Financial services in the age of disruption
October 16, 2014
Kathleen McDowell is part of Slalom’s financial services practice, which supports clients in the growth and innovation of the financial services industry. She has more than 25 years of experience working with clients in the United States, the United Kingdom, and throughout Asia.
McDowell shared her thoughts on how digital products and services are seriously shaking up the financial services industry – but the bank branch isn’t going away.
Why is the digital space such a hot topic in financial services right now?
The digital disruption of financial services is probably the largest disruption that the financial services industry has seen in decades, literally, so that’s why everybody is talking about it. And they’re not talking about it just because it’s new and it’s interesting. They’re talking about it because it’s really going to make them rethink their entire business strategy and change the paradigm of traditional banking.
Which major financial institutions are at the forefront, in your mind, of this digital change?
I think the ones that I would define as being in the forefront are the ones that are willing to think about doing things differently, the ones that have recognized that there is a lot of innovation out in (Silicon Valley) and in other places and are willing to say, “I’m not just going to look at those organizations as my competitors, but I’m going to look at them for potential opportunities as well.”
Wells Fargo, to me, is a great example. They’ve gone beyond just, say, hiring technology entrepreneurs, which they could easily do because they’re already in the Bay Area. They’re actually supporting (a startup accelerator). So they’re kind of getting a first peek, if you will, at some of the innovations that are coming out there in the financial services space.
Are you already seeing some of these major financial institutions offer some really cool and innovative products for clients?
I think the greatest thing that the financial institutions are doing is truly enabling people to do more and more from their mobile phones. The investments that they’re putting into mobile and tablet banking is phenomenal, and in my opinion that’s the right place to put it.
And something that I’ve seen people testing into is in video. A few organizations checked into this, and they were surprised to see that if they asked people what they thought about video tellers, people would say, “No, I don’t really want to communicate with my organization that way.”
(But) institutions that tested it have actually found out that when people used it, they liked it way more than conceptually, when they were just thinking about it. So I think that the real leaders will be the ones thinking about (the) future and they will be communicating with their customers in the future. And I think that the video aspect is an interesting one, because it personalizes remote channels.
Are we still going to need bank branches in the future?
In my opinion, absolutely. I think what we need to do is rethink the branch strategy. So they may be in different locations. They may look completely different than what we think of a branch, looking at it today. And they could offer totally different services. And it’s because people’s needs are changing, but people still want a personal interaction with many financial services products.
Now you’ve mentioned these disruptors -- these relatively young companies that are really changing the face of the financial industry. Who are the disruptors, and what are they doing that’s really challenging this industry?
Well, what I think they’re doing is they’re putting the customer first. You know, they look at themselves and say, “What product or service does my financial service provider not offer today that I would really like? Where is that gap?”
And the other thing that the majority of them have in common is that almost all of them are very technology-focused. They have a real innovative way of thinking, and they have technology investments on their side.
Should the major institutions be thinking of these disruptors as competitors, or is there some advantage to working with them?
In my opinion, some are going to be competitors and some could be partners, and the idea is that the organization has to do an assessment of which ones are going to pose a competitive threat and which ones are going to be opportunities for us to actually grow?
(There are) a lot of organizations -- especially in, say, small business loans -- where they’re partnering with online lenders who can do things more efficiently for a lower cost.
What else is stopping the financial institutions that don’t have a strong digital strategy at this point?
They’ve got an organizational structure that doesn’t lend itself well to innovation, be it their legacy systems or the fact that their data warehouses aren’t integrated across different areas.
I like to say that you don’t just need a digital strategy; the digital has to be part of your business strategy. So it has to be integrated, and I think that’s holding some organizations back. They may have recognized, “Hey, we need to do something in digital.” But they’re not exactly sure how to approach it and how to integrate a digital strategy into their overall business strategy.
For some of these companies that are just starting out in the digital side, what should their priorities be?
Well, I would definitely say that first step is at the strategy phase. Come up with a digital strategy that’s part of your overall business strategy -one that integrates your digital channels with your current channels to deliver seamless customer experience. The strategy should be driven by what you anticipate your customer’s future needs to be and what capabilities you think your business will need to meet those future needs. What you hope to come up with in the end is a roadmap that you can follow that prioritizes your investments and will take your business and customers into the future.