I have always maintained that ‘digital transformation’ percolates deeper than the layer of interface with customer, down to your core systems, the way it is managed for scale and response. The transformed data layer, simplified business processes, engaging channels, and assimilation of FinTech innovation is built over/ around the transformed technology landscape. Typically, transformation of technology landscape is a long-term strategy, incurring huge costs, whereas improvements in the customer interface layer are typically smaller and easier to achieve. Realists would also argue that no FSI has the budget or bandwidth to do a complete technology overhaul in a big-bang. At the same time, the sequence does not matter as long as the complete system gets overhauled eventually, as the digital empire built on legacy apps will crumble under the pressure of increased pace of changes and transaction volume.
Digital transformation -- a function of channels, processes, data, and core technology -- operates as a business, parallel to traditional financial services, a business with its own stakeholders and their interplay.
1. The Customer
As the epicenter of all action, the customer provides a talisman for all digital initiatives – ‘how will this initiative deliver enhanced value to my customer’. But this is not new, what is new is that our chances of ‘understanding’ our customers are much better now, with TBs of content being created by us over social media channels such as Facebook, Instagram, and Google+ and interests expressed on Flipboard, Amazon, etc. Social Analytics and Predictive Technologies are deployed to analyze customer data and understand their behavior (conscious and sub-conscious) beyond the traditional means of surveying representative samples. Somewhere in pursuit of profits, FSIs got the idea of customer-centricity all wrong, forcing regulators to come up with MiFID-like regulations.
My coffee machine remembers how hot I like my coffee and when; my phone reminds me when I should hit the road for a meeting in another part of city; my car recognizes my key fob and adjusts the steering and seat settings to my preference. However, when I use an ATM, my bank does not seem to remember my language preference for the 500th time in last 10 years!
Financial Service providers are sitting on a huge pile of data. They know my spending and saving patterns, travel plans (from credit card usage), family details (from insurance and other investments), and assets owned (from home loans, car loans, etc.). Even without tapping more information from my Facebook and Instagram posts, financial institutions can do better than just sending me Christmas wishes on e-mail!
It is painful to see FSI’s crawling helplessly under the debris of legacy organization structures and obsolete systems they are too proud to let go in an area where they should have been pioneers.
2. The Workforce
Under the tailored-fit suits, Bankers (and other FSI staff) face challenges very similar to any other industry. They are like men from the Night’s Watch facing the White Walkers with inferior quality steel blades. The front-office staff is serving a customer they do not know anything about or understand their risk appetite, investment preferences, or personality aspects (important to have the personal connect with key clients). It is entirely up to the Relationship Manager’s personal skills how soon can she/ he figure out their clients.
Fortunately, Workforce Enablement is an area where a lot has been done (compared to customer personalization). Custom dashboards provide a 360-degree view of customer statistics, BPM workflows to streamline the business processes, superior Knowledge Management systems focused on collaboration and group intelligence, etc. Engaging self-service channels such as gamification are reducing the workload of modern workforce while technologies such as cognitive intelligence, predictive analytics, big data, and robotics-led automation will augment this benefit.
The real competitive advantage will lie with the ones who manage to simplify their business processes to automate it or convince their customers to self-serve. The future will be about freeing up your workforce completely (at least for routine transactions), rather than enabling them to do more in an incremental fashion.
3. The Technology
I would describe the technology landscape of an FSI in 2021 in just three words – Simple, Agile, and Efficient.
The typical managed application landscape of an FSI would be half of a firm providing the same services today – about 30% reduction would be from eliminating redundancies in functionality, and another 20% would move to a SaaS/ PaaS model.
Why More Agile?
The increased adoption of cloud (private or hybrid) and ever-changing business dynamics (regulations, customer preferences, etc.) would force banks to reduce their turnaround time to implement the changes – think DevOps, Continuous Build – Integration – Deployment. Your release frequency would be a hundred times more, environment creation will be done in minutes instead of weeks it takes today, and deployment automation will bring down the effort to 10% of what is needed today.
Efficiency will just be a by-product of simpler, agile processes. I am talking of operational expenses becoming one-third of what is needed today. This would just give new weapons to the surviving FSIs getting into a price war –which would eliminate the slow-moving dinosaurs.