Telstra’s Tom Homer gives us a look at some of the most exciting digital transformation opportunities for financial services firms
Regulation and legacy IT have tended to stifle large-scale digital transformation initiatives in Financial Services Institutions (FSI). However, the tide is turning. For example, mobile banking in the UK has overtaken physical branches and the Internet as the most popular channel amongst banking customers. When it goes live in 2016, Atom Bank will be the first of its kind: a mobile app offering banking services fully licensed by the Bank of England.
Atom will have no physical branches, and, unlike other online banks, its website will only provide general information and customer support functions. According to analysts, digital laggards in the financial services sector may lose up to 35 percent market share to digital pure-plays such as Atom. And if this bank is unlikely to be the last of its kind, what should other incumbent players be being doing when they don’t have the luxury of being born mobile? The answer may well lie in the digital partnerships they are able to forge.
Four Types of Digital Partnerships
There is a growing pressure for banks, insurers and other finance firms to accelerate development and expand their digital capabilities. We recently commissioned a global survey of 1,045 senior business leaders and found that financial services firms currently have the largest number of digital partners of any sector. The survey, which was conducted by The Economist Intelligence Unit also revealed that almost half of all the financial services companies surveyed had more than five digital partnership in place.
Half of FSI executives say that their partnerships have already proven value ‘beyond doubt’. So what types of partnerships can lead to success in digital transformation strategy? Our data pointed to four key types that firms should consider:
- Fin Tech Alliances: Perhaps the most obvious but the motivations for entering these partnerships are as varied as the forms these alliances take. Top of the list is the development of new financial products and services. In fact, this was one area where Atom Bank itself formed a Fin Tech Alliance to accelerate the development of its service.
- Startup Engagement: Innovation labs and start-up accelerators, such as that established by Barclays are common ways to support start-ups focused on relevant technologies ranging from wire transfer platforms to fraud prevention platforms. ‘Startup engagements’ offer powerful ways to evolve toward a more comprehensive digital transformation and get closer to innovation.
- Platform Partnerships: Nearly half of survey respondents expect to enter into a partnership over the next year with a technology platform leader such as Google, Amazon or Facebook. Evidence of these ‘Platform Partnerships’ can already be seen, as several large banks, including JPMorgan Chase and Lloyd’s, are linking up with Apple to utilise its mobile payment app, Apple Pay.
- Digital Go-to-markets: One important digital partnership cited in the survey was for the development new customer segments and expanding reach into new markets. For example, AXA, an insurance provider, and financial data provider LexisNexis partnered up to refine the insurer’s risk-pricing capabilities in its home and auto insurance markets. This ‘Digital Go-to-Market’ in turn will help it to offer prices to customer segments it had not been able to reach before.
Banks and insurance companies have yet to be shaken to the core by digital disruption. As that time comes closer, those firms plugged into a network of digital partners should be in a stronger position to cope with it, or better still to capitalise upon it.
Ultimately, our survey showed that FSI leaders believe that their companies’ ability to leverage technology trends in the future will require them to be part of a digital network or ecosystem. Nevertheless, change is never easy and digital transformation ultimately requires a fundamental departure from traditional models and processes. The challenge for many firms is that they are wedded to such processes and this can make them resistant to change.
Nevertheless, in our experience, the ability to convince reluctant colleagues of the virtues of digital partnerships, or the benefits to be gained from involvement in a technology-focused network or ecosystem, will become a highly desired skill for aspiring senior managers. In fact, today’s senior executives must be able to convince reluctant colleagues of the virtues of digital partnerships, so that their financial services organisations can survive and thrive in the present and future.
Tom Homer is managing director EMEA at Telstra Global Enterprise & Services
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