THE ‘BIG BANG’ OF DIGITAL FINANCE – TRAITS OF ORGANIZATIONS THAT ARE BUILDING THEMSELVES FORWARD
With the enormous digital acceleration that took place during and after Covid, the move to greater focus on customer experience, and the mounting competition in added-value services for customers, the financial sector today is constantly looking to make improvements and efficiencies. We spoke with Oren Josef, VP for Digital and Integration Solutions at Matrix, about traits that organizations have in common which are helping to position them as leaders in digital finance – traits like a well-developed and up-to-date mobile channel, digital experimentation, translating data assets into intelligence, and technologies and development methodologies that fuel acceleration, not to mention entrepreneurial spirit and an openness to tech-business cooperation.
The coronavirus brought with it enormous digital acceleration to the financial sector. Organizations and institutions that had been accustomed to detailed prior planning and a long, cautious pace of development were suddenly forced to develop a series of digital products to replace in-person services and activities. “This whirlwind created a remapping of power relations in the marketplace, and it led to dramatic, irreversible changes in the organizations’ working methods and culture, and in customer behavior and expectations,” says Oren Josef. “In a study conducted in 2021 among some 2000 Americans, more than half the participants reported that ‘the design and usability of applications are a central factor in selecting a bank.’ Moreover, the leading cause of switching bank during the Covid period was an inferior mobile platform (and not high fees, which had previously been the top reason for leaving a bank).
By 2026, Digital Banking Will Have 4.2 Billion Users
“The market is changing fundamentally, and for most organizations today, business starts with digital technology. All indications are that the operations producing most of the profits will go primarily through digital channels,” Oren explains. “According to analysts’ projections, by 2026 there will be 4.2 billion users of digital banking; and a study from Workday inc. shows that more than one-third of managers expect over 75% of their profits to come from digital channels by 2024. Another change is that focus has shifted to the customers and their needs. Whereas the financial organizations’ perspective used to be from the inside looking out, today they need to look from the outside inward, adopting the customer’s point of view and understanding the customer’s behavior and needs. That’s because a good customer experience has become one of the survival factors in today’s competitive marketplace.
“One of the big challenges for financial institutions today,” Oren says, “is how to actually pull it off. In other words, how to create a good, up-to-date customer experience, how to create innovation and flexibility. When the institutions are dependent on obsolete legacy systems, they are subject to regulation, and within their own ranks there is opposition to change. How can the gap be bridged between the demand for quick technological development on the one hand, and the slow pace of movement that typifies traditional financial institutions on the other hand? Many financial institutions have realized that in order to do that, they must adopt capabilities, traits, architectures, technologies, and work methods from the world of startups and tech companies. That’s what can enable them to respond quickly to changing business needs, while at the same time continuing their risk management, complying with regulations, and maintaining stability.”
Today the financial ecosystem is constantly in flux, and together with challenges come opportunities as well. Among veteran organizations that are building themselves forward and developing the capabilities that will give them an advantage in the new configuration that is developing, a number of common traits can be observed. We asked Oren to expand on them.
The Open Banking Reform Has Further Broadened Competition – If they show initiative and business flexibility, organizations can use that as a springboard toward expanded and more sophisticated digital offerings
“Adding more fuel to the fire, this year Israel launched its Open Banking Reform, introducing further competition into the financial marketplace,” says Oren. “On the one hand the challenge today is greater than ever, because the previous owners of customers’ financial information – banks, credit card companies, and so on – have lost control of it. As well as facing regulation, they need to invest in developing an infrastructure for data sharing.
“On the other hand, open banking, with Open API in particular, brings a variety of opportunities for efficiency, improving the customer experience, business development, and creating new profit channels. It’s a door opening wide for new business solutions that involve cooperating with fintech, technology and other companies. It enables financial organizations to join in various forms of cooperation in order to offer customers new and relevant services, together with innovative digital technology. If financial organizations show initiative and business flexibility, they can exploit the new circumstances as a springboard toward preparing broader and more sophisticated digital offerings for their customers.”
MOBILE FIRST – 45% of Survey Respondents Say Mobile is One of the Three Most Decisive Factors in Making Financial Choices
“Today mobile banking has established itself as an essential feature for keeping financial institutions relevant and competitive,” says Oren. “It’s no longer a question of whether they need a mobile app, but how good, how appropriate, and how enjoyable the user experience of their bank’s mobile app is. From the survey I mentioned at the beginning, which was conducted in the USA, it showed that if a bank’s mobile app provides an inferior user experience, this can be a primary reason for losing customers. And other surveys show similar figures. In a survey held by Insider Intelligence, for instance, more than 45% of respondents mentioned the mobile app as one of the three most decisive factors in making their financial choices. A financial organization that wants to remain relevant, and to be a market leader, must align itself with that trend and make sure its mobile operation is the most advanced and most suited to the customers’ needs and expectations.”
Digital Experimentation – Using Technologies and Methodologies That Provide Technological and Creative Leeway
“Another trait of financial organizations that are digital leaders is the ability to move at a much faster pace, with the technological and creative freedom necessary for digital experimentation,” says Oren. “After the shock of Covid, veteran banks and financial institutions realized that in order to be ready for anything, and to survive in a frequently changing marketplace, they need to learn to move much more quickly. It’s not simple, because veteran financial organizations tend to plan in advance and progress cautiously. However, considering the pace at which things are changing today, that would mean that by the time they develop something and release it to customers, it would already be irrelevant. From that standpoint, the startup-style methodology of the MVP (minimum viable product) is more suited to the actual market of today. You develop the least ambitious product that’s worth releasing to the market, with a shorter planning process, and you quickly put your digital products out into the field, see how well they work, and make improvements on the fly.
“Of course, that requires technological and organizational readiness. Most veteran financial institutions and organizations are equipped with old, slow-running technological systems, and with the organizational DNA that goes with them. But today there are a number of methodologies and technological solutions that allow for acceleration, such as the use of newer, faster architectures and low-code platforms, along with agile and DevOps methodologies. In this way, veteran organizations can develop digital projects with efficiency and speed, bridge the gaps between advanced digital products and old systems behind the scenes, and achieve the capability to respond quickly and develop digital solutions through an approach of experimentation and continual improvement.”
Digital Intelligence – Translating a Wealth of Data into Business opportunities
“Since the center of gravity in our day-to-day life has shifted to digital channels, data has been accumulating in huge volumes,” says Oren. “In fact, each financial organization is sitting on an immense store of data. This, given the technological ability to use it correctly, can win the organization a significant advantage, all the way from improving the customer experience and personalizing products and solutions, through saving resources, and developing new products and profit channels. The leading digital organizations understand this, and they know how to translate data into business opportunities.
“In recent times, artificial intelligence (AI) and machine learning (ML) technologies have taken a huge leap forward after years when it was only possible to discuss their potential. In 2023, artificial intelligence can significantly influence the customer journey, helping in automation, efficiency, and more. One example is in customer communications, with banks already using chatbots extensively. Now, with the dramatic arrival of ChatGPT, this field is expected to develop significantly further. Organizations that want to continue as digital leaders will be using AI, data and ML to create smarter processes for marketing, sales, service, and customer retention, all tailored to the individual customer. The use of AI tools will enable organizations to understand and predict the needs not only of customers, but also of their families.”
“The bottom line,” Oren concludes, “is that the combined revolutions in open banking, data and AI – in the age of ChatGPT, DevOps and agile disciplines, new architectures and low-code platforms – will enable banks to cope with the ‘big bang’ of digital finance. At Matrix we’re working on this today with our clients, providing them with the capabilities and experience necessary to take the next leap forward.”
