How calculated risks yield high rewards for financial institutions’ digital transformation

The pandemic proved that traditional banks have what it takes to adapt quickly. Forced to shift into high gear, many firms sidelined routine processes to develop digital services in shorter time frames. In some respects, incumbents became disruptors. But to truly outpace FinTech and meet changing customer needs, larger banks must take more calculated risks, more often.

Yes, there’s a lot on the line. When a firm swings and misses, the consequences can be devastating. “If Uber’s system goes down, you can hail a taxi. If your bank fails and you can’t make your mortgage, that’s a big deal,” says Simon Murray, Practice Lead FSI, Digital Strategy Group at Adobe. However, there’s also real risk in not transforming. So how do you “move fast and break things” while balancing legitimate concerns about security, fraud, regulation, and compliance? Let’s explore what it takes to do trial-and-error right.

Get out of your comfort zone

Why take any risks, and why now? The shift in customer expectations and the adoption of digital channels has been building in recent years. The change in physical interactions caused by pandemic lockdowns has simply accelerated what was already there — the move to transact digitally and predominately on mobile.

Embedded finance and Banking-as-a-Service (BaaS) are two key harbingers of change. A number of non-financial companies are integrating financial services within their product offerings, turning complex exchanges into something that can be done on a smartphone in just a few clicks. With these services, you can get a ride-share without fumbling for your wallet, buy a bed online and finance within the checkout experience, or tick a box to add insurance to your new car purchase. Customers increasingly expect such valuable and friction-free experiences and will take their business elsewhere if you can’t deliver.

Of course, quick transactions are only part of the equation. Customers also want strategic support and expert guidance to make smart financial decisions, especially after a year of economic uncertainty. Now customers are looking to banks to deliver answers to their finance-related questions, not just the completion of banking tasks.

According to Adobe’s 2021 Digital Trends: Financial Services & Insurance in Focus, “the primary goal for financial services is delivering meaningful digital interactions to improve the financial health and wellbeing of the customer.” Through a more complete picture of the customer, financial services and insurance firms are in a better position to offer content, products, services and support that are truly helpful.

Make sure you have the proper insights to engage with customers in a meaningful way. Any future success in integrated technologies or automation depends entirely on data. By understanding the customer as a unique individual, you can meet their needs and gain the added benefit of building trust and confidence. Just 33 percent of financial services and insurance companies have “significant insight” into the journeys of new customers. This might explain why only 31 percent of customers who use a traditional national bank believe they are getting unique banking benefits, compared to 50 percent of customers who use a digital bank.

Go beyond basic mobile banking

With good data, you can not only market more effectively but actually create better products for customers and prospects.

For example, after realizing customers didn’t feel they got enough value from their products, Goldman Sachs created a consumer lending platform that provides highly competitive rates, delivered without the branch and back-office infrastructure that often hampers legacy financial institutions. Launched in 2016, Marcus by Goldman Sachs became even more user-friendly as a convenient mobile app in 2020. The brand image is centered on the goals of helping people achieve financial well-being and be smarter with their money, with the tagline, “You can money.”

Customers can act as partners in innovation, too. In fact, you can gain incredible insights by inviting customers to tell you what they think.

In Australia, Sydney-based neobank, Hay, invited the first 10,000 customers to test, trial and provide feedback on updates to the mobile app. These early adopters, or Hay Founders, essentially co-create new features. Hay pairs this explicit user input with data-driven insights to continually focus resources and improve experiences. By actively listening and responding to customer needs, the company is successfully reimagining an age-old industry.

The secret to these banks’ innovative moves is simply a willingness to take incremental risks.

In other words, there’s no single bank dominating digital experience. Which means there’s an opportunity for you to make your mark as a leader in the space.

Think big — in small chunks.

Recognize that transformation is not an all-or-nothing proposition. Startups are able to take risks not just because they might have less to lose but because they tend to do one thing very well, as opposed to a large bank that does many things and can’t tackle widespread change as swiftly. Startups also tend to have fewer customers, which makes it easier to pour through data, and they aren’t hampered by legacy tech, yet.

Fortunately, bigger firms can be scrappy, too. There are ways to trial new ideas without a massive investment.

“You may not have to reengineer your back-office systems,” says Maz Hayes, a digital strategy and reinvention lead at IBM. “Simple things can be done from a customer experience point of view. For example, Google changed their ‘find out more’ button to a slightly different color of blue and it boosted click through rate dramatically.”

Fail fast in something that’s not materially damaging. Pick a problem area in your business and address the issue with a risk-assessed pilot. “Start with the numbers and align yourself around the high-level objectives that are driving your particular efforts,” says Hayes. “Once your program is up and running, plan for continuous iteration.” Test early and often, and capture the learnings to either stop, continue, or recalculate. Teach your management that it’s ok to fail, especially if it adds up to valuable findings.

Jump with a parachute (don’t go it alone)

The need to protect data while delivering meaningful customer experiences is paramount. IBM Global Markets senior vice president, Bridget van Kraligen, says, “The reality is that today, businesses across industries are operating in an experience first world where it is possible to gain immense value from data if trust and technology flexibility are central to the equation.”

Working with outside vendors can help you transform more quickly, securely. A hybrid cloud helps companies modernize applications faster, and connect cloud services to data via cloud or on-premises infrastructure in ways that deliver new value. A unified platform lets banks draw on best-of-breed cloud security and regulatory compliance technologies to implement security and compliance across all environments in a consistent way.

Vendors can also collaborate with you to address the cultural side of transformation and establish new ways of working. They can help reframe business opportunities and find those with the most potential. They’re also objective third parties to bridge any organizational silos that otherwise hinder significant progress. IBM Garage experts empower customers to take manageable risks and develop innovative ideas. They equip them with the practices, technologies and expertise to rapidly turn those ideas into business value.

Tech alone won’t transform your business, and it won’t deliver fantastic experiences. You need the right people, process and partners to make each risk pay off.

The bottom line: the way forward is paved with calculated risks.

You can’t be customer-centric without pushing the boundaries of digital finance.

Adobe and IBM can help you get started, partnering with your team to deliver seamless integrated experiences for colleagues and customers that create value and differentiation for your business. Together, Adobe and IBM have developed and containerized Adobe Experience Manager 6.5 on RedHat Openshift in the IBM Cloud for Financial Services, allowing you to gather real-time data to create relevant, timely experiences across the entire customer journey, giving you the benefits and flexibility of public cloud, in a secure enterprise-grade and compliant environment. With its deep category experience and expertise guiding the world’s leading companies in their journeys of digital transformation, IBM can help you determine which calculated risks to take, building a roadmap for CX innovation, and then delivering those experiences, at scale

Learn more about how IBM and Adobe can accelerate your transformation and build customer loyalty.