Cyberman №8 — Digital transformation, the future of banking and a song by Leonard Cohen
Welcome fellow Cyber people.
Every week, this newsletter will bring you a few interesting articles about contemporary human beings, machines, and interactions between them.
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Today, we will explore the digital transformation and the future of banking.
The Two Big Reasons That Digital Transformations Fail
The expected results often fail to materialize. Most of the leaders Harward Business Review surveyed (companies representing 17 countries and 13 industries) reported poor returns on their digital investments. The primary reason: unsuccessful efforts to scale digital innovations beyond early pilot work.
“What’s keeping companies from scaling pilots successfully? And what are the companies that are experiencing better returns on digital investments doing differently than the rest? To answer these questions, we asked the executives in our study to tell us in detail about their returns on digital investment (RODI). Then we looked at how well companies across our sample had scaled projects from the proof-of-concept stage. When we mapped those two critical parameters — higher-than-average returns and more successful scaling — we saw that 22%of our sample had demonstrated both.”
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“The steps we outline here are pieces of the puzzle of digital reinvention. They also can help secure needed funding for future investment. (Ninety-four percent of the executives in our study told us that obtaining board approval for that investment was a challenge.) When companies anticipate the challenges we’ve outlined here, they’re better positioned to make a compelling case for funding. And they’re much more likely to succeed with their innovations.”
Global banking annual review 2019: The last pit stop? Time for bold late-cycle moves
As growth slows, banks across the globe need to urgently consider a suite of radical organic or inorganic moves before we hit a downturn.
“What explains the difference between the 40 percent of banks that create value and the 60 percent that destroy it? In short, geography, scale, differentiation, and business model. On the first, we find that the domicile of a bank explains nearly 70 percent of underlying valuations. Consider the United States, where banks earn nearly ten percentage points more in returns than European banks do, implying starkly different environments. Then comes scale. Our research confirms that scale in banking, as in most industries, is generally correlated with stronger returns. Be it scale across a country, a region, or a client segment. Having said that, there are still small banks with niche propositions out there generating strong returns, but these are more the exception than the rule. Underlying constraints of a business model also have a significant role to play. Take the case of broker-dealers in the securities industry, where margins and volumes have been down sharply in this cycle. A scale leader in the right geography as a broker-dealer still doesn’t earn the cost of capital.”
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“Each bank is unique. The degrees of strategic freedom it enjoys depends on its business model, assets, and capabilities relative to peers, as well as on the stability of the market in which it operates.”
How Revolut delivers a great customer experience
In a few short years, the fintech app Revolut has amassed more than 7 million customers in over 29 countries. The UK venture offers everyday banking, pre-paid debit cards, credit cards, medical and device insurance, currency exchange, cryptocurrency exchange, stock trading, and more — all via an easy-to-use app.
“We all know that banking is a notoriously sticky business, and the majority of your customers probably wouldn’t switch even if they knew that there was a better solution out there.
But if you’re interested in capturing a new generation of users with certain expectations when it comes to frictionless user experience (and you’re serious about your ‘customer-centric’ mission statement), it might not hurt to have a look. See if you can go beyond the expected essentials with your offering by implementing similar features.”
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“We’ve noticed that some — not all — of the world’s largest banks are lagging behind nimble challengers like Revolut and similar companies such as N26 and Monzo. In my opinion, there are two key reasons for this:
1. They’re not aware of these solutions, so they’re still trying to invent when they could be copying. Experiencing your competitors’ services and trying to implement and improve on what works is often much more effective than gathering 40 people in a room to come up with ideas from scratch.
2. Their current business models don’t allow for some of the more innovative tactics employed by fintech startups and challenger banks. Adopting new strategies means their existing revenue streams might take a hit. For instance, banks have historically charged high mark-ups on exchange rates, so matching Revolut’s lower rates would (at first glance) be a difficult thing to sell internally.”
For the end of this issue listen to You Want It Darker, a song from the last album by legendary Leonard Cohen:
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