In the future when historians look back at the early years of the 21st Century, one thing that will be immediately evident will be the extraordinary pace of technological change that took place. Digital innovation is proving to be transformative - in terms of how we connect, how we create business models, and how we deliver customer experiences.
It goes without saying that digital transformation has put the world at our fingertips; from streaming services to social media, digital platforms have enabled a level of connectivity that would have been hard to imagine 20 years ago. As a result, the world of business has had to react to customers who have access to a wider range of options and zero desire to compromise on service.
Many well-known names like Netflix, Uber and Amazon have led the way for new companies to wholeheartedly embrace the digital age and this is particularly evident in the financial sector. In comparison to long-standing banking groups, smaller, younger firms have been born in the cloud age. They have never had to contend with the mammoth task of bringing digital transformation to outdated and outmoded systems.
As a result, big firms are scrambling to catch-up; CEOs are driving digital transformation as their number one priority and looking to their CIOs and their C-suite colleagues to work together in order to deliver better customer, employee and IT experiences.
The next generation
However, there is one sector that, until recently, has arguably been resistant to change: banking. As an integral part of our society it has always been perfectly ordinary and reasonable to visit your local branch in person to deposit a cheque, renew a mortgage or open a new bank account — and if you’re British, queue politely while someone deposits twenty pounds in pennies!
Now though, recent research from industry analysts CACI predicts that by 2023, 35 million people – or 72% of UK adults – will bank via a phone app. It is a clear indication of where consumer appetites are heading, and a sign that digital transformation on a large scale within the banking industry is inevitable.
There is no doubt that legacy banks understand this and are enacting digital transformation throughout their organisations. However, the market is now seeing the emergence of a new generation of fintech banks like Starling and Monzo. Initially these digital start-ups offered customers user-friendly apps designed to easily organise, track, budget and save money. But with a million customers and counting it’s only a matter of time before these challenger banks begin offering financial products to rival the legacy banks.
And it doesn’t stop there. Keen to get in on the action, tech giants like Apple, Amazon and PayPal have stepped beyond their original retail objectives to offer customers financial service tools focused on payment, cash deposits and lending.
By using the sophisticated digital tools at their disposal, these new entrants in the financial services market are providing a customer experience that integrates seamlessly into the busy lives led by most people.
At its most basic, people just don’t have time to go to a physical bank every time they need to access their banking facilities. It’s an issue that legacy banks are going to have to combat through the creation and updating of customer service focused digital platforms. Recent research from Crealogix predicts that over 75% of Millennials and Gen Zs will open new bank accounts over the next three years. So it comes as little surprise that younger generations are three times more likely to choose to bank with digital-only challenger banks like Monzo in the future.
For the legacy banks, this can only mean a shortened timetable for transformation and the whittling down of a once unshakable customer base.
So, what’s next?
Many legacy banks are making progress by improving their online and mobile digital platform offering. But a lack of connectivity between the back end of the business and what customers expect means there is still work to be done.
As might be expected, the established players have to deal with legacy tech that the newcomers simply don’t have to worry about. Unfortunately, throwing out the legacy tech simply isn’t an option when banks cannot take the risk of downtime and the risk that comes with a wholesale rip and replace strategy.
At ServiceNow we build bridges between the kinds of issues that are causing headaches for many financial service businesses; issues that are holding them back from achieving operational excellence. We create workflows that connect departments that in the past operated as silos. HR, IT and, most importantly for the financial services industry, customer service processes are simplified and streamlined — a model that many new banks and tech giants are built on.
It sounds like a daunting task, but everything the banking industry needs to enact change already exists. The real challenge is overcoming institutional inertia.
There are undoubtedly complications involved in shaking up an industry that is stuck in its ways. Banks will still need to overcome issues like cost vs. transformation, risk management, company buy in, and possible government involvement. But with a smartphone sitting in millions of pockets across the globe and a clear consumer demand, the case for digital transformation in banking has become a question of when rather than if.