The Dollars and Cents of Digital Transformation
This is the fourth in a five-part series that looks at how some specific industries are tackling Digital Mastery. In this post, we explore the financial services industry.
Digital banking. Instant money transfers. Online credit card management. These are all examples of how the financial services industry is embracing digital technologies. Many financial institutions have not only reinvented how they engage with today’s consumers; they have employed technology to transform the very processes that drive their business. Based on the framework in George Westerman’s book, Leading Digital, some are charging ahead towards becoming a Digital Master—reimagining the customer experience and internal processes as they embrace “becoming digital.” One of those companies is Capital One Financial Services. According to an article in Forbes,
“We continuously observe and learn from what’s going on in the world around us,” says Dhandapani. CIO. “We believe strongly that our competition is not coming just from other banks. To compete effectively and be successful we need to be a technology company.
And Capital One has done just that. They have created a portfolio of technology products that redefine the way consumers engage with their services. From mobile applications to websites and web services, this belief clearly illustrates that Capital One sees their “product” as much about the experience—how people engage with their services—as the services themselves. In this way, by redefining the user experience, Capital One is transforming a critical part of their business. But the customer experience isn’t just about that engagement with the products and services through digital channels. It’s also about how the company uses those technologies as a means to drive innovation in the customer experience. From that same article,
Capital One has user labs where they bring customers to help them work through the very early stages of thinking about a product. They have also established “360 cafes” across the United States, where staffers engage with customers that come in to do their banking and sip freshly-brewed coffee, and ask about their experiences with the bank’s products.
The drive to change that customer experience, though, isn’t self-contained. It has had far ranging effects on the company itself and how it operates as well. Finally, according to the Forbes article,
“To be a digital technology company we need to have design thinking in our DNA,” says Dhandapani. “The key principle is let the consumer who will be using our product help guide us and tell us what the product should be. A lot of companies say they use the fail-fast methodology but we use the term ‘test and learn’ – we test the product and that helps us identify what the customers really like and what they don’t like.”
The digital products that Capital One has launched aren’t just about a different means by which consumers can interact with the company’s services. A focus on the customer experience has resulted in fundamental changes to the company’s core culture and business approach. By putting customers first, Capital One has undoubtedly made changes in the very way that it engages with other banks and institutions closely aligned with its core businesses and markets reflecting Westerman’s second axis of digital transformation—internal processes.
Capital One, though, isn’t the only financial services company that is undergoing a digital metamorphosis in how it operates. The Business Development Bank of Canada (BDC) recently won the prestigious 2015 OCTAS Innovation Award for how they used digital technologies to streamline the loan origination process:
Using Mendix, the team delivered a core lending system for loan origination, administration and disbursement that has reduced processing time and overhead costs while helping BDC become more nimble and customer centric.
Both Capital One and the BDC have applied digital technologies that not only redefine internal processes but also the customer experience ultimately making the organization more “customer centric.” But what about the third axis of Digital Mastery—the business model? Although many financial services organizations have made gains towards digital transformation, their business model has remained relatively untouched by the same technologies they employ to transform along those other axes. They still sell the same products in the same ways. The lack of business model transformation is articulated perfectly by Terry Cordeiro, Lloyds Bank head of digital transformation:
Banks are in danger of “just becoming the plumbing” if they don’t work out their new role in the financial eco-system as the storm of payment innovations continues to rain down on the industry…There is pressure on the banks… and not just from the startups but from challenger banks such as Atom Bank, Starling Bank and Metro Bank,” he warned. “They are all trying out different business models, they are all after a piece of the pie and they are all after changing the way that we do banking.
Upstart organizations like Square and PayPal, like the banks that Cordeiro mentions, redefine the “financial services company” through innovative approaches to what we think of as financial products. If you put a little imagination into it, it’s not hard to envision a host of untapped business models waiting to be explored by these companies—imagine loan rates available for “hourly” loans or credit card rates that reflect the amount of spending (lowering as the consumer spends more) rather than timely repayment? Or what if those same credit cards had dynamic interest rate variables, enabling a customer to pick which variables were most important to them and having the loan rate adjust accordingly? These and other business model innovations are possible in a truly digital financial services company that has access to the kind of data that can transform its business, and is able to rapidly pursue new ideas in a test and learn approach similar to Capital One.
As a whole, the financial services industry, although slow moving, is embracing digital technologies. It’s hard to find an organization that doesn’t have technology products—like online or mobile applications to service portfolios—driving its customer experience, which, in turn, have usually resulted in transformed internal processes. But from a business model perspective, the industry languishes behind other industries like retail (just look at how Nike and Burberry exemplify all three axes) where Digital Masters are reinventing the very way they do business.
It’s clear that digital transformation is happening through organizations like Capital One, BDC, and Lloyds Bank. It is only a matter of time before the industry as a whole applies the learnings from redefining the customer experience and changing internal processes to the business model itself. Only then will we see the birth of Westerman’s “Digital Mastery.”