Disruption in Digital Banking

Last Thursday, Jouk and I hosted our closing webinar of 2014, where we talked about Disruption in Digital Banking. Here a short summary. (You can watch the recording on our YouTube Channel, and the slide deck is available on Slideshare).

We all agree: customer behavior is changing. Customers are more and more looking for convenience. The convenience and simplicity the get online and on mobile, when watching their favorite show on Netflix, or when taking that cab with Uber. But where is convenience and simplicity in financial services?

Was the taxi-market ready for disruption? Maybe, but nobody was arguing as strong for disrupting the taxi-market as they are now chanting to disrupt financial services. And it is starting. Uber is booming, but the Uber in banking, LendingClub, is going even stronger. LendingClub went IPO last week, opened with an 56% increase in share price, giving it a whopping 9 billion dollar valuation, “lifting the company’s market value higher than all but 13 U.S. banks.

And it is not just LendingClub that is starting to target the traditional banks. Tom Loverro of RRE Ventures recently created this image:

Fintech companies attacking Wells Fargo.

Here you see the homepage of Wells Fargo — but know, this is true for every traditional  bank — and some of the larger fintech companies going after pieces of the banks market. And this is not just a few logos. Fintech companies in 2014 raised nearly $3 billion — more than tripling the $930M invested globally in fintech in 2008. Yes, fintech is hot.

So what can banks and credit unions do to  fight back and step up their own game? It is time that banks challenge the challenger and become disruptors themselves. To do this, they have to start by accelerating their digital transformation.

In our webinar, we defined 4 Key Focus Points for 2015 to help banks and credit unions change themselves:

1. Start with the Customer Experience

Of course, your customer comes first. But is this reflected in every department? For most banks ‘Customer First’ is the mantra in the customer contact centre, but a bit forgotten when it comes to the rest of the organization. To often I hear Heads of Customer Experience talk at conferences and discover that their main focus is the call center and the training of branch employees. Where is technolog in this picture?

We see the shift in customer behavior. It is about a personal and relevant, ‘anytime’ customer journey. A journey that starts more and more on a mobile device. But to deliver the best mobile experience, you need to do a lot of work on the back-end. You need to change the stack. From inside out with a main focus on network, hardware, and just a little bit data and UX, to full focus on UX, data (to deliver a personal experience) and where hardware and network are just an after thought. This is the only way to be able to truly start designing for moments of truth in a iterative approach. The approach that make the disrupters so successful, but is still almost impossible for most banks.

2. Pursue an Omni-Channel Delivery Model

Stop saying omni-channel is just a marketing buzzword. The fact is: customers are using multiple devices and multiple channels to accomplish a task overtime. And this is especially true when purchasing new products and services. As a customer I expect the same brand-experience on every device and in every channel, I really don’t care that your Mobile App lives in a different code base, controlled by yet another agency. I expect to be able to do a seamless handover between devices and channels. I can continu watching House of Cards in the train, on my tablet, why can’t I continue that long loan application form on my regular computer after I decided to stop on my smartphone?

To make this possible, banks have to move the a flexible customer experience layer that runs independently from the main stack. Banks should have flexible API’s for their main processes and core systems, and a orchestration layer in between to ensure hand-over and session persistency. Start working on this.

3. Regain Control of your Digital Strategy

To deliver on point 2 and 3: you have to be in control again. To many banks lost control over their digital strategy to an outside software vendor, or to a big and bloated internal IT team. Especially the Tier 3 and 4 banks and credit unions, they all look the same. Why? Three banking vendors dominate the market, they are in control. As a small bank or credit union the only thing that you can change in your digital channel is the logo, and if you are lucky, the color of the text. For the rest you look exactly the same as all your competitors. This cannot be the way forward in the age of digital disruption.

Banks have to regain control. Core banking should be core banking. And on the front-end you need a digital banking platform where you are in control. A digital banking platform that is unique, personal and relevant. A digital banking platform where business and IT teams can work together on innovation. A digital banking platform that is flexible enough to mix and match best of breed 3rd party systems for PFM, Bill Pay, Remote Check Deposit, etc. You like the innovation you see on the stage of Finovate? Make sure your digital banking platform can run widgets that actually can let you experiment with those vendors. (Yes, a shameless plug for Backbase Engage and our Open Banking Marketplace).

4. Define your Inspiring Purpose

But it is not all about technology and new platforms. Most neo-banks, such as Simple and Moven attract a following of people that want to change the world. People want to engage with brands they feel like they ‘understand them’. They want to be seen with their new Nike’s, they drink Coca Cola instead of Pepsi. They have an Android phone because they don’t want to be a Apple sheep (or visa-versa). But how often are you proud of your bank? Banks need to find their voice, their brand feel, and need to start building that personal community of followers. People should be making a decision for a FI because they believe in that company. Banks need to re-define their inspiring purpose.

Watch the full recording of this webinar here:

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Jelmer de Jong

Jelmer de Jong

Product and marketing leader.