The financial services industry is rapidly becoming a customer-centric industry. Unfortunately, not in the right place. Billions are poured into the front end: fancy websites, apps and elegant-looking access to investment portfolios. In the long term, customers, financial companies themselves and regulators would be better served by a comprehensive digital architecture.

Legacy Mindset Holding Us Back

There is no denying it, with (core) systems installed in the 1970s, 1980s and 1990s, banks, wealth and asset managers are ill-equipped to support today’s customers and the range of functions, flexibility and scalability they need. IT spending is up to billions, but mainly focused on delivering online capabilities like access to investment portfolios. So, it is no surprise that banks are not able to lower costs and their customers still receive the same standardized direct emails, see the same online (marketing) content and get the same robotic scripted customer service – for example, experiencing slow processing of address changes.

And Digitization is Much More Than a Cool App

Most of today’s digitization projects aim to improve the front end and the customer experience: nice-looking websites, mobile applications and robo-investor tools. Very often these digitization projects lack a true “digital proposition”. They fail to address the topic of a true and comprehensive digital architecture with at least a high degree of straight-through-processing (STP), accessible data and an audit trail. An audit trail will not result in valuable data for (regulatory) authorities or compliance departments only; applying even basic analytics can help you create new and improved services and lower costs.

Achieving Quantifiable Business Results

A true digital architecture and digital engagement tools can be used to manage client expectations, reduce attrition and realize efficiency. In short, it can provide tangible business returns. Wealth managers can reduce costs by 40%+ across the entire business line, increase conversion rates, lower the average customer age and manage the wealth proposition with only a fraction of the staff after implementing a true digital architecture.

Managing the Customer Life Cycle

The key to achieving quantifiable business results is to capture the entire life cycle of a retail customer, from the orientation phase, client onboarding, servicing and client maintenance to offboarding in one single digitized process.

Onboarding is Part of the Game

Onboarding is important, as your actual relationship starts here. Improving the customer journey can be easy and often starts with asking the right information at the right time.

Digitization Benefits All Types of Customer

A couple of years ago, most marketers in the financial services industry assumed that only the newer generations would be open to digital propositions.

The older generations were, and increasingly are, very active online, but the industry just didn’t know it. It is true that a digital proposition attracts a younger client base. But a well-tailored online proposition retains the older generations as they have also adapted to the digital world.

Recommendation: Did you know that by asking for the email address first when a visitor opens an online account, you are making your digital proposition more successful? If this simple field is supported by an automated workflow that frequently triggers the visitor, then you can have a retention rate of 25% of the visitors that aborted the onboarding process initially.

Ease for the Customer is Usually Easy for You

Aligning interests starts with not only knowing the customer, but also knowing what is happening in their lives and finding out whether life events can become touchpoints. Everywhere in mature markets, governments are receding from social security and pensions. This results in more financial responsibility for individuals, and this responsibility stretches throughout the lifespan. From saving for schooling and education, to saving to buy a house.

Most people know this rationally, but fail to anticipate it. Why? Partly because we live in a consumption and credit-driven economy, but also because it is just too much hassle to do something about it.

Client Service/Maintenance

How many people in the UK were logging into their investment portfolios the day after the Brexit vote? A true digital architecture would have predicted this behaviour based on a few simple business rules and pro-actively informed and reassured them.

Now is the age of data. Customers expect to be supported with alerts and nudged into taking charge of their own financial wellbeing. By empowering customers to take care of themselves, financial companies can raise client satisfaction, meet duty-of-care obligations and experience a reduction in operational workload and complaints.

A 30% reduction year on year in inbound telephone calls was realized by a wealth manager as customers felt more in charge with a digital proposition, and this went hand in hand with a significant increase in the net promotor score.

Compliance and Regulators are Also Part of the Fan Base

If the systems handle most operational compliance aspects (controls), banks can start thinking about a fundamental change in the role of compliance. In a truly digital world, compliance officers are sparring partners and business enablers who look ahead to provide robo-investor solutions and answer questions like: How many possible investment portfolios do I need to show in order to offer a value proposition for an execution-only service? Or: In which phase of the sales cycle should I ask what information of prospects and customers?

Digitization leads to a digital audit trail. An increased audit trail leads to more data for analytics, prediction and explanation.

In a digitized environment, compliance officers and regulators can never be blamed for frustrating product development and innovation or being unclear. In this sense, digitization leads to innovation.

Our experience shows that having a true digital architecture and using automated workflows and the power of data, compliance departments of 50 people can be reduced to approximately 15 when using digital and operational compliance to the max.

IT as a Foundation

A true digital architecture means that there is a modern, application programming interface-based (API-based) infrastructure in place. An architecture that has digitized STP core applications for administrating investment accounts, reporting modules, customer relationship management, portfolio builders and workflow managers.

Attention should be centred on an integrated flexible architecture that has a high degree of digitized STP that connects all data. Having accessible and integrated data is the foundation of an audit trail that captures the behaviour of the customer, his or her portfolio, the actions of the technology and the employees. For a multitude of reasons this is more important than ever, but with legacy systems still in place for most parties, harder to achieve. Data analytics will help manage client expectations, again reducing attrition and realizing efficiency and improved results.

Identify the Utility Part of Your Business

Most wealth managers, bank or asset managers will say that their operational processes are unique and differ very much from other financial companies. This belief has led to an industry-wide “spaghetti” of custom-made (legacy) software solutions running on old hardware. One could argue whether a reconciliation process or interest calculation process is really that different from one financial institution to another. After all, in most cases “a savings account is a savings account” and “an investment account is an investment account”.

Instead of finding arguments for why their institution really is different and has different operational processes, financial companies should better look for ways to answer three questions:

• Where do we want to add value for our customers?
• What is our core function as a business?
• Which processes are generic, do not add any value and are not a core function?

Financial companies can learn from the great retail brands of the world how to focus on a specific value discipline and build a brand around it: Apple, Nike and Zappos have done this and become leaders in their respective fields.

Just like the above-mentioned companies, financial companies should go back to their core and answer these three relatively simple questions. It would make a difference if they see the need to think differently, and not necessarily try to be different on every single aspect of their business. Defining the added value and core competences on the one hand, and assessing what processes are merely a utility and should be outsourced on the other hand, are the first steps in designing a digital backbone and finding the partner that can help to build it.

“Backboning” Your Financial Proposition

Innovation and technology are necessities to move forward. And increasingly, financial service providers have digital propositions and include some form of robo-investing, whether it is an execution-only, advised or discretionary asset management proposition. Online onboarding is quite normal, and these process flows have been optimized to achieve high conversion rates.

These initiatives have a strong focus on delivering digital propositions to an existing client base, targeting new clients and using a unique brand to reach a certain set of customers (more marketing machines than financial service companies). But a digital architecture goes further and should be the backbone of every financial proposition, as it will lead to happier customers, regulators, employees and shareholders.

A house without a strong foundation is like a digital proposition without a digital backbone. So all those apps and flashy portfolio tools should not be the start of digitization, but a logical consequence of it.