Other parts of this series:
- Thinking about change from the outside-in: digital disruption and opportunity in financial services
- Thinking about change outside in: three common barriers to true digital transformation
- Thinking about change outside in: four tactics for embracing digital disruption and opportunity in financial services
- Thinking about change outside in: building the right workforce
By 2020, one-fourth of the world’s economy will be digital – as with the financial services that underpin consumers’ lives, as well as business and institutional clients’ trading. This makes digital transformation not just a goal, but a crucial journey, that financial services (FS) should already be on.
For large traditional FS organisations more change is coming from external sources than ever before. Banks and insurers are facing increased competition from digital-savvy new entrants. A recent Accenture survey revealed that an overwhelming majority (84 per cent) of FS organisations believe they “must reinvent … or be disrupted from the outside”. According to our global study of more than 300 bank executives, 52 per cent expect to be working with new digital partners within their industry in the next two years.
Part of this is about having leadership that are ‘heads up’ and able to look outwards to the market and digital ecosystem. Leaders need to be in the habit of sensing disruption and opportunity, making decisions about how to act and then redeploying the resources of the bank or insurer to respond. This is a key part of enterprise agility. However, ‘outside in’ change goes beyond leadership behaviour. It is also influencing the shape and boundaries of the business model for banks and insurers.
One of the most interesting outside-in change affecting FS firms is the advent of Open Banking’s new application processing interface (API) standards and the European Union’s revised Payment Services Directive (PSD2). This puts increased emphasis on partnering and collaboration within FS, as well as cross-industry with large retail digital players such Amazon, Google and Facebook. APIs are quickly becoming the life-blood of digital banks and insurers. Aggregation is already commonplace in personal insurance and banking aggregator apps are being launched. Yet with the General Data Protection Regulation (GDPR) coming into effect on the 25th May 2018, this openness needs to be done in a way that protects client and colleague data and privacy.
Digital is quickly becoming the new normal, but how quickly are FS firms adapting to it? The reality is FS organisations are still mostly focused on large, multi-year programmes. The way these transformation programmes are planned for and funded harks back to a time when FS organisations could afford to invest for 12 months without seeing any meaningful change delivered in that time. The digital revolution we are witnessing requires FS firms to be quicker on their feet. Fintechs are lean, agile and innovative, making it easy for them to partner with others and share data. Traditional players would benefit from following their example to shorten the decision-making process, embrace tranche funding and create a more flexible governance.
Our 2017 FS Change Survey found change leaders in the industry tend to have a more strategic approach to digital. Change leaders carve out a ‘challenger’ bank or insurer (78 per cent) and partner with digital innovators and fintechs (84 per cent). These approaches allow a faster pace of change and for the bank or insurer to cut new ground. However, they also have cross-enterprise digital capability (91 per cent) and a long-term digital strategy (87 per cent), recognising the need to scale digital within the business today in order to be competitive and realise value.
These change leaders know that an FS organisation’s likelihood of success will depend on its ability to nurture, select and integrate change from the wider ecosystem. This will involve an internal transformation to embrace the changes affecting the industry: partnering, innovating and collaborating in order to compete.
Future success stories will belong to those FS organisations that can use outside-in change to transform their core business today and build the new business they need for the years ahead.
In my next post, we’ll take a look at some of the barriers FS organisations face while they strive to join the digital revolution.
With special thanks to Elitsa Nacheva and John Watson.