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Demystifying Digital in Financial Services: A Brief Approach

Life is changing and changing fast. For example the other day I booked my cab on a GPS enabled mobile app and while travelling I booked my weekend show for the latest movie, ordered a gift on an online marketplace and then paid it through my bank wallet! Does this not sound familiar for many of us and isn’t it so beautiful to have completed so many tasks with so much ease and so less time?

At the heart of this ‘so-called’ life transformation is basically digital disruption, disrupting the way business happens. Two key transformations are at the driver to of this disruption. First is changing demographics of customer profile, they are becoming more young & restless and secondly proliferation of technology enabled smart channels (e.g. smart phone apps, social networks etc) that are revolutionizing the way customers interact.

Defining Digital, this is where the confusion starts as in many cases this is simply used as a ‘buzz’ word. To clear the clutter let us focus on 4 key dimensions that may define digital:

  1. Digital interface to customers e.g. web, social, mobile. This may include direct usage of these channels for delivery of service or product e.g. engaging customer directly on a social platform or it may mean leveraging of digital interface by physical channels e.g. an agent leveraging a smart financial planner app on an android phone to position financial planning services to a customer
  2. Digitalization of organizations processes e.g. digital flow of information/ data for faster processing and thus crunching turn-around time and improving internal productivity. This ensures that physical movement of forms and files are outside the critical path leading to better customer response time
  3. Leveraging digital body language with strong analytics on customer e.g. mashing up of company’s internal data on the customer (structured set of information) with that of customers information scattered in the public domain (unstructured data) to arrive at a more holistic understanding of the customer. On a more sophisticated scale, this extends into the concept of big data and real time decision making for a more enhanced & effective customer reach
  4. Innovation platform e.g. a platform where organization can experiment rapidly on multiple technology and get any prototype live very quickly thus cutting down time to market and creating a differentiation. This is where different cloud based service models becomes very important.

 

In a spate of interviews, key management personnel’s of diverse financial services companies have made very interesting remark on where they see digital in their respective fields.

“…digitalization may well become a game changer in ensuring faster customer service and higher sales growth”- Bajaj Allianz LI MD & CEO Anuj Agarwal 1

“We are building a digital bank that should be faster in finding out our customer needs through analytics and also provide products, including those not manufactured by us” – Aditya Puri, MD & CEO of HDFC Bank2

This bonhomie for digital is not stemming from a ‘new found love’ for a new buzz word but from a much deeper understanding and appreciation of what digital can bring to the table. This primarily derives not only from the immense potential of the economics of the digital (as top honchos won’t be bothered unless it has an economic impact on its balance sheet) but also from the fear of becoming ‘irrelevant’ to the new age & future generation of customers. For example:

  1. A BCG report3 on cost of service across different banking channels in India points to a ‘0.5 INR pr transaction’ for web/ mobile compared to ’50 INR per transaction’ at a physical branch. On an aggregate basis this has potential to reduce the weighted average cost of a banking transaction by 50% to only 15 INR. Considering that bigger players are finding top line growth getting stifled, this is an excellent opportunity to drive economic value and maintain robust bottom line growth and keep the shareholders happy
  2. Similarly studies4 indicate that “the number of NextGen customers to be in the range of ‘300-400 million over the next 10 years”5 (Page 65, Nair, Contemporary Banking in India) and more than more than 55% of this Gen Y (16-24 age group) spends more than 4 hours a day5 on mobile. So if these organizations are not there where customers are spending time, then they have only to blame themselves for loosing
  3. Another BCG survey6 throws up an interesting information that at higher annual income levels, digital channels have nearly as much influence as a physical agent on the purchasing decision of a customer in a life insurance space
  4. Similarly many banks are wary of ending up as a ‘dumb pipe’7. If the technology driven innovation leads to a spate of customer centric payments/ wallet players who starts to own the customer and relegates the banks to the back end then ‘who owns the customer?’ becomes a pertinent question and those who fails to innovate may become irrelevant

 

Getting the Digital Right

 

But leveraging digital is easier said than done. A few organizations are confusing digital with just having a portal in place or getting a mobile application in place which is not only further from the minimum desired level but also has all the ingredients of ending up in a big failure.

As highlighted in an earlier section, digital is not just about providing a digital interface to the customer (a channel of his choice) but is also about being able to engage with customer more intelligently (engaging at right time with right content). The crux of it is to provide a unique customer experience and hence a robust digital enabled back end to provide effective service is absolutely necessary to win this game.

Possible pitfalls arise because of inability to comprehend or lack of consideration of a few critical factors:

  1. The institutions are not dealing with a single customer instance but multiple demographics across age, affluence, geo distribution! For example how do I have a digital strategy which caters to not only ‘digital natives’ but also to ‘digital aliens’?8
  2. Technology is surely at the core of this digital disruption but ‘going digital’ is much beyond on having just the technology in place. One needs to have an overarching digital strategy aligned to organization business strategy with process, people (employees) playing their part in digital to ensure that the technology works as desired!
  3. ‘Going digital’ may be a phased approach. The extent to which an organization needs to adopt digital is also depended on overall maturity of the organization. For example most of the new gen customers are in social space but organization will need to take a call on extent of its participation in social space; social listen, social advertisement or social engagement with customer? This will depend on overall strategy and maturity of the organization
  4. There has to be a due diligence in terms of potential ROI (return on investments) before embarking. For example for an organization planning to invest in digital marketing, it needs to assess its baseline and identify improvement potential and seek for a robust business case

 

The road ahead may not always be so smooth! This reminds me of a short poem:

‘Two roads diverged in a yellow wood and I –

I took the one less traveled by,

And that has made all the difference’.

  • (Robert Frost, ‘The Road Not Taken’, 18:20)

While it may be tempting for an organization to follow the ‘herd’ and adopt the competitor or other players ‘digital initiatives’ but chances are that poetic justice will prevail on those who takes the more difficult path of crafting its own path aligned to its overall vision.

The question for a financial services organization is not ‘whether to go digital or not?’ but ‘how and how much?”.

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