Technology Always Wins…
Two years into the Great War (WW I), France and Britain had come to a stalemate against Germany. In spite of historically bloody battles and extreme loss of life for all three countries, trench warfare had not been able to impact significantly the positions of either side. The problem, according to historian and author Jeff Shaara, was that the generals were fighting the battles with an “infantry and cavalry mentality,” while machine guns and airplanes were the technologies that would win the war. Changing traditional, established battle strategy on both sides would be necessary to move the needle and bring the war to conclusion.
Technological change always challenges us to modify our approaches to success. Sometimes we find it easy and we willingly adapt. Other times, we find it more challenging, and we adapt too slowly. At those times, technology will always win.
Which is where we find ourselves in the financial services industry today. Traditional, established financial services firms are being challenged by new and nimble fintech start-ups. The question is: “Who’s technology is going to win?”
Adapt or Adopt?
Before the ubiquity of the internet, there was no motivation for different banking functions to interface on any level. So, it was common that the banking line of business did not coordinate with wealth management division, which did not collaborate with insurance line of business. In fact, because financial services were relationship-driven, there was actually a disincentive to collaboration and coordination. Why should a banker hand their client over to a wealth manager, who might damage – or worse, “steal”! – the client relationship. Each of the financial services functions evolved in siloed isolation within larger companies and banks. Over time, as operations were codified by the introduction of computers, each of those functions had their unique technology infrastructure as well. Moreover, like their management, the computers in banking did not talk to the wealth management computers, and so on.
That worked reasonably well until technology progressed and customers’ needs began to change. Customers now expect systems to talk to each other, regardless of what bank function they needed to access. Customers expect to be able to check on the status all of their accounts with one application, one login, and one password. Millennials in particular – that evolving tsunami of future financial services consumers – have very high expectations of technology and very low tolerance for workarounds in the customer experience.
Now, emerging fintech companies are delivering smart, simple user interfaces that deliver to the customer a seamless experience across our interconnected financial services ecosystem. Traditional financial services companies are challenged to meet this competitive advantage because of their historic approach to their business combined with the reality of more data, more regulations, and more legacy systems that need revamping.
Certainly, financial services is not the only industry struggling with this shift. The struggle among retailers is probably the most publicized, as Amazon has pushed customers to embrace online shopping. Moreover, while there is no comparable behemoth in financial services – yet – can anyone predict which of the current financial services providers or some other new technology entrant is going to become the Amazon for the financial services industry?
Winning the War
The challenge for traditional financial services companies in competing against fintech firms is to understand the customer experience comprehensively, to determine; what problems are the disjointed tech systems causing? What systems need to talk to what other systems, to accomplish what functions for the customer? Simply put, financial services firms need to understand the customer’s needs, wants, behaviors and desires and then redesign business processes from the outside in to deliver it. It may not be just getting your systems to talk to each other; you may need different and new ways to combine and interpret the customer’s financial data to meet these new needs. Additionally, all facets of technology need to include flexibility, as customers’ needs will continue to evolve as technology evolves.
This is not a process that will be comfortable or easy, but it is necessary for survival. One of the most critical challenges in this process will be changing the attitudes of employees and leadership. Gaining internal buy-in, cooperation, and developing the willingness to try something different will be critical to successfully evolving. If industry professionals cannot embrace change as positive and exciting, if they cannot adapt, firms will not survive.
Most financial services companies have a substantial investment in legacy systems that they are resistant to abandon. However, the fact remains, if those legacy systems cannot adapt to today’s customer and business needs, they are only holding them back. If they are not flexible enough to continue evolving to meet future needs, they will become a distinct disadvantage. Firms may not want to invest in new systems, but competitors will. Can they really afford a wait-n-see strategy?
It may not be this year or next year, but the fact remains that emerging fintech competitors are slowly eating the lunch of traditional financial services businesses today, and it is only going to get worse. The fintech war will not be won with infantry and cavalry – we need the big guns now!