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Digital Transformation in Financial Services: An Inflection Point...
Mitch Siegel, Strategy Leader, Financial Services, KPMG LLP
Fintech Enablement- How Emerging Technology Trends are Impacting the Banking CIO
By Bill Genovese, Principal, WGroup
Blockchain, fintech, big data and IoT are just some of the buzzwords of new technology the Banking CIO has to sift through. How is this impacting the CIO and how can they take advantage of the new technol¬ogy? Or, is this just a hype, which is not proven and consumes precious time and resources? The answer lies in between, and the banking CIO is well positioned to leverage this emerging ecosystem of technology enablement to accelerate growth in their organizations, while also meeting regulatory and compliance demand.
Every year, business and IT consulting firm Gartner releases its Hype Cycle for emerging tech¬nologies. This maps technology innovation and offers a "reality check" on which technologies are likely to make an impact, as well as when the significant changes might take place. However, hype doesn't necessarily mean that something isn't real or possible—or most importantly that it won't have a major impact and provide real value at some point in the future. As these technolo¬gies advance, organizations that learn to blend and combine them ef¬fectively and keep their eye on the big picture are poised for bigger overall gains.
The CIO should think broader in terms of these new technologies, and not focus too much on a particular burning issue in respect to a technology group, that in many cases is still evolving. Wherever possible, it is best to identify areas of technology convergence to blend solutions to accelerate outcomes for the business. By leveraging the developing ecosystem provided by technology partners, the CIO can use this to close gaps of capability groupings in an organization and to accelerate growth for the business.
For example, the "digital revolution" is playing an increasingly dominant role in how we live, work and relate to others. The boundaries of our work lives and private lives are blurring, and how we view work is changing. Society is transforming, and we want and expect to have everything on demand; accessible anywhere and anytime. Underpinning primary emerging technology drivers for the digital revolution can be seen as acting as enablers—big data, expansive mobility, social media and cloud computing. The convergence of these forces is creating new business and reshaping existing ones that must adapt to customers that "want it all anywhere, and want it now". These enablers are also helping to create rapid innovation through new opportunities for the monetization of data, and its ever-increasing value—data is now the new "oil" – for better or for worse.
Traditional banks are facing fierce competition from digital banks and fintechs that are providing new extended or enhanced financial solutions such as efficient online payment services or peer-to-peer lending sites. Emerging entrants into the marketplace are often more nimble, agile and innovative and most importantly, have an in-depth business and knowledge perspective of the customer and how they think. This is an important key area of impact to the banking CIO; these new emerging technologies are rapidly improving the customer experience and as a result, the banking customer is expecting, and demanding more.
Blockchain technology has the potential to disrupt business models through automation, smart controls and risk and cost reduction
The immediate reaction to all of this from the CIO is one of "reaction response" due to perceived competition. But is it competition or really, an opportunity for the CIO and the bank? New thinking and business models and rapid, effective application of evolving digital technologies is needed and comes to the forefront.
A bank needs to be relevant in order to remain proactive in the customer’s life, even when it may not mean an immediate financial benefit to the bank. Being relevant means helping solve customers' everyday problems, simplifying their lives and complementing and enriching their physical interactions. Customers aren't necessarily seeking financial services at the present moment when they engage with a bank. They are simply looking for someone to deliver content or services that are focused on their specific lifestyle and motivations. By developing customer "personas" through more data on the customer, the bank becomes more relevant to their customers. This is where leveraging the the ecosystem of technology partners that provide this enablement is of paramount importance. The new entrants into this technology space should not be seen as a threat, but more as an opportunity driver for the CIO as a way to spring forward to gain more relevance in their customer's lives. There is a linkage that shows that customer experience is the key to achieving growth. Research shows that the top banks rated highly for customer experience are growing faster. The CIO can leverage the Fintech ecosystem to improve digital capabilities and relevance through:
• Advantaged modes of customer acquisition—Fintech is attempting to leverage distribution from merchant processors with existing merchant relationships to acquire merchants more quickly and less expensively.
• Distribution expense reduction in the cost to serve—Physical distribution is no longer a guaranteed defined advantage. For example, many fintech lenders have up to a very large cost advantage over banks because they have no physical distribution costs.
• Innovative uses of data offers transformative potential to predict "next best actions," understand customer needs, and deliver financial services via new mechanisms and devices.
• Segment specific propositions—Within very specific segments, many customers are open and receptive to innovative, remote fintech approaches not offered by traditional banks.
• Leveraging existing infrastructure- Successful fintech partners will embrace "coopetition" and find ways to engage with the existing ecosystem of banks—especially in weaker segments, and holes for opportunities. This increases scalability at lower investment.
• Managing risk and regulatory stakeholders—regulation is a key swing factor in how fintech disruption could play out. There will be a need for standards that will meet the financial industry regulatory requirements, but that are open enough to enable rapid adoption to the ecosystem of banks and financial services as a whole. This "double" benefits the CIO as well— as it allows them to leverage existing investment to new open standards and technology that also meets existing and new regulatory compliance. New technology in many cases forces new standards in financial services. For example, Blockchain technology has the potential to disrupt business models through automation, smart controls and risk and cost reduction. The ability to settle currency, equity and fixed income trades almost instantaneously through permissioned distributed ledgers may create a significant opportunity for banks to not only drive efficiency, but also improve clearing and settlement, KYC and AML registries, and regulatory control and eliminate unnecessary intermediaries.
Although, it is true that further standards need to be developed for these new technologies, the standards also directly strengthen the system as a whole.
In conclusion, today's and tomorrow's Banking CIO is best positioned to succeed and help drive their organization to further growth by embracing emerging technologies as an extension of the banks own technology to accelerate business, improve capabilities, and reduce risk. Those who can best change their mindset from one of competition to one of coopetition and increased collaboration with continuous relevance and presence for the customer will be able to help shape the hype from expectation to reality.
Digital Transformation in Financial Services: An Inflection Point is Upon Us
Mitch Siegel, Strategy Leader, Financial Services, KPMG LLP