The FS sector is in transformation mode. It is not enough to have a FinTech collaboration or a team of in-house digital experts. FS institutions have to adjust their existing corporate culture and the overall business model significantly.
For several decades Financial Services followed the principal “Never change a running system”.
Changing regulatory requirements, cost and value pressure (e.g. strong Swiss franc), disruptive agents like FinTech companies, and changing customer behavior (e.g. on-line and mobile banking) challenge many aspects of the current business model and will force financial institutions to transform their business.
Digitalization, as part of innovation, plays a key role along this transformation journey for the finance industry regardless of the particular area of the business model it applies to – from risk monitoring and mitigating capabilities over back office processes to new products and services.
Capital market players have realized the need for change and concrete initiatives are underway: new technologies – like Big Data and Analytics – are getting the highest in-house strategic priority; collaboration with FinTech companies is fostered by venture capital funds, owned by financial institutions; digitalization-related roles are emerging and are represented up to board level, for example Chief Digital Officer.
However, very few Financial Sector companies were able to fully unlock the potential of implemented innovations and technologies in development.
What could be done to improve this performance?
1) Put disruptive innovation into the business context
More than half of Financial Service CIOs see digital disruption as a clear enabler for new business models, products & services, which will outperform the old ones. An important point, which is unfortunately still not fully recognized by many executives, is that digitalization is not a purely IT topic. Business and IT leaders have to jointly identify particular business model areas, the form and extent of innovation initiatives to be applied to achieve an optimal customer benefit together with a best possible competitive position on the market. Consequently all related value chain elements need to be adjusted or created.
2) Apply agile and modular techniques everywhere in your business
Capital market institutions are known for their slow go-to-market approaches. Competitive pressure together with increasing customer expectations regarding expected time frames for new products and services are forcing financial institutions to make timely decisions and to evolve faster. Apply agile techniques and methodologies everywhere in your business. Emphasize the modular “Lego block” principle: build discrete components that can be strung together, torn apart and re-built in a new way in minimal time.
3) Take a holistic approach to transformation
As mentioned above, digitalization is a multi-disciplinary, cross-hierarchical topic, which should be handled in a company with the right priority and appropriate governance: from tracking innovation trends and evaluating company-wide activities to resource planning and execution.
4) Have courage to innovate and be ready to fail
Failures go hand in hand with innovation (e.g. less than a half of Big Data Implementations are reported to have been successfully implemented over the past 12 months). Financial institutions are by nature conservative and reluctant to change, which is further reinforced by regulatory constrains. To overcome a fear of failure and to eliminate an impact on business operations, associated risks must be well assessed and a safe environment used.
Read further about FinTech Innovation, Big Data and many other factors playing a crucial role in the current transformation of Financial Services in the newly released Frontiers in Finance issue.
 CIO Survey 2015