Miscalculated? The financial industry and digitalization

Online banking isn’t enough: While industry and the service sector are making great strides in digitizing their offerings, the financial sector says that in the end little remains of its ambitious plans. Is the complaining unjustified or are there actually deficits?

Digitization: Has the financial sector gambled away their credit?

Of course, the banking sector has adapted to the requirements of the digitized world in recent years by investing heavily in IT infrastructure. Processes are being handled faster and thus more cost-efficiently; data has been decentralized to the cloud, further improving availability, and online banking is now part of the standard offering. But competition from a new generation of banks, the FinTechs, as well as new investment behavior on the part of customers requires more: applications that meet customer needs. Payment processing, loan brokerage and investment advice – in these areas, the established banks still have a lot of catching up to do, because they are not known for innovation.

A look inside the accounts

More than 1,000 executives from private and commercial banks in 13 countries, including the USA, the UK, Hong Kong, Singapore, Australia, France and Germany, were surveyed for a recent study commissioned by Publicis Sapient. The focus was on digitization in the areas of customer experience and operational transformation – in other words, precisely where FinTechs such as N26, Klarna and Smava are increasingly taking customers and market share from banks such as JPMorgan Chase, ING, HSBC and BNP Paribas.

They have launched with great ambition to meet the challenges of digital transformation. The majority of banks (83%) have a clearly formulated strategy. They know that “digital first” is the way forward, with digital natives among the challengers, new technology providers and changing customer expectations setting new priorities. The COVID-19 pandemic in particular has proven to be an additional accelerator. But managers also admit that they lack the know-how to date. More than half (60%) know they have not yet made significant progress in implementing this strategy. While four out of five banks are investing in technology, nearly three-quarters admit they are not putting enough money into the talent and skills needed to use it. In other words, the technology is there, but no one knows how to use it.

Debit and credit of digitalization

So they have to do more to keep up with the competition, where the digital natives are calling the shots. They need to win over customers for whom the established banking model is too dusty, too old-fashioned and too slow. To close the gap between aspiration and reality and keep pace with competitive challenges, banks must address the areas of the business that drive them forward. Investing in talent and skills and developing a digital mindset and culture for banks is key to becoming truly customer and digital centric.

To identify the leaders in customer leadership and operational leadership, Publicis Sapient’s study distinguishes between four different segments that describe the maturity of banks:

• The Transformation Leaders
• The Customer Champions
• The Operational Evangelists
• The Slow Starters

The Transformation Leaders account for 17% of the banks surveyed. Agility is considered a necessary attribute for digital competitiveness among these banks. Perhaps that’s why only 40% of the leaders said the COVID-19 pandemic was a barrier to transformation, compared to 50% of The Slow Starters.

What are they doing better than, say, the Customer Champions, who make up 7% of respondents?  Alison Beer of JPMorgan Chase sees simplicity as a key point:

“Do we make customers’ lives easier? Are we making it easier for them to manage their financial life in one place? The firms that do that seamlessly across products and across experiences in a way that removes the work from the customer, that’s anticipatory, that’s personalized, are the ones that are going to win.”

Yet despite all these efforts to deliver competitive, digital customer experiences, more than half (56%) of customer champions say their organization is not investing enough in digital innovation to keep pace with digital challengers.

In contrast, Operational Evangelists are doing well on the tech side. They invest heavily in partner ecosystems, optimizing operational and service costs, and in data and/or analytics for a 360° view of their customers. The Deutsche Bundesbank (German Federal Bank) already foresaw this development five years ago and predicted that the high costs could only be reduced by thinning out the tightly meshed branch network. Nevertheless, a large number of customers could be reached through consistent digitization.

However, Slow Starters make up the largest group identified. 71% of the financial companies surveyed have not yet made significant progress in implementing their digital transformation strategies – neither in customer service nor in technical infrastructure.

Digitization in the financial industry: the bottom line

Most established banks are aware that they must make digitization the core of their future strategy. To become transformation leaders, drive growth and prepare for a digital future, the study identifies four areas for action:

• knowing the competition
• driving a culture change in the company without forgetting the employees
• investing in partner networks and increasing sales
• and one thing above all: remaining agile and innovative