Almost two-thirds (64%) of EMEIA banks and insurers are concerned about digital disruption, while 56% say it’s their biggest challenge.
This is according to our recent Fit For Digital report, in which we surveyed financial services leaders and decision-makers across Europe to gauge their views on the state of digitalisation.
So should they really be worried?
In short: yes. Absolutely.
Some banks and insurers simply won’t survive the next few years. Those that fail to evolve fast enough will be doomed to fall behind their competitors (some of whom don’t yet exist) or perhaps disappear altogether.
Indeed, 61% of those we surveyed said their organisation won’t exist in its current form within just four years.
Change is coming. And it’s hitting hard and fast.
It’s a tough situation to be in. The customer is king now, and data holds the key to improving the customer experience. Yet the more you expose your organisation through data, the greater the potential surface area for cyber attacks.
And our New Pace of Change research last found the majority of consumers would switch bank or insurer if their current provider suffered a significant security breach.
Nobody wants to be the next TalkTalk or Sony. But nor do they want to suffer the same fate as Kodak or Blockbuster.
In this article I’m going to explore how banks and insurers can make sure they’re not the ones left behind.
1. Seek true transformation through co-creation
People in the financial services industry have been talking about digital transformation for years. And on the surface some have already made some significant changes. Introducing self-serve options like online banking and mobile apps, for example.
But when you look beneath the surface, the big financial services businesses have really just created a veneer of digital. A sticking plaster that’s beginning to wear thin. And underneath it’s just business as usual.
Digital transformation has to be just that: a transformation. Which means it has to run deep, all the way down to the core platforms upon which your business is built.
It’s not that traditional providers don’t have the ambition or insight to get there. Rather it’s their size becoming a disadvantage as the world speeds up around them.
For a new organisation it’s relatively straightforward. If I want to start a bank now, I can build it with digital in mind right from the beginning.
When you’re dealing with decades of legacy IT, people and processes as traditional banks and insurers are, it takes a very long time to implement any kind of meaningful change.
Sadly, however, the consumer doesn’t care for reasons. The consumer just wants their expectations to be met, which today means having a quick and seamless experience.
But there is a way around this legacy issue: co-creation.
Traditional banks and insurers should look to those outside their organisations to achieve these fundamental changes faster than they could alone.
2. Use data to improve your products and services
Nobody can compete on product or price anymore, and this trend is only going to continue.
If I want to take out a mortgage today, I have multiple lenders to choose from. And they all offer essentially the same product at pretty much the same cost.
Now imagine how much choice I’ll have in a few years time, when not it’s not just new banks offering me a mortgage but perhaps house-builders or home insurance companies.
How do you differentiate yourself as a provider? The only possible way is through the customer experience. And as I mentioned in my intro, the path to pleasing your customers is paved with data.
Take banking, for instance.
If you know enough about my lifestyle – where I live, go on holiday, what I like to consume – then you have the capability to manage my finances on my behalf.
I’m talking about full automation. My salary hits my account on pay day and all my bills, savings and regular purchases are taken care of for me unless I intervene and say otherwise.
That’s the level of customer experience consumers will come to expect – very little or even zero input on their part, achievable because you know enough about them through data.
Insurance, too, will be completely turned on its head.
If I spend two weeks on a skydiving holiday or hiking alone in the Sahara, I’d expect that to make me a higher risk to my life insurance provider. But if I’m just sitting at home for two weeks and I’m in good health, I’d say I’m a relatively low risk for that period of time.
Yet in most cases I currently have to pay a single yearly premium that doesn’t take those fluctuations into account.
Why not let me pay more or less depending on my real-time risk profile?
With the wearable technology we have at our disposal today, this stuff isn’t too far detached from reality.
In fact, the motor insurance industry has already been doing something similar – using telematics to record people’s driving habits and adjust their risk profile (and their premium) accordingly.
Perhaps part of the reason many financial services firms aren’t doing this already is the common misconception that consumers are unwilling to part with their personal data.
Yet our New Pace of Change survey last year found the vast majority (97%) of banking and insurance consumers would happily give up their data if it meant getting more value in return.
It’s up to financial services firms to work out where that value lies and reflect it in the products and service they offer.
3. Make the customer king
More than two-thirds (68%) of respondents in our Fit For Digital survey said they believe digital transformation will bring new business opportunities.
It is a hugely exciting time.
Just imagine a new world in which you bought insurance products not out of fear but want. Where insurance is a lifestyle product – something people talk about with their friends because it fundamentally improves their day-to-day lives in a really interesting way.
Or a world where your bank can manage your money without any effort or input from you. The kind of experience only the wealthy enjoy today, but one that could be accessible to anybody in just a few years’ time.
The potential for change is enormous, and for some traditional banks and insurers it could mean a whole new generation of revenue streams.
To achieve this dream, you have to remember one fundamental point: the customer is king. Not product. And certainly not price.
But nobody can complete this journey alone. It’s time to step outside the financial services world and build something greater than the sum of its parts.
That, or be left wondering why you didn’t act sooner.
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