“Some of our biggest success stories have been when our clients have a great vision and then we can go in and listen carefully and help to enhance that vision, and then go make it a reality.” -John Dangoia
Banking as a service is a familiar topic for John Dangoia, the Vice President/Head of Product Management US and Europe at Infosys Finacle. John’s organization has avoided one of the biggest challenges in modern banking: the paradox of choice.
Why do so many banks struggle to make bold business choices and move forward with transformation? This question was answered on a Banking on Digital Growth Podcast.
The Paradox of Choice in Banking
It’s no secret that banking customers have thousands of choices in the marketplace. Over the past decade, the rise of fintech companies has added even more competition to the already-crowded world of banking.
But it’s not just customers who are overwhelmed with choices. Banks, too, are struggling to decide what to do next.
How do they connect with a new generation of fickle and tech-driven banking customers? Should they introduce new services? New apps? New podcasts? New social media influencers?
A recent report showing that 72% of financial institutions are increasing investments in omnichannel platforms. This means they’re investing in a future where they can reach anyone, anywhere, on any possible channel.
Why is this? What’s driving this desire, from an investment perspective?
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John says it’s a positive sign that financial brands are acknowledging the customer experience. Banks are finally becoming more open to the concept of the customer journey and are feeling excited about finding fresh ways to connect with their customers to deliver an outstanding experience.
Of course, there’s also a financial incentive. Banks are interested in banking as a service because it’s a market projected to grow from 2.8 billion to 12 billion in the next decade. As John says, “Where the money goes, the investments go.”
For example, Marcus, the company that spun out of Goldman Sachs, is famously rethinking the customer experience by partnering with non-banking entities like Apple. They’re invested in being innovative and bringing new banking visions to life - and they’re making big bucks along the way.
Emerging Trends in Banking as a Service
One of the hot trends in banking as a service is the concept of embedded banking. This involves wrapping financial services or tools into typically nonbank settings like products, software, and personal services.
Embedded banking typically allows for higher growth and lower expenses than traditional banking, as long as it’s handled carefully. But this is where things get tricky. Banks are often paralyzed by choice in terms of embedding their brand with other brands and finding partners that seem like the right fit.
Accelerated digital transformation is another trend that’s impossible to ignore. Coming out of the pandemic, companies are still dazed to discover that they’ve been forced to accelerate the pace of digital change because the marketplace demanded it.
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In many cases, traditional banks just “threw a lot of bodies at it,” as John says, scrambling to handle the pace of transformation by upping their staffing levels. Many banks built new portals and added new services almost haphazardly, hoping something - anything - would resolve the pressing crisis of keeping customers happy during a global pandemic.
At the same time, there’s been a trend among community banks to finally acknowledge the existential threat of tech companies. The “little guys'' are finding that even a community bank can become a big tech company in the digital space. As a group, they’re carving out a considerable slice of the digital audience.
What do all of these trends have in common? They rely on having what John terms “a true business strategy.” It’s the secret sauce behind a company like Marcus. At Marcus, a team of digital strategists carefully and thoughtfully makes business decisions to drive their company in a specific strategic direction.
What Does it Mean to Have a Modern Banking Strategy?
James Robert likes to remind financial executives that there’s a difference between tech strategy and business strategy. A tech strategy is about finding and investing in the right technology. By contrast, a business strategy is a bigger-picture view of your company’s operational direction and success as a whole.
For a bank, forming a business strategy comes back to asking questions like, “Why do we exist as an organization?” and “Who are we here to serve?”
A banking business strategy should arise from a commitment to a vision that you’re willing to invest in. Instead of just generically saying, “We’re going to transform,” a banking strategy should say specifically, “Here’s why we need to transform and what we plan to accomplish.”
In a large body of research about digital transformation from firms like BCG and McKinsey, the same statistics crop up again and again. About 60% to 85% of all digital transformation projects fail. The reason is usually that the company wasn’t working from a cohesive strategy and took a scattershot approach to transformation.
Pitfalls of Pursuing Banking as a Service
John and James Robert have worked with a wide array of banking brands pursuing digital transformations. Along the way, they’ve seen a common set of pitfalls that prevent long-term success.
Focus is one of the primary problems. As John says, companies tend to “get all jazzed up about how systems work” but lose their focus on the customer. Does the customer want all the fancy bells and whistles? Or would they just prefer a simpler and more frictionless product?
Customer retention is also an issue. A bank might be able to attract people with digital ad strategies, but they lose them by having a poor retention strategy. Again, they’re losing sight of what keeps a customer around and what makes them enjoy using certain products and services.
Another pitfall is being afraid to hear customer feedback. True transformation requires companies to embrace feedback and take their egos out of the process. Listen, really listen to what your customers are saying about what they need from you.
James Robert is a big fan of digital secret shopping studies because they pit financial brands directly against each other and provide surprising insights. Financial C-suite executives often gain clarity and have “aha!” moments from viewing the results of these fascinating studies.
Believe it or not, about 85% of financial brands have never undertaken any type of digital secret shopping study, according to Digital Growth Institute research.
Has your company done one lately?
Entering The ‘Golden Engagement Circle’
John uses the term “golden engagement circle” to describe a holistic model where customers have become fully engaged with their chosen financial brand. Within this golden circle, banks can drive toward purposeful growth because their customers are so engaged with the process.
What does it take to enter the golden engagement circle?
First, it’s essential to have a feedback mechanism. There must be a way for customers to communicate with you in a two-way feedback flow.
Also, your company’s staff must have enough time to dig into the customer experience process and strategically make changes that benefit your customers. If there’s no time for transformation, transformation just can’t happen.
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It’s also important to identify knowledge gaps within your staff that require more training or building new partnerships. James Robert brings up a statistic that 76% of banks identify workforce skills improvement as critical to their business success within the next 3 to 5 years. This means there’s an education gap that needs to be filled to accomplish future goals.
John also acknowledges this gap and links it to a talent shortage in the U.S. technology industry. This talent shortage cuts across industries and impacts everything from banking to tech development. It indicates a need to bring people in from other industries and discover how they can bring a big boost of new insights.
Dan Sullivan and Benjamin Hardy’s book, “Who, Not How” includes a relevant point about the banking industry’s talent shortage. The authors explain that in large organizations, people often become so stuck on asking how they’ll solve problems that they forget to ask who will be involved.
Yet transformation is all about involving the right people. When there’s a talent shortage, the question of who becomes even more difficult. You might have to cast a wider net that includes people outside your organization and industry. As James Robert puts it, “Who do I need to be my how?”
Baby Steps Toward Banking as a Service
If your organization is struggling to make progress toward digital transformation and/or banking as a service, start by strategizing. Set your strategic direction, then identify a few examples of low-hanging fruit you could grab for some early wins in digital transformation.
Above all else, always keep your focus on the customer experience. John suggests asking questions like:
- What could we do to make our customer-focused vision come to light?
- Are our projects aligned with our strategic plan?
- Are investments also aligned with the plan?
- Are we spending too much money on overhead/sunk costs and not enough on transformation?
- Which investments could we make in the next year to help drive our strategy?
- How do we plan to win more business by improving the customer experience?
John has seen research that shows about 84% of the typical financial brand’s budget goes toward “keeping the lights on,” at the company. Give careful consideration to any budgetary cut you could make in this realm to free up the resources you need for digital transformation.
Consider it an investment in your customers and your future. This is the best way to ensure your financial brand will still be in business next month, year, decade, and beyond.
This article was originally published on September 6, 2022. All content © 2023 by Digital Growth Institute and may not be reproduced by any means without permission.