How Digital Transformation Is Reshaping Financial Services

Customer experience, AI and machine learning are at the heart of the future of money.

This summer, Florida-based BrightStar Credit Union is set to release a revamped, customer-facing mobile app, designed to be as smooth and as quick as possible, with a uniform design across different platforms and new features, such as debit card controls that allow customers to react to potential fraud more quickly.

“It’s about keeping pace with other industries,” says Matt Meyer, vice president of IT and CIO for BrightStar. “Ride-sharing apps have been a disruptor to taxi services, and there are lessons to be learned there for the financial industry. Consumers want ease of access, they want ease of payment, and they want that speed.”

With people relying increasingly on online and mobile banking, the race is on for banks, credit unions and other financial services organizations to embrace digital transformation.

For banks and credit unions, this often involves devoting resources to the mobile consumer experience by pursuing projects like BrightStar’s app upgrade, and also scaling up infrastructure to process more transactions and eliminate downtime. For capital markets firms, digital transformation efforts are often focused on data analytics and high-performance computing, as organizations try to leverage Big Data and automation to shave every possible millisecond off transaction times. In both cases, the emphasis is on growing the business and improving the customer experience through technology.

“Digital transformation means we have the power to transform the financial services industry to be even more customer-centric,” says Tobin McDaniel, senior vice president of digital advice and innovation for Charles Schwab. “We’re no longer just competing with other financial firms for consumers’ attention and loyalty. We’re competing with anyone who’s offering a positive experience, including consumer and technology brands. It’s critical to remember that the purpose of digitizing a process or creating an app should be to focus on making people’s lives easier.”

Experts note that financial services firms, like those in many industries, need to think about how to bake advanced technology into every aspect of the business; that’s a departure from years past, when business leaders tended to regard IT as merely a department that helped deliver discrete solutions.

“Digital transformation is a business strategy. It’s not a technology strategy,” says Jerry Silva, research director for IDC Financial Insights. “It’s about making the business agile and responsive to the market.”

Digital Transformation Unlocks New Opportunities for Credit Unions, Banks and Capital Markets

With its app improvements — including features like a peer-to-peer payment system — BrightStar is attempting to both support customers’ regular banking activities and to put the app at the center of the customer experience.

“There’s only so many branch locations we can have,” Meyer says. “It’s a challenge to make sure there’s always a branch right next to you — that’s impossible. But with today’s technology, I can put that branch right into your hands.”

Early in 2017, Alaska USA Federal Credit Union rolled out ClickSWITCH, an automated account switching solution that allows new customers to quickly and safely change their recurring payments and direct deposits from their previous financial institutions to Alaska USA. Around 30 percent of new members are using the solution, says Shawn Brume, senior vice president of information management governance, and the service has helped the organization continue to grow by 4 percent to 6 percent annually.

“That is transforming the business,” says Brume. “It totally changes the way we bring new members on board.”

While customer-facing apps are at the center of many banks’ and credit unions’ digital transformation efforts, capital market firms are more concerned with analytics and artificial intelligence, says Silva.

“We did a survey last year, and those are the top two areas of investment,” he says. “In capital markets, being able to make those trade decisions not only faster but smarter and based on historical information is becoming more and more important.”

Silva says that leaders at most financial institutions understand the importance of digital transformation, but that legacy infrastructure is slowing down many organizations’ efforts.

“Many of the largest banks worldwide rely on a core banking system that was built 35 years ago, written in COBOL, run on IBM mainframes,” Silva notes. “Those are not easily changed. You can’t create new products and services very easily on those. And the people who know how to program for them are retiring. They’re extremely risky to just pull out and replace with a more modern system.”

While these hurdles are real, McDaniel says that outdated mindsets can be as limiting as outdated IT systems. When Schwab launched its fully digital robo-adviser system, dubbed Schwab Intelligent Portfolios, the company “basically created a startup within a 45-year-old brokerage firm,” he says.

“The goal was to focus on what it would take to build something fundamentally new, without a fear of potentially disrupting our existing products and services, because it was the right thing to do for consumers,” McDaniel says.

Customer Service Innovation Fueled by Digital Transformation

As financial institutions use technology to engage their customers on a deeper level, they will create better relationships and provide more value. Silva points to a bank in Europe that allows customers to shop for homes from the bank’s website and highlights properties that customers can afford, and he predicts that stateside banks may soon do something similar for customers looking to buy a car.

“It’s about stickiness,” he says. “If you can offer something, and the bank across the street can’t, you’re more likely to stay with that bank.”

In addition to allowing financial institutions to better compete for existing customers, digital transformation may pave the way for engaging new customers; for example, people who have historically not had the time, expertise or resources to invest with a financial adviser. Mike Brady, Alaska USA’s CIO, says he looks forward to solutions that enable automated savings and investment based off of analytics.

“An algorithm could look at your savings and your spending habits and determine when you can afford to put $5 into savings — and then, when it grows enough, put the money into a short-term CD,” says Brume. “I don’t think we’re that far away.”

As customers continue to shift their activity away from the branch and toward mobile and online solutions, Brume says, banks and credit unions will need to find new ways to help their customers build wealth — or risk losing them. “Our survival goes hand in hand with ensuring our members’ success,” Brume says. “And that all comes through digital transformation.”

By Calvin Hennick, published in BizTech.