Historically, financial services companies haven’t been on the frontier of innovation. On the contrary, in the current era of digitization, too many companies think they have enough time to adapt to this new environment. In many boardrooms, ‘digital’ is still associated with selling products over the internet or cost-cutting, but this is only half the story. Digital transformation impacts the entire enterprise. It’s about the way a company assesses risk or how it automates its service functions. It’s how sales are supported digitally by tablets, for example. A recent McKinsey report stated that for the simple financial products, digital channel use in Europe will rise to an average of 35%. Moreover, the total cost reduction could run up to 20% when the benefits from digital transformation are factored into the equation. This is why it’s important that financial services companies start assessing what digital transformation could do for them.
Why you should act now
Despite the fact that many management teams are still preoccupied with the effects of the European financial crisis on the business, executives should be sensitive to current industry and consumer trends. For example, the speed of the adoption of new technologies, such as mobile devices and tablets, is causing customers’ behavior to change rapidly and is forcing financial services companies to adjust their distribution channels into multi-touchpoint customer experiences that are supported by agile commerce platforms. Digital technologies continue to drive long-term shifts in the way Europeans research and buy financial products. As customers adopt social media and use a growing number of digital devices, the number of customer touchpoints increases, but these touchpoints also become more fragmented and complex.
More and more, customers are taking control of researching and buying financial services products, mainly through self-directed channels. Financial services companies are ignoring customers’ longtime wish to have simpler products and more transparent pricing. Customers want to buy these products and use the services from ‘anyone on anytime, anywhere, anyplace’ devices. The customer is driving the decision about what the customer journey will look like, depending on his or her preferences. That means that all channels are in play, including face-to-face channels. Moreover, customers have grown accustomed to the convenience and power of the standard technology incorporated into smartphones and tablets, and they assume that, on their customer journey, they will be recognized all the time, in all of these different formats. That is why banks and insurance companies need to act. Ideally, companies should start with disrupting themselves in the way they do business. If they don’t, with the barriers of entry to the market so low due to this digital disruption, new companies will go after the profitable segments that remain.
Adjusting your distribution takes courage
Retail banks should ask themselves if branches will keep the same role in the future. Insurance companies should ask themselves if loyalty to the broker channel pays off when the business is going direct-to-consumer. How does a financial services company communicate this change to branch managers or to their loyal group of financial advisors with whom it has done business for many years and with whom it had a steady financial relationship? Many financial services companies in this situation, such as the Dutch insurer Nationale-Nederlanden (part of ING Group), had difficulty to become truly multi-channel. They waited too long but are now making great progress.
The predominant argument against embracing distribution changes one hears from the financial services companies is that of cannibalization or channel conflict. The truth is that if financial services firms don’t make the change, it will be challenged and surpassed by new entrants that don’t carry the distribution legacy and do offer more distribution channels. One way a company can avoid getting left behind is to start direct companies under a different name. In France, Credit Agricole started a challenger brand under the name BforBank. In Spain, the insurer Mapfre launched Verti in December 2011. Nowadays, besides having more channels available, financial services firms should treat all channels and touchpoints as equally important, but this is hard. Internal culture and governance are probably the main reasons why companies do not adjust their distribution model fast enough. The issue here is, how are you going to explain to the person who is managing the most important channel, like the branches or broker channel, that he is just another channel or touchpoint in the client-centric model of the future?
Just start the digital transformation process in 2014
Many executives often ask me, ‘Where should I start with the digital transformation?’. First, the digital agenda should be made and supported by the whole company. It’s very important that everybody really understands the benefits of applying digital capabilities to the company’s sales and service processes. Then the organization should develop a digital roadmap outlining future projects. The priority lies in making investments in systems and services that impact interactions with the customer. Here a few thoughts to consider:
1. Create great customer experiences at the moment of truth. Financial products in general do not generate much interest among consumers. Yet, when customers interact with a supplier, in many cases they like immediate and relevant answers straight away. This is a moment of truth for how the company’s customers perceive its brand. Nevertheless, there are numerous financial services companies that ‘hide’ their telephone number on their website for cost-related reasons, even if they know that customers prefer to talk to them via the phone. This is an example of a broken customer experience that could have a big impact on the relationship. Banks are in contact with their customers almost daily. Insurance companies don’t have that frequent contact necessary to establish a good relationship. Therefore, all companies must make sure that the customer experience is excellent at all moments that matter. Moreover, exceeding the customer’s expectations during these experiences will drive retention, lower the cost of acquisition and create cross-sell opportunities.
2. Invest in a tablet strategy. Customers view digital devices such as tablets as a convenient way to connect with their financial services company at a time and place that suits them. The tablet’s technical features make them well-suited to enabling self-service; moreover, tablets give financial services advisors the flexibility to interact with customers in a new, cool way, with their fast start-up, high-resolution screens, and customer-friendly format. Working digitally is efficient – advisors have more time to focus on selling rather than on administration. For example, Aegon Turkey implemented a very successful tablet strategy in their sales force, providing efficient support for the sales and administrative process.
3. Develop a digital self-service environment. Driven by the twin imperatives of increasing customer service efficiency and growing overall sales, European financial services companies will likely continue to invest in digital capabilities. There are two reasons why self-service is taking off. Firstly, the economic crisis has forced companies to develop more self-service processes to eliminate or reduce costs. Secondly, as products become simpler, it becomes easier for customers to buy products and perform services themselves. And here lies the true value of digital technologies: yes, digital transformation does cut costs, but, more important it adds more convenience and a better user experience to customers. They love to do things themselves because they have more control over their free time. For them, it’s no hassle to search and compare the best simple risk product late at night on the couch before they make a purchase. Plus, in most cases, buying direct is cheaper, a fact that could persuade more consumers to purchase more financial services products. Financial services firms should keep that in mind when they’re preparing their organizations for the digital storm. 2014 is a good time to start with your digital transformation agenda. Best of luck !