Among the many discussions about how to modernize and transform companies in response to disruptive forces, Dell EMC CTO John Roese states that the IT industry faces a critical transitional phase:
“Whatever you think of the scalabilities of the current generation of infrastructure and how difficult they were, add about three zeros to every number you can imagine. That is what we are going to experience going forward.”
In other words, “We ain’t seen nothing yet.”
Financial institutions determining where to invest need to answer two key questions:
- Where do you begin – the core, compliance, payments or some other place – when you cannot do it all?
- How can you monetize the investment needed to modernize and transform your business? If not directly monetizable, how can you leverage your investment?
Rapid market changes call for revisiting your strategy
To optimize payback on investment, companies should first revisit their strategy. Start by answering a basic question: Who is the core customer – the customer upon whom you will focus resources to attract and retain – that will drive future revenue? Consider these facts:
- The “bread and butter” baby boomer – now 55-73 – will have limited needs for new products as their incomes have peaked and they enter retirement.
- Gen X – around 40-55 – is at or near peak earning and spending power and many of its members will benefit from wealth transfer.
- Millennials – around 19-39 – are divided into those climbing the earnings ladder and those just entering the labor force. Many are saddled with debt but many will benefit from wealth transfer.
Also, consider the changing expectations of consumers especially when it comes to speed and convenience of delivery. The “Amazon effect” has changed expectations around convenience and speed among the two-thirds of U.S. households, which are Prime members – and banking customers.
Given the convenience and speed associated with P2P apps, 44 percent of consumers are now users, according to Bank of America. They expect access to P2P but they don’t expect to pay for it. How can you leverage investment in P2P?
Define the core product strategy
Defining the core product strategy involves determining what product gaps must be filled to transition from the current to desired state. Financial institutions will engage in a balancing act between offering products that delight current “bread and butter” customers and deliver to the expectations of younger customers.
The good news is that the difference between what older consumers and younger consumers want continues to narrow, according to a recent study by Euromonitor. Aging consumers, especially the “mass affluent” are not anti-tech. FIS’ PACE study also shows that, except for mobile phone banking, baby boomers are just as likely to conduct their banking digitally these days as younger generations.
What product investments are “age agnostic” – capable of creating value for all segments by increasing engagement among the largest revenue-producing customer base yet providing opportunities to attract and cultivate loyalty from younger consumers facing significant life events?
Make purposeful investments
“Budget constraints will translate into adopting new technologies that are purposeful, need fulfilling and problem solving as funds for running after shiny objects dry up.” Jim Johnson, Head of FI Payments, FIS
Bankers should determine which investments are both transformational and in sync with their strategic goals – for example, expanding the customer base, deepening relationships with customers, or making the business more efficient.
Concurrently, the financial industry, including vendors, must maintain focus on investing in innovations that solve problems – new problems, and old problems that can be solved more efficiently.