Accenture: Lead from the front while you fix the back end – Edwin van der Ouderaa
Banks have been pushing into the digital era for years now but how to find the right model for digital banking is still a hot topic for debate. Technology continues to evolve and innovations in product and service delivery are constantly changing the game, so how can banks develop a clear roadmap but still leave room to adapt? We asked Edwin van der Ouderaa, MD of financial services digital and analytics EALA/APAC at Accenture, to find out.
Traditionally, banks do not move quickly but today they must. They are large organisations that are fighting to keep up with new entrants to the industry that are not weighed down by legacy systems and can immediately leverage the capabilities of new technology to deliver dynamic and innovative services to their customers. In the battle for the future of digital banking traditional, banks have to keep up with the pace, while reworking or integrating their existing systems into a new kind of architecture.
The challenge for those banks is to figure out how to get the best of both worlds - at the same time delivering innovative services quickly in response to evolving customer needs, and also getting the most value out of their legacy systems and the wealth of customer data they hold.
"Everything evolves. We see a change in what banks are thinking about and conversations move on. At a tactical level, banks are looking at their product priorities. Lending, for instance, must become a real-time activity. It must be an 'in-the-moment' experience - a 'two-tap' experience," says Edwin van der Ouderaa, MD of financial services digital and analytics EALA/APAC at Accenture.
"For instance, if I am in a BMW garage, my bank should be able to use a geolocation system on my mobile and could recognise where I am. It should be able to figure out that I might be looking to buy a new car and suggest options for the finance I might need. Maybe it could pick up on the model I am interested in - possibly using the camera on my mobile - and give me finance options based on that. Some banks do this kind of dynamic lending already, but most are looking at it as a necessity for the future."
Follow the roadmap
Accenture has developed a 'Two-Speed Banking Transformational Road Map' to help clients in the financial services industry move quickly into the digital age in a cost-efficient and agile way that allows them to gradually transition their business model while still taking advantage of new technological capability in the short term.
"Now, many banks have also developed a real-time mortgage application. Within the next two years, customers will think it bizarre if they cannot get a mortgage quote when they are standing in front of a house they might want to buy. They want to know instantly if they can afford the house. They want answers 'in the moment' and banks must be able to give them those answers," says van der Ouderaa.
"In the future, many sales will happen within ecosystems - at the moment when customers are having those important life experiences like buying a new house. Banks have to look to GAFA - Google, Apple, Facebook and Android - because they are present 'in the moment' and when those companies move into financial services they commoditise them. It is all about who owns the customer experience in the present moment and that is the battle the banks must win."
Find a reason to exist
One of the advantages of being able to respond to customers' key life experiences with new services that can be brought to market quickly is that it allows banks to put themselves at the heart of transaction flows that touch different customer segments. For instance, banks can be part of the ecosystem linking those individual customer experiences to corporate clients large and small.
"When they create those ecosystem experiences they can reach out to big international brands and to local SMEs when customers are looking for products and services. It is what Yellow Pages used to be for. If a customer needs a plumber, for example, the 'home' ecosystem that the bank organises could have a function to suggest the best-rated local plumbers. The ecosystem provides a channel for SMEs, which are bank customers, too," van der Ouderaa explains.
"There is also the option to integrate payments systems further with accounting packages for SMEs. By seeing the real cash flows of a business, banks can reassess credit scores largely automatically and know better when to provide working capital or investment credit. Big data analytics help to separate the healthy from the struggling SME through 'companies-like-you' techniques. Several banks are already doing this through white-labelled or explicitly co-branded end-to-end accounting solutions in the cloud."
Taking advantages of such opportunities for innovation in the short term is an essential part of any bank's digital journey, but the long-term strategic journey is equally important. At this level, banks have to ask themselves more profound and existential questions, particularly as their role in the flow of financial services is under attack from fintech companies.
"Banks are wondering about what their role will be in the future. Fintech companies are eating away at them so do they retreat to be just a balance sheet or can they perhaps use fintech as new channels? Some banks are doing the latter by creating an API architecture and an incubator for fintech. They are opening up their APIs to the creativity of fintech companies, which is a smart way to harness young talent. Few banks have used fintech well so far, but we are seeing banks start to create ecosystems and in the future these will come from the fintechs," suggests van der Ouderaa.
"The fintechs can manage the 'my house' aspirational experience like, for example, Sunday.dk, but behind that the banks can run the mortgage API."
What van der Ouderaa expects to see is banks offering different models to suit different customer segments. For instance, the older generation will expect the kind of service delivery familiar through online banking, while older millennials will want a bank based on apps. Younger millennials, meanwhile, will expect something similar to the chat apps they use so often.
"For the younger generation, everything is about chat apps - Instagram, Snapchat, WhatsApp - which are all about conversations. In China there is WeBank, the country's first internet bank, which sits on top of the WeChat app developed by Tencent. So, the overall banking model of the future must incorporate the older style bank, the app bank and the chat bank. All these different form factors will define the bank of the future," he says.
Ride on the shark fins
Given the changing times, the new variables that come into play and the need for constant innovation, how does Accenture's Two-Speed Banking Transformational Road Map incorporate the many different components of the bank of the future, create a reliable template for long-term transition, and also provide enough room for manoeuvre when new opportunities and new challenges arise every day?
"So much is happening. The future is being reinvented every day. That is why our roadmap has flexibility built in. It is a two-speed roadmap. In the digital world new things can be invented, grow and then die very quickly when they are superseded. Imagine seeing a shark fin in the water - it rises and then descends into the water very quickly. We must view innovation as a series of shark fins," believes van der Ouderaa.
"Any change to back-end systems in a bank takes time, but you can attach these shark fins very quickly. For instance, with real-time mortgages you can deploy in six months but the back end cannot move that fast, so you use temporary APIs, robotics and other techniques to attach the shark fins to the old, ugly legacy technology. Then as the back end changes you adapt the interfaces, which ultimately are cost-neutral as they pay back quickly on investment by enabling new services and tactical cost reductions."
The shark fins enable a bank to experiment quickly and use customer reaction to new services to inform and reshape the development of back-end systems. With this approach, the Accenture roadmap becomes a reliable guide but also a responsive mechanism to enable meaningful long-term change without a bank ever having to step out of the game while it undergoes a complete systems overhaul. After all, the best way to make sure any back-end change meets the needs of the future is to be in the vanguard that is creating that future.