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The Rise of the Citizen Developer
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Digital banking technology offers huge opportunities to those banks that get it right – but puts the future of those left behind in serious jeopardy. A report published earlier this year by the management consultant McKinsey suggests that banks that use digital technologies – to automate processes, create new products, improve regulatory compliance and transform the experiences of their customers – can expect to improve their profitability by as much as 40%. The digital laggards, meanwhile, could see 35% of net profit eroded.
The good news for banks is that while disruptive new entrants to the sector are constantly emerging at the moment, their current customer base is keen to continue doing business with them. In one recent survey, over one in two banking customers told PwC that if they were going to buy a new banking technology product, they would buy it from their current provider. Moreover, many customers are prepared to pay for new digital services – for example, 65% said they would be willing to pay for notifications of recent transactions on Twitter or Facebook.
That said, companies only have a small window to capitalize on the loyalty of these customers. The McKinsey study suggests that banks have between three and five years to become digitally proficient – those that can’t meet the deadline will enter a spiral of decline.
So why are so many banks still falling short? The biggest issue is the way in which they have confronted the digitization challenge. Banks, traditionally structured as separate operating silos with little communication or collaboration with one another, are too often experimenting with innovation in a fragmented and piecemeal fashion. Different business units try different initiatives, with little oversight of what will drive the whole organization forward – and little effort to learn from the success of one pocket of innovation.
The solution for banks is to adopt a new absolute priority in the shift to digital. Every bank needs an all-encompassing digitization strategy for its organization. By developing platform-based digital ecosystems – as opposed to bespoke, isolated solutions – banks will be able to capitalize on their existing strengths while harnessing the potential of digital banking technologies.
Despite the reputational damage caused by the financial crisis, those strengths are considerable and remain valued by customers. They include unrivalled financial expertise, longstanding data management skills, brand recognition and a regulatory-driven focus on security. By deploying those strengths throughout their digital ecosystems, banks can offer:
These benefits are within reach of even the most digitally-immature banks, but there will be hurdles to overcome in order to secure them. For example, banks without an omni-channel mindset will fail to connect with customers who want to be able to transact at any time, in any place and on the device of their choice. Those that depend on legacy systems will struggle to develop integrated and interoperable digital solutions that provide a frictionless experience for customers. And those that are not exploiting big data and analytics technologies will not be able to anticipate the tools and services customers need the most.
Above all, however, this is an issue of integration. Current approaches to digitization – through innovation in unconnected pockets of the organization – cannot deliver the step change they now require. Time is running out to build the connected digital environment required for banks to succeed in the future.