Much has been said and written about digital transformation. Everything is being automated, robots steal our jobs, startups threaten the traditional business models… But what is the truth in all this? Are fintechs really a threat to the established values in the financial sector? Are banks “dinosaurs” lagging behind? Or is our perception off?
To bring clarity to this discussion, AMPLEXOR and Sentia organized a roundtable discussion at the exclusive Belgian winery Nobel (Lochristi), bringing together several key players from the banking and insurance sector in Belgium.
Olivier Van Duüren, author of the book The Dualarity about how to deal with personal and business digital transformation, immediately set the tone: we are in a period of change. A change which affects both your personality and the business. And while it’s important to be aware of these changes, it’s equally imperative to draw energy from it - some people will just freeze when faced with the challenge these changes impose -, and ultimately to find the right balance in the transformation process.
On the basis of this premise, Olivier divided the business world into four quadrants:
- Companies that see change and draw energy from it are Healthy (e.g. Tesla, Lego or Alibaba) or Mature (e.g. Microsoft, AB Inbev).
- Companies that don’t see change or freeze are in the bottom quadrants: Scared (e.g. Nokia, Blackberry) or Injured (e.g. Twitter, Wallmart).
But you can quickly move from one quadrant to another. So: lean forward rather than backward.
The participants of the roundtable agreed with this perspective, especially when they looked at their own sector, where change is currently in full swing. We can see many examples of digital transformation abroad:
- dea Bank (Poland) sends a self-driving safe to retailers, in which they can drop their cash or deposits.
- ASB’s Clever Kash in New Zealand is a digital piggy bank for kids.
- Widiba is an Italian online bank which asked its customer’s how they see the bank of the future, and then put their ideas into practice.
Looking at these initiatives, the question arises: is the banking sector in Belgium lagging behind?
Not at all. Perhaps the innovations are not as conspicuous, or perhaps Belgian banks are not aggressive enough. Everyone is exploring blockchain, for example. In addition, over the past 18 months, practically every bank has launched something new - according to the participants, the Belgian banking sector has developed numerous advanced applications, which cost next to nothing to the consumers. Perhaps, then, innovation is taking place too smoothly and gradually to be noticed.
Fintechs: embrace or competitor?
A consequence of digitization is that more players can offer the same service, and sometimes at a lower cost. However, the participants in the debate don’t currently view startups in the financial sector as a threat. Quite the contrary, fintechs are welcome because they challenge the other players in the sector, who look forward to their actions and sometimes use the technology. The only issue is: there are so many initiatives and standards that you have to gamble on who you want to collaborate with, and at what moment you join.
An important observation made by the group is that fintechs typically only optimize a small part of the bank-customer relationship chain. They don’t have their own customers, as the bank continues to own the relationship with the customer. The visibility that the bank may lose due to the use of apps can be made up for by pooling all the data they now have access to, and using these data to produce valuable customer insights. All too often, the data are still divided in separate containers.
What are the bottlenecks that hinder a rapid digital transformation?
On the one hand, you have the shareholders. Being in the Healthy quadrant does not mean you are financially sound. The shareholders of a bank will have different expectations than those of a startup. Plus, all the trendy IT companies like Uber still show red figures.
In addition, the transformation is held back by the data legislation and the regulator. The trend in regulation does not tend towards simplification - banks even have to hire specialized consultants to determine what is allowed and what isn’t. Belgium has also interpreted the EU law in a fairly archaic way until now, and by January 1, 2018 banks should be ready to make their data available, but the corresponding legislation is not yet in order. This is why the sector is facing an (unrealistic) race against the clock.
Let’s look at the example of mobile banking apps: the small screen of a smartphone forces banks to stick to the essence. But each screen must be checked and approved by the Financial Services and Markets Authority in Belgium (FSMA). And by simplifying, sometimes the result has the opposite effect of what is desired: it's all become so simple that the customer is wondering whether it's still safe to use the app.
Challenges for tomorrow
Technology is like gravity: it’s there and you can’t avoid it. The financial crisis and the changing loyalty of customers might suggest the worst, but we are already seeing customer banking experiences which are improved by 85% thanks to digitization.A change in mindset is required, and it’s a challenge to radiate this mindset to every facet of the enterprise: from the phone that is picked up to the screen that is shown to the customer. The biggest challenge, though, is still probably to digitally translate some agencies’ motivation and their commitment to their customers.