The challenges facing the banking and insurance sectors in the digital era
“The banking and insurance sectors have reached a point where the challenge is no longer the amount of investment, but their capacity to keep up with consumers”
Banking and Insurance are amongst the sectors most impacted by digital transformation. According to a recent study*, financial services firms could waste almost US$45M on digital projects by mid 2019. Due to strong technical legacies, as well as complex security and legal issues, the banking sector is gradually loosing sight of the scope of transformation needed to face the new contenders, namely fintech and neobank. Daniel Ramos, Technical Consultant at ekino, analyses this complex market, challenged from all sides. Interview.
Why is the banking/insurance struggling to transform?
DGR: This problem is actually due to the fact that the banks and insurers were late to develop their digital services and user centric approach. It has now became a race against time: the firms in this sector find themselves having to catch up, which generates the wastage. It also means a heavier investment than previous years, but with tighter deadlines in order to evaluate risks and define digital projects correctly. The firms have reached a point where the challenge is no longer the amount of investment, but their capacity to keep up with consumers.
What are the areas of resistance?
DGR: The main areas of resistance are brought about by their structural, legal, technical and security complexities. Given the structure and size of these companies, putting initiatives in place is more complex, specially around their current information systems where oftentimes new initiatives don’t even get adopted after all.
Furthermore, due to the value of the data these systems handle, security is at their core. There are more challenges than on other sectors, which can slow down the evolution of their information systems.
The legal frameworks imposed on their activities can also be very constrictive. For example the creation of the Prudential Supervision and Resolution Authority in 2010 (ACPR in France) introduced a high degree of control on the banks and their insurers. In fact, every year, millions of euros in fines are imposed on banks which fail to follow its recommendations.
How can we help these firms better prepare?
DGR: Firstly, we need to fully understand the way they run their business, so we can propose practical solutions for the short and mid terms, matching their needs and challenges. We need to demonstrate the feasibility of the projects for digitising their IS. In our projects we regularly experience resistance due to security, and our role is to work with our client partners to find the best solutions, specific to their particular challenges.
Secondly and also very important: we support our clients in the development of their digital services by actively engaging their stakeholders. In the big companies we see that multiple departments contribute, though sometimes these contributions are mandated, vs contributing out of actual faith on the projects - this is why the different voices must be integrated throughout the project lifecycle. Methodologies such as agile frameworks foster better involvement and enable stakeholders to be fully involved and be part of the solution. The role of the Technical Consultant is critical in successfully bridging the different stakeholders, bringing them to the table and ensuring that there aren’t any friction points that can put the project at risk.
For 66% of the financial services firms, the main goal of the digital initiatives is to allow for innovation on customer guidance. Nonetheless, only 4% consider themselves ready to revolutionise the end user experience. How do you explain this?
DGR: This is also linked to their complex structures, which cause a large number of issues to arise between the project definition and its delivery. It’s precisely this context that enables FinTech to stand out, since they have lighter legal constraints and more modern infrastructures.
Is this linked to the fact that the financial sector was one of the first to adopt computing, and hence has a stronger dependency on its technical legacy?
DGR: Exactly, as explained above, the finance sector is very dependent on existing infrastructures, which are a struggle to maintain, and have very considerable interconnection costs. This makes the development of the online offering more complex, considerably limiting the features that can be offered to the end user.
The percentage of new accounts opening through online banking has almost doubled on the last four years, and we know that knowing the client is a core issue in the digital transformation. Are the firms in this sector aware?
DGR: Yes, most of the firms in this market know that they are behind with the digital service offering for their customers, specially for the younger target audience, which is more naturally inclined to interact on the digital channels. This market shift is responsible for big French banks offering 100% online banking through subsidiaries like Hello bank! from BNP Paribas, or BforBank from Groupe Crédit Agricole.
How are these firms positioned on the new innovations front?
DGR: Contrary to expectations, even the more traditional firms are trying to modernise as fast as possible, so they can offer tools suitable for their users. However, they don’t have the flexibility of the neobanks, which have market revolution at the core of their offering. Having said that there are some firms which offer a completely different functionality and user experience than classic banking applications.
There are also new markets focused on services for financial and banking products. Aggregation systems like Curve or Max show a new offering, which gives a taste of the diversification that we can expect from banking services in the next few years.
Are Agents starting to question their role on the transformation age?
DGR: I don’t think the agents will see any real impact on the middle term. We are not so much on a transformation of the customer-agent relationship as in an “improvement” of the agent via digital tools. There are many projects around “augmented” agents which focus on making the agents more efficient in dealing with their clients. The aim is to better manage the different client needs, and to support them on proactive customer management. This requires tools to help on sales, decision making, and during face to face client meetings.
*Study conducted by the database editor Couchbase. Report based on online research during June and July 2018 by Vanson Bourne covering 450 digital transformation managers in the USA, UK and Germany.