FinTech lessons banks need to learn to be digital-first

Digital-first pressure for banks is well and truly on. Leading financial institutions know they must lead in both customer experience and operations en route to a digital-first future, while also recognising these as areas of strength for digital-native challengers and FinTechs.

by David Murphy, Head of Financial Services EMEA & APAC, Publicis Sapient

Today, almost everything is digital. The way we shop, interact, how we bank. A global pandemic made digital capabilities mission-critical, enabling banks to continue efficiently serving their customers remotely. And for the most part, this has been achieved with a great deal of success. However, before the pandemic, many banks were sceptical about their ability to pivot so quickly to a digital-first approach. They knew they needed to, but the ‘How?’ proved difficult as they were bogged down by legacy technology and cultural debt.

Banks have been aware of their digital-first future for quite some time, but many have simply struggled to get there, stalling at the first hurdle and giving away valuable market share to a wave of digital natives that are more agile, innovative, and free from the weight of traditional restraints; adapting and pivoting as required. So far, the market has been theirs for the taking, inspired by the likes of Amazon, Netflix and Airbnb which have disrupted entire industry sectors with their digital-first platform approach. They have successfully leveraged technology to create a superior customer value, offering slick and frictionless experiences that have appealed to a new generation of financial customers.

Recent research by Publicis Sapient showed that 83% of  banks already have a clearly articulated digital transformation strategy in place, but the pandemic acted as a catalyst to act faster. According to the study, 81% of banks say the pandemic has made improving their digital skills and capabilities more urgent, and 70% say it highlighted weaknesses in their customer experience. Covid-19 has only served to reinforce the gaps in legacy banks’ customer experience and operational transformation. Banks are accelerating to compete with digital-first challengers like Monzo, Revolut, Chime and Nubank, while developing partnerships with FinTechs that can accelerate the provision of new customer propositions. Personetics, a firm that uses data and AI to enable banks to provide personalised insights to their customers is a great example.

Incumbent banks are however, far from complacent. Most say they must do more to keep up with these nimble, digital competitors while appealing to a new breed of digital-native customers. Leaders from the Global Banking Benchmark Study ranked digital-first challengers, FinTechs and consumer tech companies among the top five influencers of their own digital transformation strategy. “FinTech is the future,” as JPMorgan’s CEO, Jamie Dimon, wrote in a memo to shareholders ahead of the bank’s earnings numbers release.

Put simply, banks need to stop aspiring and start acting to counter the new competition ‘head on’ by transforming their technology, investing in appropriately skilled talent needed to make this technology work for them, and emulating the digital-first mindset and culture of the challengers. Crucially, they must digitalise and become truly customer centric. At the most basic level, they need to provide access to their services online and efficiently to customers entirely via digital channels. Not only basic services such as checking balances and making money transfers, but also more complex transactions such as mortgage lending. In this rapidly evolving environment, banks need to deliver superior customer experiences while being operationally agile enough to drive growth and give themselves a fighting chance to compete, which is not always easy. Look at N26, Starling, and Revolut, who have clearly demonstrated their ability to achieve a high level of digital maturity by creating digital-only propositions at speed while innovating on the product cycle in their area of specialization.

Banks need to optimise all areas of their customer experience and operations – from their business models and technology to their products and services and even their people in order to achieve both revenue growth and cost reductions in a post-pandemic world. This will also enable them to compete in an increasingly complex, digital-first financial services landscape. Banking of yesterday has gone, and to cement themselves for the future banks must innovate with customer experience top of mind.

How can banks learn from FinTechs?

Accelerate into a digital-first future. Know the competitive landscape. Banks need to understand their competition, then invest heavily in digital innovation to keep pace with them as digital-first challengers, FinTechs, and new entrants continue to reshape the financial services outlook.

Transform both people and culture. Leading banks recognise that investing in developing talent and skills to transform culture goes hand-in-hand with technology investments – they are not siloed. Lack of skills can be a key barrier to transformation.

Invest in a partner ecosystem and distribution network(s). Building partnerships will allow banks to scale and pivot at speed to compete with digital-first competitors.

Be agile to move and innovate at speed and scale. Leading banks have already grasped this shift and are now focused on building urgency – 40% of banks believe that agile product development is the key trait for digitally innovative financial services firms.

Move to a cloud-based model. Cloud is central to banks’ digital transformation strategies, whether for core modernisation, enabling personalisation or real-time payments. However, banks need to look beyond infrastructure and cost efficiency. Opportunities for customer innovation and cloud-enabled services must be seized. That said, adaptation will take time as sentiments steadily rise, 29% of bank leaders say cloud investment will be central to their digital transformation plans over the next 3 years.

Banks are aware of the impact that these new challengers and market entrants are having on the pace and priorities of their own digital transformation. In turn, flexibility is becoming increasingly important for digital competitiveness in the market. Banks need to prioritise investment in agile capabilities which will allow them to accelerate the rollout of new customer features and innovations.

While banks should not necessarily flock to follow the internal structures of digital competitors, it is crucial that they realise what has made them so successful: customer obsession. They have an established customer-led culture; a 360-view of customer data; they deliver omnichannel servicing and offer personalised experiences and products, but most importantly, they have a platform-based approach. The types of institutions that will be successful in the next 3-5 years are going to be institutions that integrate different parts of a large ecosystem into a platform experience. Banks must use data to deliver an in-depth understanding of the customer and their wants and needs, and banks must service those needs in a streamlined, seamless, ethical, and engaging way.

By learning from challengers on how to become customer centric, they can invest in and improve on their own CX. This requires investment into digital innovation to keep up. The good news is that it can be done. The pandemic has shown that banks can move incredibly fast when required and support their customers almost entirely digitally with no branch access. Customer needs and demands are constantly in flux. An iterative approach which works constantly to improve, update, and respond to customer desires is essential. This approach will see today’s banks best position themselves for the digital-first future.