Whether I am conferring privately with clients in their offices or attending an important conference for financial services institutions (FSIs), the discussion inevitably gravitates to the interplay of customers’ expectations, industry disruptors, and FSIs’ digital agendas. This is an important discussion these days, as whatever banks, insurers and wealth management firms take away from them and incorporate into their business strategies could have serious implications for their growth and even their survival in these disruptive times.

Before examining the digital agenda that FSIs ought to adopt to address the powerful trends they face, let’s look a little closer at those trends and the forces driving them.

One critical trend is the development of what we call liquid expectations of customers.  Those are the expectations that seep into the FSI marketplace as a result of customers’ experience in other industries. Notably, as a by-product of the digitization of the broader consumer marketplace, customers increasingly are controlling their business relationships. They are engaging businesses on their own terms and at the time and place of their choosing.  They also create value for other consumers by writing product reviews on Amazon and posting “likes” on providers’ Facebook pages.

In this environment, there is growing pressure on FSIs to define clear digital agendas and carefully balance capital allocations between “GO Digital” and “BE Digital” investments. The former relates to the business propositions taken to clients; the latter addresses the digital enablement needed to create new revenue streams in the future while lowering the cost base.

At the same time, major consumer-to-business (C2B) players such as Google, Apple, Facebook and Amazon (GAFA) are encroaching on FSIs’ traditional territory. Banks and insurers can add Alibaba, a Chinese e-commerce giant that also operates in 11 Western countries, to that group.  The GAFAs set customer experience standards any C2B player has to meet.  This is the most important challenge for any FS Player, but banks in particular can count on relevant “X Factors”, such as Customer trust when managing personal data, breadth of evitable data, frequency of interactions.  Besides setting up of customer experience standards, GAFAs also challenge FIs with very specific propositions: Google and Apple have launched payment systems; Facebook Messenger allows users to send money to each other; Amazon Lending offers its “power merchants” business loans; while Google has shuttered its insurance comparison-shopping site, many observers suspect we have not seen the last of that effort from Google; Alibaba is investing in internet insurance and banking services. GAFA companies likely won’t enter the investment advisory business soon, but financial technology (FinTech) start-ups in recent years have reached critical mass in providing online robo-advice services.

These and other trends increase the vulnerability of FSIs, even those that have begun transforming themselves into organizations that engage more routinely with customers: the “Everyday Bank” of the future, insurers that focus on targeting customers at critical junctures in their lives, and wealth managers that provide convenient virtual meeting services to clients. We estimate that by 2020, different business models could affect up to 80 percent of existing revenues for banks and insurers. And nearly 80 percent of wealth managers say they recognize that digital is an essential part of the client-advisor relationship.

I see these competitive pressures drawing significant attention from FSI executives globally. The GAFA story is resonating from the United States and Canada to Japan to India to France and all European countries.  Clear leaders are already there: CBA, BBVA, mBank, Garanti, etc.]

With these competitive pressures, FSIs will need to move fast and make the right decisions in three crucial areas:

  • Which roles to play.
  • Which “phygital”—combined physical and digital—businesses to prioritize and which new businesses to launch.
  • How to develop and deploy relevant digital enablers, and how to digitize processes end-to-end.

In this series, we will explore FSIs’ strategic options, the actions needed to implement their decisions, and internal and external factors affecting successful execution of a chosen strategy during these disruptive times.

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