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Why financial services firms need to rethink their digital strategy

Banking has been part of society for millennia. From ancient times, when grain and cattle were traded as valuable currency, to the 18th century when the sector as we know it first emerged. Big banks have always been a central part of daily life. They enable people to save, act as payment platforms and are the very reason people can buy their homes.

The world we live in is becoming ever more digital, birthing new technologies at a rapid pace. As such many financial providers are at a perilous cross road, and in some cases, are being left behind, by smart new companies, determined to change the status quo.

New entrants to the market are growing in popularity, focusing on a digital first approach, that cuts up the old way of banking and carving out a route, that they say puts control back in the hands of the consumer. This has not gone unnoticed. In the UK, big brands like Lloyds and Natwest are shutting their branches on high streets up and down the country – pointing to the fact people would rather click and scroll, than stamp and deposit. Closing their doors, while controversial in some quarters, does show that financial organisations are aware that digital is where investment must concentrate.

Over the last 12 months alone, I have noticed a definite change in attitude amongst many in the sector. Investments in new tech, innovation labs, rapid prototyping and user testing as well as an adoption of agile practices is on the up. This, combined with a major overhaul of online services by banking providers like HSBC, who along with Barclays have also implemented finger print technology on to their mobile apps demonstrates this even further.

Despite these advancements though, big banks and finance providers are struggling to keep up. In today’s tech-driven times, consumer’s expectations are changing rapidly. As such, many of the large finance providers think they are moving quickly in the innovation field, when in fact they could do a lot better.  Worse so, they are being out paced by these new, emerging companies that are nimbler and know what the modern customer wants. And it’s working. One in three millennials surveyed say they would switch banks for the sake of a better mobile experience and a quarter believe tech companies would do a better job of delivering financial services than the banks.

Loyalty to traditional providers is at an all-time low, with banking considered the sector most vulnerable to disruption by digital start-ups. The fact that most financial service providers are institutions and often hundreds of years old and consist of hundreds of decision makers, means that implementing new, ground-breaking technologies can be a long and cumbersome process.

On the flip side, new challengers have created a mobile first platform, that provides quick, seamless and highly informative investment offerings, that people can access from the comfort of the sofa. Such businesses are leveraging data, automation, connected devices and even artificial intelligence to deliver smarter user experiences. This, while many big banks, still cannot display transactions in real-time.

Fear of the brave new world

While many financial service providers may dismiss the very ideas that these bold new ventures are betting their future success on, this is a risky attitude to take. They should look to the lessons of other fallen giants, such as Blockbuster and Kodak for evidence of how such complacency can come back to bite them. 

Both companies failed to acknowledge the rise of challengers in the form of streaming and the smartphone and instead put their faith in legacy products, which no longer resonated with their core audience. Financial providers must not go down this route. Constant innovation must be at the centre of their strategy, in order for them to stay in touch with a constantly evolving target market, one in which millennials will rule supreme and expect slick, easy to use digital solutions.

Don’t blame the systems

Much of the reason financial providers are being left behind, comes down to their sheer size and age. Many were founded centuries ago, meaning their legacy IT systems are complex and stuck in their ways. Add to this the sheer layers of management and elephantine decision making processes and its little wonder the implementation of cutting edge tech is implemented so slowly.

In many cases, it appears to be a case of ‘let it be’. A refusal and even a fear of upheaving legacy systems and a fear of a brave new world. This is a dangerous attitude and one that can cause real damage to an organisation and hamper their advancement.

The truth is that delivering modern user experiences in most cases does not require a core-system change. Rather than a full system overhaul, businesses can build middleware layers that interact between their systems and the front-end, allowing you a way to work around the incumbent technology and still provide customers with the best experience. The level of complexity of the middleware developed will depend on the product, number of systems to be integrated with and the amount of self-service touchpoints offered. But in most cases, this is far simpler and more cost-effective than a system change. Such an approach can stop legacy systems acting as an obstacle in the way of exceptional user experience.

There simply has to be an understanding that the old way of doing things is no longer the right way. What worked in finance in the 1990s, or even the naughties, no longer applies. More than likely what is status quo today won’t fit the bill in two years’ time, let alone a decade from now. Financial providers must act fast, to avoid being overtaken by new challengers and becoming a relic of the past.

Mark Lusted, MD at Dock9

Image Credit: Investment Zen / Flickr