Customer Experience

Customer Experience

Opinions expressed on this blog reflect the writer’s views and not the position of the Capgemini Group

Banking is necessary, banks are not; how banks can survive in the digital age

As early as 1994, Bill Gates made the provocative and still controversially discussed statement that in the future, banking would be needed, but banks themselves would not. With every passing year, the background of this statement seems to gain importance.

Disruptive technologies force virtually all industries to fundamentally revise their business models or even define new ones. Successful companies are characterized by strong technological awareness and utilize the interplay of social media, mobile IT, analytics and cloud computing intelligently for the creation of their service offering. 

Amazingly, traditional banks (which have been using IT to support and automate business processes for a fairly long time) lag behind in digital innovation. Especially in times in which customers are no longer willing to pay fees for banking services, in which classic sources of income, such as the lending and investment business are becoming increasingly less lucrative due to the erosion of interest margins, and in which not only the competition by banks, but also by non-banks and FinTech companies is growing, a rethink is necessary.

Innovative digital services can therefore become a success factor for banks. Looking at many digital companies, the primary income source is the gathering, analysis and linkage of customer data; data that banks already possess as a byproduct of their traditional business. 

Our whole life is reflected largely in our financial transactions. The monthly rent, salary income, fuel bills, groceries, membership fees for gyms or sports clubs or medical bills to name just a few. Each transaction allows conclusions to be made about our habits, preferences, movement patterns or our personal constitution. In addition, on the basis of the entirety of all financial transactions, information such as average prices, local price differences and so on for comparable goods can be calculated.

From this, digital services can be derived, some of which have already been implemented today by various banks (depending on local data protection policy):

Extended advice and customized information delivery

Based on the analysis of transactional data, banks can not only offer advice on financial products, but also on various consumer and investment goods as well as services. From prices for mobile or insurance plans to investment goods such as construction machinery, banks can create transparency and comparability and thereby expand their consulting services or combine them with conventional financial products, such as loans.

Promotions and coupons

By analyzing financial transactions and customer data, individual preferences and habits can be derived. In this way, banks can provide customers with personalized coupons or promotions, for example for a preferred fashion brand or hotel chain, and at the same time operate as an advertising partner for third party companies.

Predictions of (consumer) behavior and market events

By analyzing financial transactions and customer data, banks can study behavior patterns to make predictions about expected (consumer) behavior in the future or events in the financial or consumer goods market. The obtained information does not only strengthen the base for making own, internal decisions, but can also be sold to third parties in the role of an "information broker" – comparable to today's business of market research institutes.

5 important conditions for digital services

When creating and implementing all these digital services, conditions have to be created which assign special importance to the IT organization of banks and the role of the CIO as well as supply extended requirements:

1. Understanding the needs of the (end) customer

In the context of digitalization - in addition to the internal departments - direct points of contact between the IT organization and the end user arise. In the future, the banking IT department needs to develop an even better understanding of the needs and requirements of the end users in order to provide optimal and customized solutions promptly. This also requires a stronger cooperation between departments and the IT organization.

2. Active involvement and participation in the business strategy process

Since IT is a key factor in the digital business model of banks, CIOs must be fundamentally involved in the development of the business strategy. Only if the IT organization is involved in defining the vision and the strategic objectives of the bank, it can appropriately support the digital transformation of the business model.

3. Focusing on the role of the integrator, rather than that of the developer

With the ongoing digitalization of our environment, increasingly diverse new services and technologies emerge in ever shorter cycles that can be used even without major adaptation efforts. In contrast to the previous role of the IT organization, namely the implementation of departmental requirements through in-house development, IT organizations are increasingly facing the task of integrating different available services and technologies in the market so that they fit seamlessly into the overall application landscape. Roles in "governance capabilities" like that of the enterprise architect, process and quality manager as well as the innovation manager gain even more importance.

4. Flexibility and high implementation speed while maintaining a stable operation

The rapid technological progress and the resulting changes in the industry environment of the banks urge the IT to rapidly implement and integrate innovative services into the existing IT application and infrastructure landscape. At the same time, IT must also continue to reliably ensure stable operations and adherence to agreed service levels.

5. Cross-enterprise data management and data protection

The value of the available data in the bank can only be used optimally, if the data that is generated at various points in the company is merged consistently. A special importance is assigned to the function of an enterprise-wide data management, which primarily has the task of ensuring the consistent usability through data integrity. Accordingly, effective measures for the protection of enterprise data against both internal and external sources of danger have to be taken.

Survival of the Fittest

However, digitalization is not an end in itself and despite an urgent need for action in terms of digitalization, certain basic requirements have to be met and challenges have to be overcome. A particular priority in this regard is placed on the empowerment and recruitment of staff with appropriate skills that are needed for a successful digital transformation.

The implementation of a digital business model requires specialized skills in dealing with relevant and often very young technologies. Often employees for corresponding tasks need to be recruited or trained first; additionally, new roles and job profiles have to be created. More on this topic can also be found in our POV “Why Financial Services Firms Need a Chief Data Officer”.

It is also important that the existing IT employees develop banking-specific skills and a deeper understanding of the company’s business processes to meet the new end-customer-oriented role of the IT department. At the same time, departmental employees need a basic understanding of the IT to better understand the role of the IT department. This can be implemented, for example, as part of a rotation program of staff between the IT department and business departments.

The digital talent of banks has to be carefully managed and continuously developed to ensure that adequate solutions for the digital requirements of tomorrow can be generated, thus avoiding that Bill Gates continues to be right after more than 20 years.

About the author

Markus Filkorn
Markus Filkorn
Markus Filkorn arbeitet bei Capgemini Consulting im Bereich CIO Advisory Services mit dem Fokus auf die Financial-Services-Industrie. Von der Strategie bis zur Transformation unterstützt er seine Kunden bei der Ausschöpfung des Potenzials durch den Einsatz digitaler Lösungen..

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