How banks can sustain competitive edge in the era of fintechs

By Nigel Vaz / CEO of Publicis Sapient 

The financial services sector is facing unprecedented digital disruption. New entrants with agile processes and modular technologies are raising customer expectations. It’s essential that legacy financial institutions understand what’s driving these changes. By embracing digital business transformation and changing the way financial services institutions think, organize, operate and behave, they can turn threats into opportunities while maintaining their competitive edge.

Successful fintech startups knew banking was ripe for disruption. Now it’s time for established financial institutions to learn from these innovators. They can start by taking stock of four forces of connected change that are reshaping financial services today: customer behaviors, new technologies, evolving business models and societal impact.

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The following excerpts were edited for clarity.

Customer Behaviors

We now live and work in the era of the customer. 

Digitally enabled companies across sectors are delivering frictionless and rewarding products and services. This raises expectations across the board. With the help of a customer data platform, banks can collect and organize customer data for unprecedented insight into their needs, desires and behaviors. If banks cannot deliver digital experiences that rival what banking customers are accustomed to in other industries, they will lose business to fintechs that can.

New Technologies

Technology affects every aspect of banking today. And the rapid rate of technological change is driving the imperative for digital transformation.

Entering a physical bank is becoming less necessary. Digital channels will be the primary way customers interact with their financial institutions. As the public becomes more comfortable managing money online, banks need to serve their customers through the digital channels they are demanding, especially with the proper infrastructure to support them.

The right technology and data vastly improve a financial institution’s view of its customers’ needs and behaviors, as well as its ability to deliver relevant products and services.

Evolving Business Models

Specialist fintechs are cannibalizing even the world’s most established, diversified financial services providers.

Rapid technological progress has created an extraordinary gap between organizational change and technological change. But this exponential evolution of technology has also given rise to a variety of new business models that do not rely on owning supply chains or inventory. Platform business models, for instance, are revolutionizing the world of business by facilitating exchanges between various players in an ecosystem.

Through embedded finance, the integration of banking services into a nonbank’s product, financial institutions can support customers through brands they already trust – in a manner that’s seamless.

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Societal Impact

Today’s customers increasingly want to do business with organizations that strive to make a positive impact on the world.

A sense of purpose galvanizes a financial institution’s talent and attracts customers who share in their vision. Financial institutions have an opportunity to expand their services to unbanked populations around the world. Firms can establish strong environmental, social, and governance (ESG) policies to govern their own choices and investments and reduce dependency on energy-intensive products and practices.

Every Organization Can Become Digital At Its Core

I firmly believe that every organization can become digital at its core. It’s not just about technology. It’s about reimagining your business in the context of a world that’s entirely digital.

It may appear that legacy technologies and regulatory burdens would hamper an established financial institution’s ability to undergo a comprehensive, successful digital business transformation. But they can start by building and maintaining a “digital moat.”

The idea of a digital moat grew out of the phrase “economic moat,” popularized by Warren Buffett in the 1990s in reference to a company’s ability to maintain competitive advantages to protect long-term profits and market share.

Its contemporary equivalent, a digital moat refers to the sum of capabilities that enables an organization to create value and stay competitive in a digital world. Companies can establish a strong digital moat by developing their SPEED capabilities – strategy, product, experience, engineering and data and AI – to create powerful digital products and services.

In banking, this means adopting the latest cloud-based technologies, which enable the creation of innovative applications and services that improve customer lives and experience. But it also means tearing down silos across an organization so every department gets a full view of the customers and their needs. It means making sure call centers can leverage important insights the same way tellers or money managers would. Everyone and every tool at the bank need to be part of the digital business transformation effort.

The beliefs and behaviors of digital business transformation must permeate every part of an organization. There are several steps financial institutions can take:

1) Stay close to the two ultimate goals: creating an organization that can continually change at pace with the changes around it; constructing the capability to identify and realize value for your customers and business through digital

2) Align your team around the shared vision

3) Get buy-in from key stakeholders

4) Clarify which behaviors will result in the desired outcomes for the company

5) Identify and communicate quick wins

6) Iterate: build, test, learn and repeat quickly

7) Make sure your transformation teams are cross-functional, agile and empowered

These approaches are second nature to successful fintechs. But financial services institutions can learn from these digital challengers. The legacy institutions that internalize the lessons of digital business transformation will be well-positioned to thrive in the next era of financial services.