As the connected society maintains its unquenching thirst for progress, the concept of digital first has become digital only. And while disruption is often seen as an overarching (and overused) description for the impact of technology, there is little doubt that traditional business sectors have often been forced to adapt to survive.
For those involved in the banking and insurance worlds, for example, digital has been the competitive differentiator that has helped the fortunes of many financial services companies. In fact, continued digitalization has sped up innovation, changed consumer attitudes to banking and enabled emerging sectors to compete with established giants.
Banking, Opened Up
Digital has, quite literally, changed the rules of the game. Open banking, mandated in Europe since 2018 by legislation known as PSD2, is now a global movement that adds to the existing competitive pressures facing financial services organizations.
In simple terms, open banking refers to the shift in attitudes towards data ownership and the use of virtual tools to build innovative customer offerings. At its core, the concept is squarely aimed at encouraging competition and creating new opportunities. In most cases, opening up the financial services sector disrupts old value chains and allows new partnerships between financial, fintech and non-financial companies.
How does it do this, you may ask? By enabling APIs to share data in a compliant and standardized way.
However, open banking has also enabled companies who cannot compete with the big banks in terms of scale or reach to challenge them when it comes to speed, agility, reputation, brand name and customer loyalty. Little wonder that there has been huge interest in specialist API integration services, as demonstrated when Visa recently bought the Swedish API fintech, Tink, for $2 billion.
Winning Customer Experiences
As the financial services field has widened, customer loyalty has become one of the biggest battlegrounds.
Innovation has become key, and there is a consensus that the relationship between consumers and their banks is fragmenting and diluting. Trust in traditional banks is receding, for instance, and savvy consumers are shopping around for their financial products.
According to the analyst firm, Neilsen, fewer than half of U.S. bank customers consider these companies to be their primary financial provider.
As online banking continues to grow – and bank branches continue to close – it is getting harder for financial services to spark positive customer engagement and loyalty through traditional touchpoints: people who bank digitally are “20 percent less likely to use their primary bank for ancillary financial services needs” a recent report from the analyst said.
Evolving Digital for Competitive Advantage
These factors all combine to create some serious challenges – and opportunities – in financial services. And, prior to the black swan event that dominated 2020, there was a general acceptance that digitalization was going to be a matter of when and not if.
But if digital changed the game, COVID-19 took the rulebook and threw it into the nearest open receptacle.
The pandemic demonstrated that financial institutions could accelerate the digitization of their services, migrating many processes online. However, in a world where consumers expect speed, value and superior customer experience, simply being online is not enough.
The real opportunity lies in delivering on the potential that digital has to offer. Pioneers in banking, insurance and fintech are not just accelerating digital adoption, they are using digital to solve their biggest challenges.
And while this is not always an exact science, here are some ways that these pioneers are dragging financial services into the 21st century.
Digital to the Core
While the newest crop of digital banking natives can boast an ultra-flexible cloud-based core architecture, many financial services companies have monolithic architectures that, despite upgrades and rebuilds, don’t address the demands of data-driven real-time service delivery.
It is now time for companies to consider how their core architecture can help them access the information they need to both understand their customers and drive innovative offerings. This architectural approach is one that many in the industry have been advocating for a while to help banks withstand future turbulence better.
Automation is everywhere and most large enterprises are using it to some degree.
The opportunity for financial services is to continue to extend the boundaries of automationtowards hyperautomation, which links together multiple automated processes, transcending business and tech siloes. In fact, Gartner predicts that hyperautomation can lower operational costs by around 30 percent.
From customer-facing service chatbots to robotic process automation through to the burgeoning RegTech segment, deploying automation, intelligently, can help financial firms enhance the customer experience, improve operations and lower costs.
One widely accepted key to improving customer experience is removing inconvenience.
Digital wallets, contactless payment and biometrics all have a role to play: 68 percent of retail banks reportedly believe IoT will be the digital technology with the greatest impact on banking in the next 12 months. The caveat to this forward-thinking approach is whether these traditional businesses are ready for the technical challenges that come with IoT development.
Personalizing interactions with consumers leads to better engagement, increased sales and competitive advantage. For the insurance and financial sectors, personalization is more relevant than ever, especially in the face of the uncertainty customers have faced in the last 18 months.
Insurers, ever eager to woo customers, have been quick to offer deals that reflect their customers’ lifestyle changes owing to the pandemic – fewer vacations and fewer miles travelled by car, for example.
However, being able to offer truly personalized products requires AI and big data to work together in real time, and this remains an obstacle for many. On the plus side, there is an acknowledgment from the financial services industry that those embracing AI are not only solving the challenges but also demonstrating the value that next-generation tech brings to the sector – a Boston Consulting Group article from 2020, for example, referred to an “emerging digital gold rush.”
As the pace of change accelerates in financial services, responding quickly to market dynamics, fending off new competitors and building stronger customer loyalty are all imperatives. This level of business agility depends on a model of innovation that reflects the need to adapt…continuously.
Digital has inevitably sparked a new era for modern application delivery, and the companies that understand that are the ones that will flourish in their chosen sectors.
For example, IDC’s Peter Marston in this Market Spotlight report said that “implementing modern application delivery as part of application life-cycle management will grow in importance over the next several years to help organizations gain competitive advantage.” When you consider that this was only a year ago, then it could be argued that the pandemic was a catalyst for change in one of the most traditional of business verticals.
Be the Disrupter, Not the Disrupted
API unlocking, automation and AI are just the start of the digital disruption in financial services. Gaining competitive advantage in the fast-paced world of insurance, financial services and fintechrequires a flexible, agile approach to new commercial opportunities, business models and external market forces.
There is no easy solution, especially since financial companies increasingly demand more from their digital services partners.
According to NelsonHall’s Andy Efstathiou, “Digital banking services vendors increasingly require the capabilities to deliver professional services, cloud migration, and BPaaS in the rapidly changing digital banking operations market.”
This may well be the litmus test that companies need to pass.
Digitalization has become a currency that goes far beyond just having an app that allows the customer to conduct their business away from a physical location, and digital banking has already become a ubiquitous part of our connected society. What matters now is that the financial services sector takes advantage of the tools and platforms that are available, providing its customers with the experiences that they have come to expect from a digital-only society.
To learn more about how digital technologies can help financial services companies differentiate their offerings and increase customer engagement, look at Apexon’s Financial Services sector solutions. Alternatively, fill in the form below to contact us directly.
[Editor’s note] NelsonHall, in its NEAT Vendor Evaluation for Digital Banking Services Report 2020, identified Apexon as a leader in providing support for new digital banking business models.