Digital Disruption in BFSI and How to Avoid it in 2018
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Lots of things are happening in BFSI that will have disruptive implications for its incumbents. They can alter the future of banking, financial services and insurance companies. Traditional BFSI players should ignore these developments at their own risk because the disruption is already taking its toll globally.
Here’s my take on how digital disruption is panning out in BFSI globally, followed by a broad strategy that incumbents should adopt this year to stay ahead in the race. You can also click here to listen to my webinar recording on this topic.
Impact of Digital Disruption on BFSI Around the Globe
The writing on the wall is clear for traditional BFSI players—Don’t ignore the new digital channels to avoid falling out. This is because consumer preferences are changing and only those who can cater to them will grow. Banks around the globe are learning this the hard way.
Société General, France announced that it’s shutting down 15% of its branches and cutting up to 900 jobs by 2020. Royal Bank of Scotland announced that it will close 259 branches because its customers are increasingly shifting to online banking. Ulster Bank of Ireland also plans to close 11 of its branches, while down at home, Punjab National Bank plans to merge, re-locate, or close down 200-300 of its branches.
In insurance, customers are increasingly relying on insurtech solutions, either exclusively or with an established insurance company, according to World Insurance Report.
The Impact of Policies
Central governing bodies, RBI and IRDA have been actively rolling out policies to speed up digital transformation. RBI for instance, introduced small finance banks, payments banks, new digital payment methods (like UPI), and even announced mobile wallet interoperability, just to name a few. RBI even revised the very definition of a bank branch, terming it as a fixed service point or delivery unit that gives basic banking services, and is open at least 4 hours a day, 5 days a week. This expands the scope of who can open a bank branch and how it’s operated. On the insurance front, Flipkart has been seeking IRDA’s approval to sell insurance policies on its e-Commerce platform, while automobile dealers can now license themselves as motor insurance service providers.
All this certainly opens new avenues for traditional players, but it also increases competitive pressure multi-fold. In fact, competition can now come from anywhere, and is encouraging fintech and insurtech startups to flourish.
Fin-Tech & Insurtech Startups Disrupting most Core BFSI Services
The eco-system of fintech and insurtech startups is growing fast. They identify and tap niche, unexplored opportunities that either didn’t exist or were not really offered properly by the incumbents. As a result, they’re disrupting just about every segment that BFSI caters to, be it merchants, consumers, govt. or corporates. They’re using digital technologies and channels to offer everything from payments, lending, insurance, e-commerce, mobile wallets, personal finance, to trading.
The 6-Point Differentiation Strategy to Minimize Impact of Digital Disruption
These developments have made the market more competitive, so the big question before most incumbents is how should they differentiate themselves? What can they do to become disrupters instead of the disrupted?
Here are a few things they could do:
- Unbundle Services and Evolve Partnerships through Co-opetition
There are so many services offered in BFSI. By unbundling and breaking them down into smaller sub-services, niche opportunities can be identified and tapped. Never for instance, would banks have thought that payments could become such a big business, until PayTM showed the way. Similarly, aggregators like bankbazaar or policybazaar consolidated loan and insurance options from different players and made it easy for customers to choose. Today, their success is clearly visible from consumer response. Bankbazaar mobile app for instance crossed 1 million downloads in June this year. Similarly, UP transactions crossed 3 Crores in September–an 85% increase over the previous month.
In all these, BFSI players should look at either partnering with each other or with startups to stay in the game. Those who do it fast enough will benefit, while those who lag behind will end up cost cutting and closing branches as we just explained.
- Keep Close Track of Global Innovations
Besides unbundling services and identifying gaps, companies must also learn to innovate quickly, or somebody else will take the lead and benefit. There are some pretty good examples of this globally. Union Bank of Philippines for instance, recently opened ‘The Ark’, a physical branch without any teller counters. Customers who walk in are handed tablets or VR glasses, depending upon the service they desire. They’re playing on the experience being offered to customers.
Similarly, there’s Toffee, a new startup that offers micro-insurance for everyday moments, like an Anti-Dengue Toffee, or a commuter toffee or a globe trotter toffee. They are targeting the new generation in a completely different way, and making the process of buying insurance as easy as ‘buying a toffee’.
- Address BU-Specific Business Problems
- Evaluate These Game-Changing Technologies
- Develop These Skill Sets in the Team
A complete overhaul or digital transformation may not always be feasible. Companies must also identify specific areas in different BUs that need improvement. Digital innovation is a business call and not a technology decision, so companies must involve both business and IT to identify these areas, and prioritize on what’s more important for the business. Is it marketing to track consumer behavior and offer customized products? Or does customer need help in offering a more proactive and personalized experience at lower cost? Does the back-end BPM process need improvements to reduce human error and improve the turnaround time? Or do you need digital technologies to monitor processes and data for regulatory compliance, anti-money laundering, and risk management?
Identify the business problems and build a business case around them before choosing the technology.
Once a business case has been built, identifying the right digital technologies becomes easier, even though there are so many to choose from. Here are some emerging digital technologies worth exploring:
Chatbots: These are being explored by just about every player in the BFSI space. What’s important is to prioritize where it’s required more in your organization. is it to help customers choose a new product or service or is it to offer superior customer support?
Robotic Process Automation: This can help you automate processes that are rule-based and repeatable, so that teams can be freed up to focus on higher order skills. Dozens of processes can be automated with RPA to enhance productivity, improve customer response time and reduce human error.
Big Data and Analytics: These technologies become useful for analyzing huge amounts of data, like giving customized insurance packages, identifying credit-worthy customers for loans, increasing credit card limits for customers with good credit history, to name a few.
Blockchain: this is one such investment that holds great promise, and can be used for data sharing, tracking origin of transactions, fraud detection, cross-border remittance, to name a few.
Cloud: It allows for asset-light models with a lower cost of transactions by facilitating storage and sharing of data.
Artificial Intelligence: Though AI has been around for a while, but it’s becoming widely available only now. Banks could use AI tools to make better and faster decisions, like chatbots, machine learning, and even robo-advisers.
Besides technology, it’s important to gear up your team with new skills, like being able to do customer journey design, inculcate design thinking, train them on how new digital channels function, and allow them to do scenario analysis and planning.
6. Gear up your IT Infrastructure for Digital Innovations
As the digital era is fast moving, companies must be able to do both, innovate as well as fail quickly. But in order to leverage new technologies, they need the right IT infrastructure to make this happen. Most traditional banks are currently struggling with this.
In fact, according to a recent survey of 300 global banks by Infosys, the top three innovation challenges for them were legacy technology, systems integration, and the time and cost required to move from concept to reality.