How banking CIOs can survive the fintech disruption

Banking CIOs need to undertake front-to-back digital transformations to stay ahead of the curve, says a recent BCG report

How banking CIOs can survive the fintech disruption - CIO&Leader

While the digital wave has touched upon almost every industry in India, the banking system has witnessed a transformational change. However, as digitization becomes the top priority for every bank, they continue to face major challenges in areas of lowering costs, improving customer service, and maintaining their competitive advantage. It is time CIOs in the banking sector pay greater attention to these transformations to survive and grow, says a recent BCG report. 

The report clarified that digitally nimble fintech firms offering unique standalone solutions, such as low-cost international transfers or supply chain financing solutions, have mostly created the disruption for traditional retail banks.

To survive the fintech innovation, BCG researchers recommend retail banks to not only accelerate adoption of digital platforms, artificial intelligence (AI), and blockchain—but also develop a clear vision and be ready to adopt digital changes in response to customers’ changing expectations.

Develop a clear vision

Leading banks also need to digitize their enterprises in order to lower costs. Those that have already embarked on digitization are achieving better-than-average results, shows the survey.

However, the report notes that those numbers are few and far between. The study shows that even though several banks have launched numerous uncoordinated digital initiatives, it’s time they develop a clear vision on formulating a comprehensive strategy for their own banks, and then plotting their digital initiatives accordingly. If leaders don’t cultivate a coherent view upfront, they risk pursuing a collection of ad hoc digital initiatives that ultimately fail to give their banks the best chance for success.

By developing a guiding vision, they can establish initiatives focused on four priorities, says the researchers. These include:

  • Reinvent the customer journey. Learn what matters most during critical points in the journey (and how such concerns vary among different customer segments) to improve the experience.
  • Discover the power of data. Use data analytics to understand customers better, identify business opportunities, and reduce costs.
  • Redefine the operating model. Alter the corporate banking relationship model to better account for customer needs and be open to collaboration.
  • Build a digitally driven organization. Clearly articulate that the digital transformation is a strategic priority and then support that strategy with appropriate funding, talent recruitment, openness to new agile ways of working, and a willingness to take risks.

Lack of readiness

While there is wide agreement that digitization will change the competitive landscape for retail banking, CIOs of conventional banks report that they are unprepared for battle. Less than half (43%) indicated that their organization has a clear digital strategy and vision for the corporate bank as well as a well-defined roadmap for digitization. Only 19% believe their organization has market-leading digital capabilities.

This lack of readiness is worrisome because the ‘digital transformation’ as a trend is already well under way among industry leaders. In particular, small and mid-market firms in BFSI are swiftly adopting highly standardized products and expect instant credit decisions. Change is also coming rapidly to the large-cap segment as platforms and aggregators increasingly disrupt exclusive advisory relationships between corporate banks and their large clients, which will put further pressure on already thin margins.

Over the next five years, the study estimates that, in some segments, digital providers and channels (including banks’ own digital channels) will capture at least 30% of corporate banking revenues.

Banks that don’t digitize fully or fast enough may find themselves in a downward spiral in terms of market share, revenues, and profits as newcomers and more nimble banks swoop in and take away customers while using their profits to continue to innovate, says the study.

Way forward for bank CIOs

According to the study, while most corporate banks have essentially the same business model, the future will bring a more diverse set of options.

“Opportunity exists for banking CIOs to strengthen their digital platforms by providing more services and improving quality of service provided through digital platforms. This will help in reducing reliance on branch channel for financial and non-financial transactions,” it says.

Besides, given non-linear cost structure of digital channels, the operational cost of transactions can reduce substantially once digital channels gain sufficient scale.

Retail banks should also leverage digital in their back office operations. For example, the study shows that digitalization of the credit appraisal process will help banks in making their processes standardized, boosting credit off-take significantly. The CIO along with top management support should work on strengthening of internal systems, such as loan management system and performance management system that can lead to further improvement in overall operational efficiency.

Big data analytics is also changing the way banks interact with customers. Banks are able to offer customized products and services, cross-sell and upsell different products using big data analytics. Some banks have started using big data analytics in select areas, such as lead generation, cross-sell, and retail loan underwriting. Banks can accentuate the efforts and invest in building dedicated teams for mining and leveraging big data.

To keep up with these developments, banking CIOs need to undertake front-to-back digital transformations. Only those that adeptly manage this extraordinarily challenging transition will survive and thrive in the future, the report concludes.


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