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New business models are revolutionizing the financial services sector. To stay in the competition, financial institutions must focus on innovating new business models, digitalizing services, and offering personalized user experiences. Companies must create new services in a lean, cost-effective way, while mitigating the risks related to transforming their current business and offerings.
This is possible through an approach and mindset referred to as a digital start-up — an innovative and fast way of achieving business renewals, creating new products and services and addressing new customer domains, for example, millennial consumers. It is essential to recognize that the digital start-up approach needs to be a top management initiative anchored with the overall strategy — if it is pigeonholed as only an IT project or a marketing engagement, it will not succeed.
The recent changes in regulation and consumer behavior as well as the entrance of new, disruptive and innovative players into the financial services market will fundamentally change how consumers see the players in the financial market. Consumers expect digital services with intuitive user experiences that provide personalized experiences with real value at the exactly correct time and location. This development has applied increasing pressure for traditional financial services companies to take a concrete digital leap. This day and age calls for more revolution. The traditional way of digitalizing business and services to serve future customer needs based on evolutionary development is too slow and inefficient.
To create new customer value and to achieve related business goals more quickly, financial services companies need to adopt the approach and mindset of a start-up. The digital start-up approach allows the uninterrupted operation of an existing business with its traditional offerings while focusing on the fast and agile development of all-new businesses and digital services — even through a new brand if needed. The digital start-up approach is an efficient and innovative way of accomplishing meaningful business renewals and system transformations. The approach enables development and testing of new business models and services, with shorter turnaround and time-to-market as well as less risk.
Digital start-ups have several benefits for financial sector players. Starting true innovation and revolution from a clean state through a digital start-up simplifies the process, enabling much faster time to market for new digital platforms and services. The digital start-up approach also enables existing products and services to be gradually migrated onto the new platform or to be eventually replaced altogether. Furthermore, large established financial institutions hold several advantages over new disruptive players — their stable customer base and on-going business provide an edge that needs to be fully leveraged to ensure future success.
The digital start-up approach also limits the investments required to change existing systems. The approach provides companies an opportunity to experiment with smaller investments and fewer organizational changes, thereby reducing associated risks.
Starting and running a digital start-up does not happen by itself. It must be a strategic business initiative, and not just a minor IT or marketing project. It needs to be a central part of the business strategy with full management support. To successfully make the big digital leap, top management needs to both drive efficiency in the current operations and make bold investments in developing new ones.
In their digital start-up efforts, financial sector companies should especially focus on innovating their customer experience. For consumers, the benefits of digital start-ups appear as targeted, easy-to-use and customizable services with a premium user experience. This could mean being offered customized additional and flexible travel insurance through a handy mobile service while checking in your expensive ski equipment on a flight, for example. It is extremely important to strive for and make investments in a personalized user experience. Customers increasingly care about how smoothly processes and services work for them — and not so much about who provides these services.
If financial services companies do not fully embrace the digital journey, they risk losing to the competition both within and outside of their industry. This has been a problem in the telecom sector in particular. As operators failed to create value-adding content for their services on top of their infrastructure and platforms, new players like Spotify and Netflix entered that space and leveraged that existing infrastructure to offer superior content services.
Indeed, the digital start-up approach puts the utilization of data at the center of how financial sector players operate and provide value to their customers. Today, data has an essential role in how companies operate and provide value for customers. The upcoming PSD2 directive and General Data Protection Regulation (GDPR) will also create more possibilities for utilizing data to add value for customers. At Tieto, we have already witnessed the success of digital start-ups with our clients. Through their renewed mindset and commitment, some of the financial services institutions we work with have addressed the elephant in the room by developing innovative ways to bring value to customers.
Taking the digital leap requires a fundamental change in the whole mindset of financial services operators. Will you be the one defining the modern digital financial institution and utilizing the digital possibilities to create new business — or will you be the one lagging behind?
This article originally appeared on perspectives.tieto.com.