In early 2016, a Russell Reynolds Associates survey found that executives anticipate the consumer financial services industry to be one of the most heavily affected by digital disruption.
Despite the fact that incumbent banks and financial institutions are being challenged by agile start-ups that have embraced emerging technologies, the digital revolution offers established enterprises lucrative opportunities.
Traditional financial services companies aren’t significantly capitalizing on digital transformation opportunities, but joining the digital revolution has become a necessity—not the luxury that it once was.
Today, FinTech companies like Square, Betterment, Lending Club and the countless others are dramatically challenging the operations of traditional financial services companies by providing consumers with new easy ways to get services and save money.
Where Traditional Banks and Financial Services Firms Currently Stand
We’ve reached a point where high quality consumer websites and mobile banking apps are a necessity in the industry and the traditional institutions have joined the fold. However, simply having a website and a mobile app don’t equate to the fully digital experience that some financial services start-ups are offering.
Instead, the current state of traditional banks and financial services firms still rests in physical branch office visits, waiting in line, and filling out paperwork for transactions. Meanwhile, newcomers in the market are taking their venture capital money and investing in inexpensive cloud infrastructure and APIs for automated financial services.
To build on the current level of online and mobile banking, today’s digital banking institutions must embody the following three characteristics:
- Customer-centric focus: The goal should be to create a seamless, personalized customer experience through a universal, intuitive user interface that compiles data from multiple core banking systems. Consumers don’t just want to deposit checks—they want to open new accounts, make payments, and even take out loans without ever going to a branch office.
- Mobile-centric focus: Online banking is becoming a powerful option for consumers, but mobile is the real frontier. Banks must offer both consumers and employees 24/7 access to information and services across all devices, locations, and applications.
- Agile mindset: Digital transformation isn’t a set-it-and-forget it phenomenon. Banks must set themselves up for continuous, rapid business innovation to deploy new functionality as customers demand it. Start-up financial services companies have moved far faster than incumbents—this trend cannot continue if banks want to thrive.
This may be the current state of the industry and what incumbents hope to characterize themselves as—but the reality is that achieving this new norm is easier said than done.
Integrating legacy systems such as account management, payment, loan management, credit cards, CRM, finance and more (in addition to the constant rise of cloud-based applications) is a task many banks and financial services companies haven’t quite figured out yet. However, solving this problem will allow incumbents to succeed in the digital revolution.
What the Future Holds for Those Who Succeed with Digital Transformation
According to McKinsey, digital disruption will cut non-mortgage retail lending profits by 60% over the next decade. The need to join the digital transformation fray seems clear—adapt to the digital revolution and survive the disruption of a business model that has been in place for decades.
“Either banks fight for the customer relationship, or they learn to live without it and become a lean provider of white-labelled balance sheet capacity.”—The McKinsey Global Banking Annual Review
While McKinsey offers two choices for incumbent financial institutions, there’s really only one option—win the customer relationship. This focus on customer experiences is what will shape the future for traditional banks and financial services firms.
Solving the legacy system integration challenge will enable today’s institutions to offer the check scanning and money transferring features that consumers expect. However, the future lies in the creation of one integrated app that has access to all customer data—for both consumers and for financial services employees.
The value of succeeding with digital transformation for banks is the affect it will have on how they: monetize the customer base, hook into cloud-based systems (e.g. Mint, Betterment), build relationships with insurance providers and other service providers that build products.
Before incumbents get ahead of themselves, we still have to solve the legacy system integration problem.
Learn more about how to integrate your legacy-systems using the power of APIs (rather than overhauling your entire backend infrastructure), download our free white paper, How OpenLegacy Tackles Enterprise Integration Problems Using API Technology.