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COVID has upshifted the business landscape into turbo mode, leaving many organisations scrabbling around in its wake and trying to catch up. For the more traditional players in the financial sector, this inhalation of exhaust fumes as the new business climate drives on ahead has served as a wake-up call. Its need for digital transformation far preceded any sign of a pandemic. But COVID has finally driven traditional banks and insurance firms into the fast lane when it comes to tech investment.
Many organisations in the sector that had previously relied on legacy systems have had to completely restructure their services to cater for both existing and rapidly evolving customer needs – and a lot of finance and insurance firms have realised just how off the pace they are in terms of their internal operations. Much of this onus falls on the CFO, and a recent Lloyd’s Bank survey revealed that two thirds (62%) of senior leaders tied to outdated processes and systems plan to increase investment in technology and core systems for their respective financial institutions. Commenting on the research, Adrian Walkling, head of financial services at Lloyds Bank Commercial Banking states: “Technology is crucial to improving long-term productivity in the sector, competitiveness and creating high-value jobs.” However, this intention is tempered by research undertaken with EMEA insurance executives, where over a third (36%) cite support for technology adoption as a major challenge to such transformations.
Similarly, a report from Gartner highlights that while 82% of respondents indicated that advanced data analytics technologies and tools were a top priority, nearly as many, 78%, expected it to be difficult to successfully achieve their goals in this area next year.
Upon this balance of ‘want’ versus ‘can’, CFOs have been forced to carefully examine their organisation’s digital capabilities. Even if much of the wider business world has got a head start, there is still time for the financial sector to gain momentum and to get back on track. They just need a clearer understanding of the vehicle they’re driving and the road ahead.
Demand for a customer-centric experience
In the past, efforts to digitalise customer-facing processes may have been put on hold due to concerns around compliance, organisational resistance to change and scalability. However, today’s technological capabilities are more flexible, secure and compliant than ever. The challenge now will be balancing the demand for innovation – and the need to invest – with the necessity to maintain immediate IT cost savings in a rocky economic climate. For the CFO, driving the business on to compete, it’s essential to understand the value of all technology investments – legacy, new and purchased directly – to establish their role in the digital first world.
As competition hots up in the financial services sector, customers are now more connected and less forgiving. Financial and insurance products that would have previously warranted an in-branch appointment can now be carried out virtually. In fact, today’s tech-savvy customers are more engaged and drawn to brands that can provide a positive digital experience. This is echoed in PWC’s June 2020 survey, which revealed that 41% of insurance policyholders who had difficulties with their insurers due to a lack of digital capabilities are likely/more likely to switch providers.
This is putting monumental pressure on CFOs across financial organisations to invest in technologies that provide the digital-first experiences that consumers expect, without compromising on physical brand offerings, and while still delivering cost savings. To do so, CFOs need to have a transparent view of their costs, to correlate investment with the value delivered back to the business.
Chasing the digital natives
Contemplating which areas need digital investment, while managing strained budgets and resources, is a tough balancing act for CFOs. However, it is crucial in terms of gaining and maintaining a competitive edge in today’s embattled business landscape. With new, agile, online-only players entering the market such as Monzo, Revolut, Starling and Lemonade, customers now have more choice than ever before – and this should not be underestimated.
Customers are increasingly the ones in control, and choice has made them fickle: if their expectations aren’t met, they will simply go elsewhere. This means that for financial businesses to truly compete in a digital-first era, business leaders must prioritise investment in customer-centric initiatives that help improve and build on existing customer loyalty and corporate reputation.
Technology: the CFO’s vehicle of choice
As for the aforementioned bumps in the road ahead, strong competition and reducing customer loyalty are joined by the challenge of legacy technologies and outdated strategies as two additional barriers. Outdated core systems become so ingrained within these businesses that often they need complex enhancements and specialised skills in order to work around them. This is where a platform-based approach is becoming increasingly popular. Insurers and banks need an architecture that can scale and evolve rapidly, providing the ability to add new technologies as needed without disrupting integral underlying systems.
The cloud is perhaps one of the most popular solutions for the financial sector when pursuing innovation. Whilst many financial institutions already use cloud-based software for business processes such as customer relationship management, HR and financial accounting, the opportunity for cloud within core activities such as consumer payments, credit scoring, statements and billing is endless. Cloud-based services can reduce internal costs and optimise business growth by offering a much more scalable and reliable IT infrastructure that is specifically designed to streamline performance and support development and expansion.
Automation, Artificial Intelligence (AI) and Machine Learning are three of the technologies already identified as being crucial to the digitalisation of financial service organisations. As a prime example, automation in the insurance space can reduce the cost of a claims journey by as much as 30%, according to a McKinsey study. By streamlining mundane administrative processes, not only can tasks be sped up, but agents can be released to provide more customer-centric care and more personal elements of operations that will also contribute to greater customer loyalty.
A clear view of the road ahead
To retain as well as grow customer bases, it’s clear that financial institutions must prioritise technological investment in the year ahead. This in no mean feat at a time when budgets are constantly being assessed and under enhanced scrutiny. To combat this, organisations need to understand how their IT is being consumed and at what cost to reveal where efficiencies can be made. This is where financial management tools for enterprise services can help, as they enable businesses to gather vital and real-time operational, project and vendor cost data. This allows organisations to make fact-based decisions around IT spend based on informed scenario planning, and free up liquidity that can then be invested in new digital initiatives that add significant value.
This clarity and insight of current capabilities against future strategy is the direction that CFOs need to be pointing their vehicles. Digital transformation is no longer a future journey; it’s a race that has already begun, and one that traditional financial institutions are currently potentially losing. To tune up their operations when resources are tight is a thin lane to drive in. However, effective financial management tools represent the sat nav that CFOs require to make positive and smooth progression moving forward.
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