Digital transformation - the only option to rescue the financial industry?

Authors: Tomasz Soroka, Zbigniew Waz

Global investment in the fintech industry in the third quarter of 2017 reached $8.2 billion. Technologically innovative companies have dropped the gloves and are ready to battle global financial corporations; they aren’t in a losing position because they have a new generation of customers looking for convenient solutions based on Internet and mobile technologies. Traditional banks face a big challenge: how to adapt their strategy to the new rules of the game?

A new generation of customers

The financial industry is observing the influx of a new generation of customers: these are the same young people who had received offers from new technological companies decades ago, which have transformed the landscape of the global Internet network irreversibly. Millennials appreciated the easily available, intuitive, free services offered by Facebook, YouTube, Gmail and Apple, raising the stock price of the listed companies and multiplying the assets of their founders. Today, this generation is looking for the same characteristics and consumer value in the services of the financial industry. According to a report by EY , a consulting company, the new generation of bank customers attache great importance to the convenient and technically sophisticated solutions offered by service providers. A more interesting mobile application may prove to be the overriding argument in choosing a small startup at the expense of a large bank. In order to gain new clients from this segment traditional institutions are forced to take a strategic decision to introduce innovative mobile services. In contrast to small startups, this change in strategy is associated with an expensive process of transforming internal business processes, acquisition of qualified experts from the market and is fraught with a high risk of failure due to the long process of introducing the final product to the market. Does this mean that large financial corporations are facing a losing position? Certainly not; they benefit from both large capital resources and a well-established (also in regulatory terms) market position. In addition, keen observers note a new trend: industry experts under the patronage of large technological companies exchange best practices and seek synergies between banking and software houses to transform their companies into so-called agile institutions.

AN AGILE INSTITUTION. What elements do you need to become agile?

Increasingly, the term agile company or agile institution appears in the literature and trade press, especially in the context of the recent challenges posed to business entities in the financial sector. The genesis of this concept should be seen in the popular project management methodology (so-called agile methodology), used primarily in the process of software writing: the main assumption of this theory is readiness to make changes in production depending on the customer's expectations. Subsequent versions of the software are written in a short time frame (sprints), which is why a valuable and functional product is delivered at every stage of the project. The overwhelming increase in the market share of innovative companies is a signal for the competition operating in the basis of a traditional business model: readiness to change depending on customer expectations and ensuring the highest quality of services is a condition for profitable operations.

The subject of improving and automating business processes is no longer a song of the future, but it is becoming a natural element of the strategy of many companies seeking to optimize the operating costs of dealing on the Polish market. Under the patronage of Microsoft, the Digital Excellence program was initiated, promoting digitalization and automation of processes using Robotics Process Automation (RPA), Artificial Intelligence (AI) and machine learning. According to the results of research carried out for the needs of the program, 82% of Polish managers acknowledge that the development of digital team competencies is the most important initiative in the digital transformation of their business; but only 36% of respondents have a defined digital strategy for the entire company . Thanks to digital transformation and automation, financial institutions eliminate burdensome and paper-based processes, improving the experience of the end customer. The need to visit the branch is eliminated, the interaction with the bank is transferred to the virtual world. By reducing operating costs, banks are able to reduce fees and commissions.

Supporting specialized companies is the key to success

In the face of high demand for innovation in finance and banking, as well as the need to change the business strategy of large companies, there is another challenge related to accessing qualified staff and tested models of implementing digital transformation. There was an opportunity to analyze this problem in an interdisciplinary group during the Supply Chain Finance conference held in Frankfurt at the beginning of February this year. The theme of the congress was the use of innovative software and mobile solutions in processes ensuring liquidity of commercial companies, specifically in reverse factoring or trade finance processes. Until recently, such services were offered mainly by large banks, which had considerable capital, but their processes were often inefficient and burdened with ‘paperology’. Since the appearance of fintech companies offering much more convenient and faster access to cash on the horizon, industry leaders have also begun looking for a way to digitize and optimize their operations. According to the experts gathered in Frankfurt, one can notice a new trend in the financial industry: banks, due to their available capital and brand recognition, establish cooperation with fintech companies - in exchange for promoting their products and services, they gain access to expert knowledge and top-class specialists.

The necessity to introduce changes effectively and quickly encourages bankers to consult external excellence consultants. Companies such as LEAWARE, a partner of the Digital Leaders Program, provide support for businesses in defining customer needs, creating optimized solutions and their implementation. From the point of view of the service provider, it is a much faster and more cost-effective solution than employing specialists as part of an internal function.