Game Changer II: New Technology
And the second big change? NEW TECHNOLOGY.
Technological innovation is a priority
While the financial crisis certainly impacted the investments the banking sector made on technology innovation, any slow down and hesitation since then has been put aside. A recent study, managed by Vlerick Business School (and Deloitte), shows that technology investments have grown for 40% of companies since the crisis, and that 93% of them will spend even more on innovation in the upcoming five years.
And what “post-digital innovations” are they concentrating on? Well the “BIG 5” of course, that is, in order of popularity: Mobile, Social Technology and Cloud computing with Cyber Security and Big Data (numbers 4 and 5), likely to come on strong as both are earmarked for significant investments in the near future.
It is clear that the big financial institutions have truly woken up to the technology revolution, and perhaps just in time, particularly as tech companies gobble up some of the more profitable morsels of the financial institutions lunch. This is good news for as one commentator has put it, it’ll be far easier for a bank to become a tech company than the other way round. First of all regulations and licences will get in the way, but also there’s a culture of managing risk that some tech companies just don’t have.
But are the banks just dabbling or are they serious? Is technology a part of their new strategy (and vision) or are they just following the latest trend? The signs are clear that they are taking things seriously and investing heavily to make a real competitive difference. Already there are encouraging signs of innovation throughout the industry: for example there’s more digitalisation and data warehousing, better customer interface applications being developed, and new platforms like internet banks available on the market. There is however still a great deal of potential, particularly as banks, with their retail and corporate relationships, get to grips with the tremendously valuable data they possess. The opportunity is clearly there to design better products and services to target and serve specific customers.
Time to move on from just pushing products
The next big thing will be to find ways of embedding this new technology in business models, and so provide a real reason for its existence, for up until now, the technology has often just been used as an alternative channel for existing products and services.
Interestingly, some companies in the sector are appointing Innovation Managers and hoping that this will pave the way to success. Others however seem genuinely prepared to mine deeper insights into the customer and thereby create products that they might actually use and want.
Augmented reality app from Australia
One bank in Australia is using a combination of digital technologies to promote their home loans. By knowing where you are physically located, they can tell you all the information you want to know about a particular house sale: its layout, its size, its cost etc. and it’ll even tell you what neighbouring houses have recently been sold for. Best of all though it’ll tell you whether you can afford to buy it or not, and at what conditions. In short it’s a bank that is positioned where it needs to be, namely at the moment of truth.
This technology push is about much more than just putting a new product onto the market. It’s about satisfying, perhaps even creating a need and filling the gap. It is now becoming a question of how banks can position themselves at the heart of the ‘financial choices’ eco-system.
The power position has changed
It’s also a matter of survival, as ‘easy’ income opportunities are simply not there anymore, at least not in Europe and thoughts about simply increasing fees are not an acceptable way forward (at least to customers). It’s now a question of adapting the service offered – being ‘customer centric’ – and offering specific and useful services to particular customers in a way that they find convenient and easy to use. In short, banks will have to give the customer what he/she wants.
Some banks are now setting up technology-enabled businesses next to their current operation. Because if they don’t, someone else will, and they’ll not only lose a profitable aspect of the customer, they’ll risk losing him/her altogether. The future will be beyond processing transactions and be more in the service domain helping people make the right decisions in line with their needs and possibilities.
Dr Bjorn Cumps, expert in Financial Services Management
Help is at hand
There is good news for those that don’t have the necessary resources in-house. More and more banks are choosing to outsource a portion of their technical development work to 3rd parties, including freelancers, new technology start-ups or partner companies. This is particularly true when it comes to Big Data analytics, as there is a shortage of qualified data scientists. The reality nowadays though is that help often comes, quite literally, from the other side of the world as HR departments move from a workforce to a ‘crowd force’ – meaning they get help from the large number of technology experts available online.
In conclusion, technology changes are throwing up a range of issues that are new and strange for traditional bankers to deal with. The question to be asked now is whether these uncertainties and challenges are so different from those facing other industries dealing with major technological change? Nobody knows the future, and nobody yet knows where all these tech changes will lead, but it’s clear that it’s important to be there and be ready to react and adapt as business evolves.
Getting a hold on the future
With many managers in the banking sector coming from the traditional money side of the business, it’s hard to really grasp how much technology changes will reshape the business. Vlerick Business School has been coaching banks in how to rethink their business, and reshape their approach to technology. This has been achieved by examining and learning how this battle for the consumer has been won in other sectors of business.