How to Develop a Digital Banking Strategy to Better Compete

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Editor's Note: To remain competitive, banks and credit unions must consider their digital transformation and digital banking strategy to be in sync with one another. 

This blog is not for you if your financial institution (FI) has millions of dollars and hundreds of people to invest in digital transformation. This blog is for banks and credit unions that do not and will likely never have this amount of firepower to apply to their efforts of remaining competitive in a world where digital is the default.  

Even for the biggest FIs, meeting the ever changing, increasingly demanding expectations of consumers is a non-trivial goal. For everyone else, it is the singular most important challenge they must meet to ensure that their institutions remain relevant.  Regardless of how many resources an institution has at its disposal, all elements of a digital transformation project must be executed in sync with one another starting with the bank’s or credit union’s digital banking strategy.

This may seem obvious to some and debatable to others. However, the correlation between a failed digital transformation project and generic digital banking strategies is strong. The casualties resulting from this unfortunate correlation has only just begun since the majority of regional and community institutions have yet to fully engage in the process. 

However, in five years or so, when the counting has been completed, the number of FIs that have failed to provide a digital banking/transformation offering will be high, if the experiences of futurist Scott Klososky are any indicator. In the 2018 keynote address at the Consumer Bankers Association conference, Klososky shared two pieces of insight into the mindset of FIs that do not bode well for the future of the banks and credit unions exhibiting such attributes.

  1. Klosoky noted that FIs constantly tell him they “want to be seventh,” referring to their wish to let six other banks and credit unions go to market with a new feature/function before they feel comfortable introducing their own version. 
  1. According to Klosoky, institutions that practice this approach almost always presented him with a generic digital banking strategy. “Repeatedly, I found that the organizations’ digital banking strategy was exactly like their competitors down the street. There was no differentiation or anything that provided any competitive leverage.”

So, how do FIs dependent on third parties who sell the same types of products and services to every bank or credit union realize a competitive advantage; avoid these traps; and reach the promised land? If you find your institution in this position, here are three areas to focus on to avoid being relegated to the land of the “digital dead.”

  1. Connect and Reconnect to End Users. The digital revolution was started by tech companies and is driven by consumers who thirst for convenience. In other words, the current context in which FIs operate is different than most conditions faced in the past in that, the consumer calls the dance, not the FI. This makes it more crucial than ever before that banks and credit unions establish a process that creates a continual feedback loop with their customers and members. This process, must be bi-directional; i.e., FIs must take in feedback and then report back to the end users to get additional feedback, etc.
  1. Identify What is Required. Though this may seem like a common sense step, many institutions only partially complete the process by considering their requirement list complete once the gaps to be filled to reach parity with the other FIs in the market. These are most likely the same institutions Kolosky spoke about in his keynote. Requirements and gaps should be identified for reaching parity with competitors; for establishing a competitive advantage in the present; and for maintaining that competitive advantage over the next five years.
  1. Evaluate Partners Based on a Five to Ten Year Digital Vision. FIs whose list of requirements stop at those needed to reach parity with competitors often make partner choices that are self-limiting. Typically, these banks and credit unions are distracted by “shiny objects,” causing them to fail to ask the kind of questions of potential partners that they should. This results in choices that lack scalability, increase complexity and increase cost within the existing IT infrastructure, and do not provide the kind of extensibility required to compete in the future.

An analyst at Gartner that I consider to be the “go to” person for assessing the state of digital banking, recently shared with me this thought: “The trouble is that too many institutions do not know what they don’t know, or what they should be asking the vendors they are evaluating or working with already.  This leaves the vendors with the task of educating the bank or credit union which is not exactly optimal since the vendors, after all, have the end goal of making a sale.” 

That said, there are other sources of education that are less partisan and can provide research as well as insights to help banks and credit unions choose partners that match their overall goals. Additionally, there are consultants who can help facilitate the creation of a digital banking and digital transformation strategy. However, beware of those consultants whose services include implementation as they often are predisposed to an answer that adds to their revenue streams. 

Bottom line:  Don’t wait to “go seventh” and do not accept a strategy for “me, too” parity from your digital team if your goal is to attract and retain consumers now and into the future.
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