The royal commission inquiry into banks and financial services firms has rocked the Australian finance industry to its core.
The malpractice that has been revealed, including lying to regulators, alleged bribery, forged documents and mis-selling, is staggering and almost difficult to believe.
Only sadly, it is true, and the impact on the financial services industry will be felt for many years to come.
However, that impact extends beyond the legal and financial ramifications you may expect, to a significant negative knock-on effect on the banks’ digital transformation efforts.
The customer is now in total control of the way organisations do business and ‘digital’ has been thrust to the heart of a customer-first strategy. Businesses of all shapes and sizes are focused on ‘being digital’ in order to deliver the customer-centric service consumers expect.
However, the royal commission has undermined everyone’s stance on a customer-first strategy within financial services.
The banks can make promises about what they will deliver to their customers until they’re blue in the face, but the royal commission clearly shows these promises to be lies.
Financial services organisations are still out for themselves; they’re deceptive and focused on profit-making. The antithesis of ‘customer-first’.
This is unfortunate as the banks had actually been progressing well with digital transformation.
ANZ, in particular, has done great work over the last two years, implementing its “agile methodology” across the organisation and employing experienced female senior digital executives, but the royal commission has undermined all their efforts, and the banks have taken huge leaps backwards.
In a manner that’s reminiscent of the way US customers lost trust in the US banking system after the global financial crisis (GFC), customers in Australia are now questioning the sincerity of all their financial service providers.
So amid this environment of fear and distrust, non-traditional digital ‘disruptors’ are gaining traction. Homegrown start-ups had already emerged to address the issues facing traditional financial services providers and now customers are seeing the merit in moving away from traditional banks.
For example, SocietyOne is making peer-to-peer lending simple and profitable, and Prospa, a start-up that helps people with small business loans, is gaining momentum.
With blockchain going from strength to strength, alternative payment solutions such as BitPOS and Tyro Payments are becoming increasingly commonplace for consumers.
Over the next five years, automated services such as digital wallets and robo-investing will be the conventional way of transacting and before long, digital will ultimately be the platform for all banking services.
So what does that mean for the traditional financial services organisations? How can they come back from the distrust and ill-will created as a result of the royal commission and hold their own in a market disrupted by these new players?
Firstly, the banks need to win back customers’ trust and the only way they can do that is by getting on the front foot and creating the narrative.
Just as technology has led to a shift in the way Australians perceive financial institutions, it has also changed the way we consume information. CEOs need to use social channels such as twitter to create a dialogue with customers and apologise profusely.
The leaders of the US banks did so after the GFC and it needs to happen here, too.
But it’s easy to pay lip service to a new attitude. The Australian financial services organisations need to start living and breathing it, too. Once they can put the royal commission behind them, banks need to refocus on their customer-first strategy and start earning our trust back.
Whilst the industry overall has already invested heavily in technology-led back office transformations, this focus on improving internal systems needs to be weighed against customer demands for increased functionality as well as the industry’s need for increased cost efficiency and productivity of existing assets.
One way to do this could be to use AI technology to override previous services provided by middlemen or advisers.
Global Insurance companies such as Aviva and Manulife are investing more in automation with the objective of improving customer service, whilst reducing costs and commissions, but it remains to be seen how brave the banks will be when it comes to making use of AI technology.
Enabling customers to do more across all channels has been one consistent transformation implementation and one which has seen much success.
Mobile banking is reaching ubiquity and the concept of “open banking” has taken off. For example, banks are providing APIs to partners to use their banking services on third-party apps or sites, such as real estate sites where property buyers can research home loans and apply directly.
Increasingly, banks are looking to cross-industry partnerships to drive innovation. Earlier this month, CBA, Microsoft and KPMG joined forces to create a new start-up called Wiise, which will challenge the ASX-listed cloud accounting players Xero and MYOB by expanding their software offering for small to medium-sized businesses and integrating banking features.
It is still early days, but banks are recognising the benefits and constantly tweaking their respective partner strategies.
Gradually, banks are hiring more people with non-traditional skill sets who can add value in the digital space.
For example, ANZ brought in Mailie Carnegie from Google and other employees from eBay, Bain & Co and Woolworths. In order to ensure digital transformation maintains momentum, investment in people and digital capability needs to extend from individuals to full integration across the organisations.
So, banks are truly facing their day of reckoning. How they handle their customer-first transformation will determine whether they sink or swim in this new digital era.
Marcelo Silva is the founder and chief executive of Digital Transformation Scores.
