- While the world is undergoing a digital revolution, many financial institutions are lagging behind.
- We asked a futurist and an industry specialist for their perspectives on how banks can catch up.
- Acquiring startups is one strategy banks can use to speed their digital maturity — but integrating a startup into an established company can be challenging.
- Banks can also test and learn by starting new, smaller entities that can take more risks with technology.
Just a few years ago, it was difficult to imagine paying for a cup of coffee with your phone. Today, it’s table stakes. But while digital innovations in the financial sector are ramping up, many legacy players are falling behind.
In our series "Futureproof," we’re pairing futurists with industry specialists from Deloitte Digital for a frank conversation about the future of key industries — and how businesses can prepare.
Here, Kevin Laughridge, principal at Deloitte Digital, LLP, and Andy Hines, assistant professor and program coordinator at the University of Houston’s Foresight program, weigh in on what’s in store for the future of money.
In a recent Deloitte poll, just 10% of the respondents said their banks were in a state of "being digital," with another 22% only "becoming digital." With so many banks behind the digital curve, what’s the best way for them to catch up?
Andy Hines: My sense in working with clients in financial services is that there tend to be three principal views on digitizing: 1. "This is just the latest in a long line of innovations or potential disruptions — we’ve survived before and we’ll survive again" (leadership tends to be here); 2. "We’re in trouble because this is really different and the organization just doesn’t get it" (younger, tech-savvy tend to be here); 3. The indifferent (the largest group).
Organizations need to identify and mobilize the "we’re in trouble" group and have them lead the charge. There may be a tendency among leadership to think they’re hopelessly behind the curve and they need to bring in outsiders. I would first invest in those inside who have been ringing the alarm and been ignored.
Kevin Laughridge: The most important part of this journey is going to be rewiring the bank culture and talent. "Being digital" inherently means developing leading products and services that are delivered seamlessly through technology. It requires banks to build and retain high-quality software engineering talent and to foster a culture of innovation.
What can banks learn from other rapidly innovating sectors — like retail or healthcare — that could help them on their digital transformation journey?
Laughridge: The retail industry has taught us that even the largest companies can be negatively impacted by new entrants that leverage digitalization to offer a dramatically better experience. Banks should continue to look at the companies that are winning and realize that technology is not a cost — it is an enabler and a differentiator. In the near future, software engineers will not only report through a bank’s IT department; they will be part of the business units delivering against revenue goals.
Hines: "Rapidly innovating" is a relative term, in the sense that some industries have faced the heat sooner than others; that is, they’ve been forced to innovate sooner. I suspect the key learning from looking at other sectors based on my experience as a futurist, is that the longer you wait, the fewer the available options. It’s a bit of a chicken-and-egg scenario: Being proactive is a risk in the sense that it’s not clear that one "must" innovate, but waiting until it is obvious leaves one with few good options.
Industry regulation has been an impediment for banks adopting new tech. How have fintech startups managed to innovate while staying compliant, and what can legacy financial players learn from them?
Hines: This question could be linked to the previous one, in particular looking at the pharmaceutical industry model. In effect, startups have become the R&D labs of the big players. They invest in a bunch of startups and acquire the promising ones. That sounds easy, but successfully integrating startups into a big established company is no picnic. There are different strategies, such as basically insulating them from the parent company, but that really doesn’t help the banks. They need the injection of fresh thinking from the startups, so they more or less have to integrate them.
Laughridge: Regulation has challenged technology innovation at banks, but not necessarily because industry regulations themselves have been a barrier; rather, the cost to comply with them has left little investment dollars for innovation. Fintechs are not burdened with many of the banking regulatory requirements and are able to build with a clean slate.
Big banks can learn from this by starting new entities that don’t have the burden of legacy technology, branding, and risk mindset. By starting off with something new — yet small — banks can test and learn using new technology without running the risk of damaging the enterprise.
Can you imagine a world where blockchain makes banks and insurance companies obsolete?
Hines: One of the great things about being a futurist is always seeing a wide range of plausible scenarios, and not necessarily having to pick the "winner." We’ve found that it’s futile. Rather we constantly scan the business environment for signals of change so that we sense the emerging future based on scenarios we have created. The obsolescence scenario is plausible, that is, you can build a logical plot on how this could happen that doesn’t require a miracle. But, there are other scenarios that are perhaps more plausible.
Laughridge: No. Ultimately blockchain won’t solve the underlying reason that people and companies use banks: The depositor has money to invest and the borrowers have a need for access to credit. Banks will still exist to support making appropriate risk decisions for short-term or long-term lending while paying interest to others and safeguarding their funds. Blockchain may drive benefits by changing the future of banking operations through efficiency improvements and/or providing greater data transparency, but it will not fundamentally change the business model.
Learn more about how Deloitte Digital is guiding companies on their digital transformation journey.
Responses have been edited.
This post is sponsored by Deloitte Digital.
from SAI https://read.bi/2KHSKG7