Friday , May 24, 2024

The Digital Financial Services Playbook

Advanced technologies and open banking have rewritten the rules for success in payments and other crucial financial services. Here’s how to compete—and win.

Yes, the future of financial services is digital. But so is the present. Increasingly, traditional institutions, fintechs, and service providers are coming together like a set of digital building blocks to form entirely new creations. Together, they’re designing new platforms that fulfill the needs of distinct customer segments. And they’re delivering profits while simultaneously serving a broader purpose.

For example, Daylight is the first and only digital bank in the United States specifically designed for and by the LGBT+ community. Meanwhile, three traditional companies—Visa, MetaBank N.A, and Marqeta (the modern global card issuing platform)—back Daylight and its prepaid debit card.

Likewise, U.S. fintech Esusu is designed to support immigrant and minority groups by using the power of data to bridge the racial wealth gap. Esusu uses its platform to record and report on-time rental payments to the largest, most established credit bureaus—Experian, TransUnion, and Equifax—on behalf of landlords to boost credit scores for tenants to help them get on the property ladder.

Even Walmart has created a fintech business unit. Earlier this year, the mega-retailer partnered with fintech investment firm Ribbit Capital to “develop and offer modern, innovative, and affordable financial solutions.” This might mean low to no account minimums or overdraft fees for the company’s customer base of low- to middle-income consumers, some of whom don’t own a regular bank account.

But which of these collaborations between neobanks and traditional players will succeed? Which will fail? And why?

Here’s the thing: these are new businesses that require brand-new business models in an entirely new industry: digital financial services. So, there’s no playbook, but a new one is being written.

Entering, and thriving in, this ecosystem is also harder and more complex than you may think. Many firms, including fintechs, techfins, retailers, cryptocurrency platforms, and traditional banks, that launch new digital financial services businesses often suffer from ‘Benjamin Button’ syndrome: the businesses are born new, but have legacy and outdated approaches built into their thinking.

At the same time, market participants can’t afford to take a wait-and-see approach. That leads innovators to miss out on market opportunity. It also dooms traditional banks to suffer death by the thousand cuts that neo-financials, digital banks, and others will inflict by stealing bits and pieces of their market, customer base, and brand value.

The New Playbook

Fortunately, there are some proven tips that can help you build and deliver a digital financial-services masterpiece:

  1. Start with strategy and resist the temptation to jump ahead

Before you do anything else, you’ll need an overarching strategy. That means everything from corporate and brand strategy to employee and customer-experience strategy to technology and operations strategy.

First, consider who you will serve, what you will offer, how you will differentiate yourself, and, perhaps most important, what you won’t do. Next, determine what experience you want your customers to have. Then, decide how you are going to set up your employees to deliver that experience. This will establish your culture.

Firms that deliver digital financial services will need to balance a workforce comprised of banking subject-matter experts as well as digital natives, in combination with extensive automation, to create the operating rhythm necessary to power a new generation of digital-banking experiences that scale. Finally, how does your brand complement and deliver on your strategies?

You’ll need to do a complete service blueprint of the offering or offerings you want to create and map it to the strategies. And, you’ll need to define your target operating model around the strategies and blueprint.

  1. Deliver personalized, contextual, proactive solutions in real-time

All customers start their financial journeys at a different point. In the same way that GPS systems—like Google Maps and Waze—help travelers by anticipating roadblocks and providing turn-by-turn navigation information, customers of financial solutions now also want guidance on the path to financial betterment. This is a concept that Genpact’s recent report, “Banking in the Age of Instinct,” refers to as “optimized reality” and calls out for additional investment.

Digital financial-services providers will need to use data and analytics to derive insights throughout the customer experience. For example, by optimizing the onboarding process as the customer enters information or by using predictive insights to help customers identify the right product mix for their needs.

This requires more than a great digital interface. It takes a lot of back-office construction or reconstruction. If you don’t automate the back office, you can digitize the front-end experience as much as you want, but the customer will still encounter long lead times. Data storage and hygiene are particularly important to get right early on as they enable fast and efficient scaling.

Meanwhile, technology stacks that limit access to data could be very detrimental to your ability to deliver personalized, contextual, proactive solutions in real time. Don’t continue to build on bad data. The truth is that exceptional financial experiences are enabled by seamlessly connecting people, processes, and technology across an entire organization.

  1. Develop a challenger mindset

The speed at which competitors are introducing new solutions to assist consumers and small businesses in meeting their financial goals is breakneck. In fact, although the term may sound like an oxymoron, we are already seeing what one might refer to as “legacy fintechs.” Case in point? Paypal. The payments giant is now concerned about buy-now-pay-later companies that didn’t even exist a year ago.

We see it across industries: Incumbents asleep at the wheel until new entrants shake and wake the inattentive giant. Look at retail, for example. After a decades-long ascent, Amazon recently dethroned Walmart as the largest retailer outside of China.

When it comes to digital financial services, don’t let perfect be the enemy of good. It’s better to make a good decision quickly and iterate afterwards than to overanalyze in search of a “perfect” answer. Future competition may come from anywhere and everywhere. So don’t wait for a crisis. It’s important to keep the fire and never become complacent.

  1. Engage—at the right time—

to drive loyalty

Loyalty is being redefined. In the past, institutions used share of wallet as a primary measure of loyalty, based on how many financial accounts a customer or business maintained with their firm. Today, loyalty is less about accounts and more about interactions, activities, and engagement.

The more engagement you have with consumers, the more likely they are to use your solution. Again, take PayPal as an example. Much of what the payment giant is doing—

from bringing on crypto to incorporating messaging into its new “super app”—is designed to drive engagement with its platform. PayPal representatives have said that consumers who buy, hold, and sell cryptocurrency on the platform in the United States log on at twice their previous rate. With increased user engagement, the company expects to see a bump in average revenue per active account.

The role of technology in driving loyalty cannot be overstated. After all, a significant portion of today’s interactions take place in digital channels. In addition, the ability to anticipate needs so you can engage with the customer to deliver against those needs at the right time—not too early and not too late—is critical. And 360-degree customer data and real-time analytics is what will enable you to do this.

  1. Partner for success

When it comes to creating a digital financial-services masterpiece, you can’t get there by yourself. You can’t build it by yourself. You can’t rebuild it by yourself.  Instead, it requires a connected ecosystem of partners.

Firms that deliver these services will need to break down internal silos and embrace external partnerships, potentially even with competitors. They’ll need to partner with many specialists to ensure optimization of services, uptime, access, and more, via an open-banking platform infrastructure that allows them to plug in new partners as needed. And they’ll need to share data, intellectual property, skills, and more for a seamless user experience that benefits their customers.

Customer behaviors have forever changed and will continue to move away from traditional banking-business models. Other industries have shown that customers are now breaking their experiences into smaller “best value or experience” components, rather than always choosing traditional large brands that operate in traditional ways.

In banking, as in other industries, whoever fills that void will win. And whoever ignores the void will fall into it. The time to start is now.

—BK Kalra is global business leader for banking and capital markets at Genpact Ltd., New York, N.Y.

Check Also

CPACharge Lines up Referral Agreements and other Digital Transactions News briefs from 5/24/24

CPACharge an online payment service for accounting businesses that is a unit of AffiniPay, said it …

Digital Transactions