institutions that fail to commit to change investment will soon find the business odds stacked against them. "According to our Future of Growth and the Banking Industry report, nearly two-thirds of respondents agree that traditional banks will face an increasingly competitive environment as players from outside the industry, and fintech new-market entrants, muscle in on their key customer segments," he says.
Competitive disruption, markets, consumer mobility, risk and cost metrics are going to challenge and redefine the financial institutions over the next decade. "Accelerated, repackaged [and] transformed in efficiency, the financial services industry will undergo profound change, with winners and losers defined by how they understand and leverage this revolution in digital competitiveness and productivity," Moss says.
Technology is at the heart of most change initiatives. "Most financial services executives agree that digital innovations are likely to fundamentally transform the industry," says Andy Young, who leads change programs for Accenture’s financial services talent and organization practice. "Financial institutions are investing in digital technologies to make their current business model more cost efficient, provide better customer service and enhance their competitive position," he notes.
For advice on how to prepare for change and digital transformation in a financial institution or in other industries, check out these tips from Accenture's Andy Young.
"There's a lot of innovative and exciting security and platform technologies that financial institutions are already helping to push the envelope on, such as endpoint detection and response, blockchain encryption and cloud-based computing," observes John Consigli, director of digital products and channels for Prudential Financial Group Insurance.
Moss believes that the financial services industry will transform in much the same way other supply chain and manufacturing industries have over the last couple of decades. "Robotic process automation, augmented or artificial intelligence, machine learning, distributed analytics and business orchestration supporting the Internet of Things and natural language processing present a transformative opportunity in refocusing large amounts of processing and technology costs directly to the bottom line," he says.
Other change program digital targets include cloud platforms and infrastructure and cybersecurity-related tools, especially for early threat warning. "Speaking to emerging technology, financial organizations would likely [want to] invest in machine learning, natural language processing and blockchain," says Chris Curran, chief technologist at accounting firm PwC.
Curran notes that an investment in innovation can lead to both cost reduction and increased productivity. "Investing in digital would automate repetitive tasks for a financial institution and transition it from higher cost/harder to maintain legacy systems while also giving employees the tools and data needed to make better and more sophisticated decisions."
"Digital platforms that are able to connect the right content and offerings with the right audience, at the right time, over the preferred physical or digital channel, are the holy grail for delivering a compelling customer experience," says Adil Shabbir, global head of consulting for banking, payments and fintech for Mindtree, a global information technology consulting firm.
"In technology, our focus is on enhancing the customer experience," says Gavin Michael, Citibank's global consumer technology head. He notes that Citibank is investing in both data and analytical capabilities to deliver insight driven, personalized experiences, engaging with customers in both rational and emotional ways. "Customer expectations, often set by the ease of use apps they use every day, continue to rise and evolve," Michael notes.
Design planning, customer research, usability testing, agile workflow focused on testable minimal viable products and anytime deployments made possible by advances in DevOps techniques have all contributed to increasingly satisfying and seamless human-computer interactions, Consigli says.
Michael says that Citibank is currently exploring various technologies that will simplify the customer experience. "At Citi, we are focused on application program interfaces (APIs) which allow software programs to communicate with each other," he notes. The approach enables the firm to reach customers anywhere in cyberspace. "It's not always about needing to connect through our own properties," he says. "Cloud technology provides us the opportunity to scale efforts effectively and deliver them quickly."
Despite its ambitious goals, Citibank isn't rushing headlong into change. "We will not do everything at once," Michael declares. "Our services are being developed in a two-speed model." He says that the firm is adopting an approach that balances the responsiveness and experiences customers expect at a "digital high speed" while creating stability at a "progress-oriented, competitive speed."
Chris Sicuranza, managing director and co-leader of the banking, insurance and capital markets practice at Navigant Consulting, says opportunities are now emerging that will allow financial institutions to rapidly deploy powerful, cost-saving technologies across front, middle, and back-offices. "Technologies that reduce ... frictional experiences to transact and interact with financial institutions, provide tailored and interactive advice, increase security and compliance, outsource non-core activities and drive efficiencies will be big winners," Sicuranza predicts.
In the front office, technology investments will be focused on getting products to more customers, faster, easier and when they need them, Sicuranza says. "Think of it like a combination of Amazon and Apple, with real-time personalized offers that are simple and intuitive," he notes. The middle office, according to Sicuranza, will increasingly focus on technologies that reduce time-to-market product development, leverage big data for marketing and customer segmentation and utilize CRM technologies to implement a disciplined sales approach.
Back office benefits, Sicuranza says, will enhance scale, operating leverage, security and compliance. "Cloud technologies like Amazon Web Services and Azure should start penetrating; robotic process automation, straight through processing and control automation will all be common technologies to find in the operational shops," Sicuranza notes.
"Activities that today are largely manual--from processing, investigation and reconciliation to more complex contract management--are all targets for robotic processing augmented with AI," Moss says. Offshore middle- and back-office units will be the first to test such innovations, with both vertical and horizontal expansion following success in the early steps, he notes. "The next decade will see not a single function within the financial services community untouched," Moss states.
"The pace of innovation is so rapid that organizations cannot wait to see how the future unfolds, as this will make it difficult to catch up with the digital leaders," Young says. "Even if they are not ready now to invest in the more transformative technologies, financial institutions have much work to do to free themselves of their legacy shackles and take advantage of digital's benefits." He notes that taking immediate action will improve a firm's agility and prepare it for more far-reaching changes in customer engagement. "In the long term, this is about the industry adopting new business models for sustained competitiveness," Young says.
Committing to change
"The first step in undertaking a change program is to understand your firm’s capacity to change and determine the levers that need to be pulled to mobilize support for the program," Young says.
Shabbir believes that financial institutions intending to master digital change need to tune into and synthesize the sentiments of employees, customers and partners. "They'll need to reshape their organizational cultures and operating models to create more responsive and agile environments," he says. User-centric design thinking, coupled with agile delivery, will help financial institutions adapt to changing business requirements and deliver results at an accelerated pace. "Digital technology for learning programs will enable them to introduce change at scale and influence the mindset of key players," Shabbir says. "From a resourcing standpoint, a tiered delivery model with onsite, near shore and offshore resources will help them sustain positive change in a cost effective manner."
Having the right talent on board is also important to digital change success. "Citi wants to attract and grow the best talent, both from financial services and from other industries," Michael says. "We look for people who are bold, creative, courageous and tenacious." Another valuable characteristic is having the ability to communicate clearly and directly. "That keeps people focused on the right priorities," Michael says.
Over the short term, financial institutions will need to update or replace out-of-date digital products to stop the bleeding caused by mounting customer satisfaction, Consigli says. "In the long term, they need to sustain small, evolutionary continuous improvements to their digital products and channels based on customer insights. "
Curran believes that most important things to keep in mind when embarking on a change program are prioritization--scheduling many small, short-term releases and fewer "Big Bang" projects--and dedicating a team to handle transformation tasks. "Another winning behavior is to provide demos of the target technologies/apps to senior leaders and stakeholders, early and throughout the transformation, so that there is excitement and buy-in and that major directional issues come out early," he says.
"We look to develop our offerings by thinking big, starting small and scaling quickly," Michael adds.
A critical advantage
Change, Young says, is already a defining feature of the financial services industry, and that the ability to manage change successfully has become a critical competitive advantage. "Firms that fail to achieve agility and build a strong change capability will be left behind by their rivals as well as the evolving marketplace," he states.
Change leaders are always looking to improve established innovation processes, Consigli observes. "They are empathetic to customers and get their best ideas by listening to them," he explains. "They create hypotheses in collaborative settings, test these hypotheses with established metrics, learn from failure and move onto the next series of improvements."
"A change leader is flexible and willing to re-plan and reprioritize, if necessary--and, most importantly, knows when to do so," Curran concludes.
John Edwards is a veteran business technology journalist. His work has appeared in The New York Times, The Washington Post, and numerous business and technology publications, including Computerworld, CFO Magazine, IBM Data Management Magazine, RFID Journal, and Electronic ... View Full Bio