Digital disruption, fintech and emerging technologies have upset the status quo in banking. The conservative approach that served banks so well for so long could prove their Achilles heel in the new environment.
Bank boardrooms are abuzz as they try to chart a way forward. And change will only accelerate as more institutions adopt emerging technologies such as artificial intelligence (AI) and blockchain distributed ledgers.
The founder of the World Economic Forum, Klaus Schwab, coined the idea of the “fourth industrial revolution,” which is defined in part by its speed and its reach. The short version? It’ll happen faster and change more than the first three. And banks are among the most vulnerable institutions. If they don’t have a plan to measure, improvise and improve on their digital progress, they could lose revenue faster than they realize.
A common measure of the digital progress
Here’s the rub: banks need new metrics because innovation is happening at such a tremendous pace. True digital maturity isn’t just about technology, it’s about transforming businesses so they can consistently keep pace with the changing market. Part of this process is coming up with meaningful criteria for measuring progress. After all, it’s difficult to improve if you don’t know where you stand to begin with. Of all institutions, banks should understand this.
Yearly profit and revenue figures aren’t enough. Banks and other financial institutions need ways of measuring how well they’re adapting to digital disruption. The best banks are already benchmarking their progress. JP Morgan Chase is measuring the impact of digitizing each aspect of their business in its shareholder reports. The progress of digital engagement is now front and centre of their agenda.
One of our customers in Australia, Suncorp, measures digital engagement by a fine-grained analysis of logins across digital platforms. They measure the digital impact on the bank’s brand and progress across the digital ecosystem. They report to their investors on both profits and digital metrics. And the numbers are good. There were 63 million logins to its digital platforms, 5 million registered accounts and 55 million visits to its sites across brands.
"True digital maturity isn't just about technology, it's about transforming businesses so they can consistently keep pace with the changing market. Part of this process is coming up with meaningful criteria for measuring progress."
The starting line for measurement – key metrics for digital progress
1. Digital engagement & reach
Banks need to measure the extent and reach of digital engagement across their products and services. It is critical to measure progress based on customer’s ability and willingness to use self-service channels.
Digitally engaged banks offer mortgage services, insurance, as well as investment accounts completely on digital channels and with the complete digital process, cutting processing times from weeks to hours. To drive customer loyalty, banks need to constantly innovate. Savvy banks gamify their services so that people will treat them like a financial Fitbit that lets users track their wealth.
2. Pace of adoption
Another measure is an institution’s ability to add a new customer entirely online and originate products digitally across the customer’s lifecycle. JP Morgan Chase, for example, now acquires 77% of its credit card customers digitally. The pace and readiness to adopt digital models show a bank’s ability to cope with changing business models and disruptive market entrants.
3. Depth of data analytics and customer insight
Banks need to measure and benchmark themselves very differently in the age of AI and Machine Learning. Customer data management and analytics need to be at the core of a bank’s processes and they should measure how real-time their decision making is, how data is shared internally – and that these systems are managed for optimum efficiency.
4. Digital enablement of the workforce
A digital enterprise needs to be matched with a digital workforce. Technical skills are increasingly a core competency for workers in the finance sector. A digitally mature organisation understands that progress is a continual process of improving the organisation’s capacity. Financial institutions need a clear gauge of their technical capacity, which means they need to remove inflexible processes and build a collaborative culture.
5. Cross-industry comparisons
Banks can also deploy traditional measures such as Net Promoter Scores to create cross-industry comparisons to see where they stand against leaders across Telco, Consumer Tech and other sectors.
A measured digital response can have valuable pay-offs
While banks may seem to lag behind fintech start-ups on innovation and digital models, they also have some advantages that they can build on. They can partner with fintechs or buy them, and can capitalise on their already large customer base.
The peer-to-peer payments market in the US is a perfect example. Zelle, which is backed by dozens of US banks, recently launched. It’s a strong product, and building on the major banks’ customer base, it’s expected to quickly overtake the market leader, PayPal’s Venmo.
"Companies who understand the value of digital transformation are on average 26% more profitable than their competitors and have valuations that are 12% higher."
The rewards of measuring digital responses can be extraordinary. Research by Capgemini and MIT Sloan found that companies who understand the value of digital transformation are on average 26% more profitable than their competitors and have valuations that are 12% higher. Digital leadership can be measured, tracked and ultimately a bank’s level of ‘digital maturity’ is a critical gauge of sustainable growth.