digital financial solutions - Smartphone with application icons floating off the screen

What’s driving investment in digital financial solutions?

Author: Sarah Britton

Today’s financial service providers are investing heavily in digital solutions. You might expect the cost savings that digital can offer to be the main driver for this; but our conversations with decision makers have revealed something quite different.

Today’s financial service providers are investing heavily in #digital #financial #solutions Click To Tweet

You won’t be surprised if I tell you that investment in digital financial solutions is rapidly moving up the list of priorities for financial services providers, or that it’s transforming the way they run their businesses. But you may be surprised by the motivations behind these investments. Following research carried out with a number of senior level decision makers in financial services companies, these motivations are discussed below.

Customer is king

For some time now we’ve been hearing how the customer is king, and our discussions with decision makers within financial services – from retail banking to motor finance – who are directly involved with digital investment decisions have borne that out.

The customer is seen as the primary driver for investment in digital financial solutions. In fact, providers are increasingly basing the direction of their investment on feedback from their customers.

Not only do today’s customers expect their FS providers to keep up with digital innovation, they expect providers to leverage digital to put them, the customer, back in the driving seat in terms of their finances. At the same time, the business can benefit from the increased amount of data available from these digital channels to further improve the digital experience for their customers.

Keeping up with the competition

Competition was the second motivator – but somewhat surprisingly, not competition from peers. Rather, competition from disruptive startups and FinTechs was a real concern for traditional providers. After all, even if each disruptor takes only a small percentage of customers away, with the number of startups out there now, in total this can add up to quite a sizable loss.

In addition, a large number of customers leaving can also have an impact on a company’s ability to invest in digital. More customers leaving reduces investment, leading to investment decisions around digital financial solutions becoming reactionary rather than strategic.

And with startups able to excel in one or two competencies, often with a much lower cost base, they only increase customers’ expectations, both in terms of experience and speed of change, adding a further challenge.

Cutting the bottom line while raising the top one

Cost savings and increased efficiency came out third, with a clear recognition of how cost savings can be achieved through digital: less postage, fewer phone calls, manual tasks automated, customers self-serving and more. What’s more, the economies of scale achieved by digital channels reduce cost further and allows for efficiency improvements.

Providers have also seen revenue generation result from investment in digital financial solutions. After all, digital makes it simpler for customers to consume more products and services; leveraging digital financial services to commercialise an active and engaged user base offers providers a clear opportunity for driving revenue.

#Digital makes it simpler for customers to consume more products and services Click To Tweet

Innovation and regulation

Our discussions also revealed how traditional financial service providers recognise that they need to push boundaries and are actively investing in innovation to keep up with the market.

While traditionally innovation would have been resourced internally, new approaches, such as innovation labs and accelerators, keep the latest market trends firmly in sight and send a message to the rest of the market that the business is a trailblazer.

Lastly, regulation as a driver for investment in digital financial solutions made the list. With compliance essential, companies are leveraging digital financial solutions where they offer the best way to ensure compliance.

The case against digital investment

Our discussions also revealed the obstacles causing organisations to hold back on digital investment:

  • Resources: Large-scale digital transformation can put additional stress on the business and its resources, especially with the high demand for expertise in new technologies; This provides opportunities for external vendors to bridge this gap – I hear Intelligent Environments would be a good one to talk to J
  • Buy-in from above: Management buy-in can hinder investment in digital finance, especially if executives don’t ‘get’ digital or are trapped in a legacy way of thinking. Happily, things are changing as senior exec’s understanding of digital finance grows.
  • Cost: Fiscal constraints around market conditions can be an obstacle to investment in digital financial solutions. Financial performance inevitably affects sensitivity to cost, but highlighting the cost savings and return on investment a solution can deliver helps companies overcome the obstacles.
  • Time: Speed to deliver a digital financial solution is an important consideration for investments; ensuring some discernible value as early as possible puts context around the overall time taken to deliver the whole solution. (see comment on ‘resources’!)
  • Regulation: As much as being a driver, regulatory requirement might, in some cases, prevent investment in a particular digital financial solution.
  • Infrastructure: Large FS companies need to take into account their often legacy infrastructure when looking to implement new digital financial solutions – which can add additional complexity in a project.

When it comes to investment in digital financial solutions, financial services providers have to balance drivers with obstacles. In my next blog post, I’ explore in depth why the customer is seen as the main motivation for investment and what that means for providers.

digital financial solutions - Smartphone with application icons floating off the screen
30 Aug 2017

Author: Sarah Britton

Today’s financial service providers are investing heavily in digital solutions. You might expect the cost savings that digital can offer to be the main driver for this; but our conversations with decision makers have revealed something quite different.

Today’s financial service providers are investing heavily in #digital #financial #solutions Click To Tweet

You won’t be surprised if I tell you that investment in digital financial solutions is rapidly moving up the list of priorities for financial services providers, or that it’s transforming the way they run their businesses. But you may be surprised by the motivations behind these investments. Following research carried out with a number of senior level decision makers in financial services companies, these motivations are discussed below.

Customer is king

For some time now we’ve been hearing how the customer is king, and our discussions with decision makers within financial services – from retail banking to motor finance – who are directly involved with digital investment decisions have borne that out.

The customer is seen as the primary driver for investment in digital financial solutions. In fact, providers are increasingly basing the direction of their investment on feedback from their customers.

Not only do today’s customers expect their FS providers to keep up with digital innovation, they expect providers to leverage digital to put them, the customer, back in the driving seat in terms of their finances. At the same time, the business can benefit from the increased amount of data available from these digital channels to further improve the digital experience for their customers.

Keeping up with the competition

Competition was the second motivator – but somewhat surprisingly, not competition from peers. Rather, competition from disruptive startups and FinTechs was a real concern for traditional providers. After all, even if each disruptor takes only a small percentage of customers away, with the number of startups out there now, in total this can add up to quite a sizable loss.

In addition, a large number of customers leaving can also have an impact on a company’s ability to invest in digital. More customers leaving reduces investment, leading to investment decisions around digital financial solutions becoming reactionary rather than strategic.

And with startups able to excel in one or two competencies, often with a much lower cost base, they only increase customers’ expectations, both in terms of experience and speed of change, adding a further challenge.

Cutting the bottom line while raising the top one

Cost savings and increased efficiency came out third, with a clear recognition of how cost savings can be achieved through digital: less postage, fewer phone calls, manual tasks automated, customers self-serving and more. What’s more, the economies of scale achieved by digital channels reduce cost further and allows for efficiency improvements.

Providers have also seen revenue generation result from investment in digital financial solutions. After all, digital makes it simpler for customers to consume more products and services; leveraging digital financial services to commercialise an active and engaged user base offers providers a clear opportunity for driving revenue.

#Digital makes it simpler for customers to consume more products and services Click To Tweet

Innovation and regulation

Our discussions also revealed how traditional financial service providers recognise that they need to push boundaries and are actively investing in innovation to keep up with the market.

While traditionally innovation would have been resourced internally, new approaches, such as innovation labs and accelerators, keep the latest market trends firmly in sight and send a message to the rest of the market that the business is a trailblazer.

Lastly, regulation as a driver for investment in digital financial solutions made the list. With compliance essential, companies are leveraging digital financial solutions where they offer the best way to ensure compliance.

The case against digital investment

Our discussions also revealed the obstacles causing organisations to hold back on digital investment:

  • Resources: Large-scale digital transformation can put additional stress on the business and its resources, especially with the high demand for expertise in new technologies; This provides opportunities for external vendors to bridge this gap – I hear Intelligent Environments would be a good one to talk to J
  • Buy-in from above: Management buy-in can hinder investment in digital finance, especially if executives don’t ‘get’ digital or are trapped in a legacy way of thinking. Happily, things are changing as senior exec’s understanding of digital finance grows.
  • Cost: Fiscal constraints around market conditions can be an obstacle to investment in digital financial solutions. Financial performance inevitably affects sensitivity to cost, but highlighting the cost savings and return on investment a solution can deliver helps companies overcome the obstacles.
  • Time: Speed to deliver a digital financial solution is an important consideration for investments; ensuring some discernible value as early as possible puts context around the overall time taken to deliver the whole solution. (see comment on ‘resources’!)
  • Regulation: As much as being a driver, regulatory requirement might, in some cases, prevent investment in a particular digital financial solution.
  • Infrastructure: Large FS companies need to take into account their often legacy infrastructure when looking to implement new digital financial solutions – which can add additional complexity in a project.

When it comes to investment in digital financial solutions, financial services providers have to balance drivers with obstacles. In my next blog post, I’ explore in depth why the customer is seen as the main motivation for investment and what that means for providers.