The only way to make the most of what technology transformation can do is to rethink transactional processes from scratch rather than trying to convert analogue processes to digital ones, says Simon Taylor
Taking a paper document, whether a bill of lading or a letter of credit, converting it to a PDF, then emailing it, or using a mobile app to do so, isn’t being truly digital.
OK, it is digitalising processes. But to what end? None of the data exhaust is available, none of the workflow information is real-time and, in truth, the user gets none of the benefits of a digital environment. What is born digital is fundamentally different from what is born analogue and has subsequently been digitalised. When we “digitalise banking”, we therefore create a service gap between what the customer needs and what is actually provided. It’s a gap that challenger banks, fintechs and tech companies exploit with relish.
So, let’s forget about digitalising banking once and for all.
Truly digital banking is only 1% finished. Some may view this as bank-bashing; but it’s not. Rather, it is a statement of opportunity: with new technology and emerging customer expectations. I think we’ve only begun to scratch the surface of what’s possible.
So what do I mean by digital? Digital is understanding customer journeys and their end-to-end needs. It is then re-imagining what the banking provision should be, given these needs and the availability of new technological solutions.
For instance, corporates need information on their cash flow position, when their payments will land and how much these payments are going to cost them. In trade finance, they need information on when their goods have left, and when they may arrive. Is a paper statement or document the best way of meeting these needs? Of course not. What about if I just make an electronic version? No.
Take a step back. Starting afresh, you would construct the process again, redesign products around clients’ desired outcomes and end-to-end journeys and be vastly more competitive. In trade finance, this means dematerialising trade documents and looking at workflows all the way along the transaction journey. I see the we.trade platform 1 as a step in the right direction here, although even that is not perfect.
Banks – and more or less all other businesses, for that matter – need to start forming teams around customer jobs to be done rather than product creation. It may sound counter-intuitive at first, but by identifying the problem and pain point and finding an excellent solution to it, big businesses create a minimum loveable product (MLP) — similar to a minimum viable product but much better because customers are involved in the product and intimately connected to its utility.
Fintechs are the best proponents of MLP development. Think of Transferwise’s multi-currency account, which allows SMEs to have one account that serves many needs in an easy-to-use way. It meets their needs as straightforwardly as possible, and that’s the goal of truly digital banking.
Small teams, with entrepreneurial spirit, are vital to the success of digital banking. Banks should take the 5–10% of budget they spend on innovation and create “red teams” that are charged with doing something truly inspirational to create that MLP for clients. They should focus not on the breadth and depth of banking services a global bank may offer, but rather on solving clients’ problems (with live solutions, we need to get past proofs of concept), even if this is only for a handful of clients.
Navigating the battlefield
Who stands to win the race to become truly digital? There is certainly no shortage of candidates: incumbent banks are being attacked from all sides by new challengers and digital non-bank service providers. This battlefield is actually filled with micro battles, all of which are shaping the future of our industry.
The winners will be not only those that have the greatest number of customers, but also the most intelligent digital service. Right now, I do not see any clear front runners in the digital banking battlefield. Incumbent banks have the customers, but they need the tech, new challengers have the tech but not the customers, and the big tech companies and platforms seemingly have everything, apart from the underlying financial service provision (at least for now).
I do understand that banks have to sustain regulatory compliance, safety and soundness, as well as meeting the short-term needs of shareholders – and keep the lights on.
This leads to the behaviour we see now. Billions are invested in “digital transformation”, which at best results in incremental improvements to maintain market relevance.
But if banks continue relying on their legacy technology and culture within the changing banking landscape, they will be punished. The big tech giants are also getting ever closer to announcing their invasion into the market; they have the tech, the customers and the money to make seismic shifts. They won’t just copy the traditional banking model, they’ll be doing something brand new – something that will disrupt market dynamics for good. Banks can’t afford to sit back and wait for this to happen.
Stand out from the crowd
If you want to truly stand out from the crowd in financial services, then seeing the world as commoditised products pushed through market channels may be what’s holding you back. The future is intelligent digital services.
It’s about building real-time, intelligent, contextual services that are human and extendable – and that solve a clear problem for a customer who is underserved and overcharged. This is how you differentiate, this is how you move forwards on digital.
So let’s forget about “digitisation” or “digitalisation” and get digital. We are only 1% of the way there.
Simon Taylor is Co-Founder and Blockchain Lead at 11:FS
Co-Founder and Blockchain Lead at 11:FS
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