The banking example
Banks in Central Europe are the most advanced and first to adapt to the digital economy. But there is still much work to be done
According to the several reports, the most advanced and first to adapt to the digital economy in central Europe are financial institutions - mainly banks. The greatest promise and driver for change in these companies is that by going digital, costs will be reduced, new customers and markets will be easier to grab and retention won't be a problem.
After investing a lot of effort and resources (including financial), banks are now collecting the results of the first phase of their digital transformation. What are these results? (Here we will focus only on one part of the banking business, intentionally leaving out specific financial results based on credit management).
1. Online and internet banking. First online and then internet banking were a must for all banks. Results were very good as banks reduced their cost per transaction significantly and defending their market from competition. Especilly in the begining, when user interface was complicated and cumbersome systems were from time to time unavailable. Despite the hiccups, customer remained loyal. Even if costs per transaction were down, costs for managing the account and additional servies vere still high and weighed on client. Banks kept most of their eployees and didn't look to reallocate resources in a more optimal way.
2. Portals. Websites with loads of content though poorly organiyed, and targeting different customer segments were all over the place. Banks focused only on pushin information, but didn't allow for open and transparent collaboration with clients. This, in turn, lead to the insignificant business results.
3. CRM systems. CRM systems were introduced to improve client management. Unfortunately from the three letters in the acronym, only M seems to work – and only to internal sales and pipeline, but not to customers (C) or relationship between account holders and the financial institution (R). CRMs proved to be an internal tool and a Chinese wall between bank and clients. The best communication with customers is sending an e-mail with the enerving, but famous, sentence: "This is an automatic e-mail. Please do not reply" or, as a CRM specialist calls it, sophisticated campaign management. CRM customers entries are shared among employees, but account managers' calendars, for example, are not. This leads to customers receiving doubled offers – as a call from a call center and a personal contact from an account manager to schedule a meeting and review the investment portfolio. Statistics vary, but we believe that up to 80% of CRM implementations in banks fail.
4. Mobile. Mobile banking and PFM as the the next great digital transformation tools are also just examples of the "me too"-syndrome. Banks implement these offers half-hearted as a way to keep up with competitors, rather than promote optimal use of technology and resources. Mobile banking very seldom brings new customers and is used mainly to view account status.
5. Custom isn't that custom. All new technologies aren't bringing real personalization for clients. True customization is still far away; what is operational is customer segmentation and that does bring some good results.
The new digital economy brought a set of new applications to data centers in banks and the whole system became more complicated and cumbersome, with additional security and availability issues. But banks didn't use the opportunity created by the lowering of the costs per transaction to reallocate resources and start new, productive initiatives. Regardless of the investment in sophisticated systems, the number of customers is decreasing and there is seldom an online sales upsell.
In the meantime, competition is growing by targeting high margins on transactions, managing accounts and loans. The first new entrants were digital banks that, for not owning physical branches, eliminated all costs in maintaining account managers for clients. They also added free credit cards and increased interest rates on deposits as a way to attract and retain customers. Retail companies (such as Tesco) followed and began offering bank services. Afterwards, mobile operators (such as Telenor, MTS and Polkomtel) entered the market with mobile payment solutions. In parallel, Paypal, Amazon, Apple and many others developed their own solutions to transfer money around and many start-ups pop up every day. There is even an expression for these tech companies focusing on innovation in the financial industry: FinTech.
All these new competitors – even if not all will last for long – have a piece of the cake so far enjoyed by traditional institutions only. All in all, banks are under heavy pressure and it shows by the number of employees let go every year and the number of banks sold or closed.
What is the solution? As any other companies, banks need to review their strategy and endorse the new digital reality: adjust, update and change strategies in order to to account for the new ecosystem and its digital element. Banks need to implement a new business model and change both why and how they create value for clients, reallocating resources in line with the new strategies and modifying the ways they make and manage profit.
Banks need to understand that their main assets are customer data, communication channels and content. In regard to customer data, banks need to figure out from a business perspective what they want to know about their clients. Then they need to compare this desired information with the actual data they already own and define ways to get the information they lack. Banks also need to analyze the functionality and improve their communication channels aiming at achieving a real omnichannel and personalized collaboration.
The most critical asset is content. Content refers to information about products and services and the way this data is presented. There is a big gap at the moment. All of this has to be part of the new strategy.
Stop bluntly investing in social, mobile, analytics and cloud and reassess strategy. This doesn’t mean that everything has to be digital and only digital. Recently, we are witnessing some digital only banks are opening information centers (a.k.a: branches). Read our blog entries on the value of information and the four levels of digital adaptation, as well as our digital transformation methodology, for more information.
Photo Credit: JD Hancock/Flickr
Branislav VujovicPresident New Frontier Group
Strive to become better
Branislav Vujovic is founder and also president of New Frontier Group and has overall responsibility for the New Frontier Group, with special focus on Innovation, M&A strategy, group strategy and investor relationship.