Digital Transformation in Banking is not happening

It’s a financial world: Digital Transformation in Banking is not happening

Digital Transformation in Banking is not happening

There is a lot of talk about digital transformation by
banks but the reality is that despite what they say they are not doing it. What
the vast majority of banks are actually doing is digital enablement. They are simply
using digital technologies to do what they are doing today only slightly
better. There is nothing transformational about what they are doing.
Fundamentally the products and the services that banks
are offering are no different than those they have been offering for the last
fifty years, if not longer. They may be offered through different channels like
the mobile, tablet and over webchat but they are still fundamentally the same
as those offered to your parents when they were your age.
It is not only the big banks that are guilty of
digital enablement but also the majority of the so-called challenger banks. For
most of them the term ‘challenger’ is not even appropriate. What is challenging
about providing free dog biscuits in branches! Their impact on the market share
of the big banks is negligible and not growing at a sufficient rate to be a significant
threat anywhere in the short term.
The reality is that the majority of the challenger
banks are simply competitors offering a subset of the products and services
that the big banks provide. However the emergence of a large number of
competitors into the market is to be welcomed as the choice for individuals and
small businesses as to where they get their bank services from has, and
continues, to expand.
When you take the UK market as an example the
competitors break down into a number of categories:
These are the likes of Co-op Bank, Nationwide Building
Society, Clydesdale and Yorkshire banks who have been around for many years
with a fairly consistent market share. They are all in different ways and at
different speeds enabling their businesses with digital technology. Some are
being more ambitious about growing market share of current accounts than
others.
These banks are the ones that have been spawned from
previously existing organisations, been re-sprayed with a new or revived brand
and trade on the fact that they are not one of the big four banks. The main
players in this category are Santander (Abbey National), Virgin Money (Northern
Rock), TSB (Lloyds Banking Group) and Halifax (Lloyds Banking Group). Of course
the latter is still owned by one of the big four, but is positioned as their
‘challenger’ brand.
The Clones offerings differ from each other. Santander
has expanded the range of products that Abbey National offered with a push into
current accounts and SME banking. While the Santander 123 account has shown
some innovation it is still fundamentally a vanilla current account. Virgin
Money has expanded the Northern Rock offering into balance transfer credit
cards, but despite previous announcements is holding back from entering either
the current account or SME banking markets for the moment.
None of the clones are leading in their application of
digital technologies and, at best, are enabling some of their processes with
digital.
Into this group fall the likes of Metro Bank,
Shawbrook, Aldermore, Oaknorth, Handelsbanken and OneSavings Bank. New banks
that are offering an alternative to the Big 4 banks but all of which have a
small market share and whilst growing quickly will take years on their current
trajectory to be of serious concern to the large banks. Like The Clones they position
themselves as not being one of the big four and differentiate themselves on
offering superior, personalised service. They have not invested heavily in
digital – Metro Bank has only just (August 2016) launched its customer website.
In the cases of Metro Bank, Handelsbanken and Aldermore have made their
branches and face-to-face service a key point of their differentiation.
These are the banks that are being designed with mobile
in mind for the Millennials the likes of Mondo, Atom, Tandem, Starling and
Monese. While a number of these have been granted their banking licences and a
number are in beta testing these banks have not really been launched yet. We
have some indication of how they will operate however until they move to full
launch it is difficult to judge how transformational in terms of their digital
offering they will be.
So if today’s banks are only undertaking digital
enablement what is it that they would need to do to be undertaking digital
transformation?
Re-imagining the business models for
banking
Transformation is about fundamental change – something
that the banking industry has not seen since the Medicis created the first bank.
This is about changing the business models for banking to reflect what
customers want and also how the way industries boundaries are blurring.
Banks that are truly undertaking digital transformation
are reimagining the business models for banking
Customers do not want to do business with banks.
Customers do not fundamentally want a mortgage they want a home. Customers do
not want a loan they want a car. Banks for customers are a means to an end.
Banks who get this are recognising that they need to be offering services beyond the
banking product
.
For example some banks are forming agreements with online
estate agents so that when a customer is looking at a property online the banks
knows this and can tell the customer whether they can afford it and whether the
bank is prepared in principle to offer them a mortgage.
Banks have lots of SME customers many who will have
offers that are of interest to other SMEs or individuals. The banks know how
well those SME businesses are performing so banks are in an ideal position to
create a SME marketplace where their customers can do business with other
bank customers knowing that the supplier is backed by the bank. Equally the
supplier will know that the customer is backed by the bank. In this model the
bank operates as the introducer adding value to both the business and the
customer.
The three examples of different business models above are
just illustrative of what banks and other organisations are doing to use
digital as an enabler to fundamentally change the banking industry.
This is true digital transformation and for those
organisations that embrace it the future is positive and full of hope; for
those who don’t the future is a slow decline into obscurity.

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