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Constant, disruptive change is the new normal for organizations. Future success will be determined by their ability to transform not just once, but continuously. We call this “digital sustainability,” and we built a data-driven index to analyze what digitally sustainable organizations do differently. In this series, we share key findings from the research, including the leadership and organizational capabilities needed to thrive in the digital world.
These days you don’t need cash, credit cards, or even a wallet to buy things. All you need is your smartphone. The linking of bank accounts, payment services, lenders, creditors, retailers and more by technology has literally put our entire financial lives in the palm of our hands. This, in turn, has led to a surge in competition from non-financial institutions in traditional banking operations and heightened the importance of a simple and seamless digital banking experience for customers.
A meta-study commissioned by Korn Ferry and conducted by Oxford Analytica and the Korn Ferry Institute on digital sustainability, or the capacity of organizations to continually transform to respond to digital change, found that the Financial Services industry outperformed all other sectors, including the Technology industry itself. Overall, Financial Services’ digital sustainability score totaled 73/100, far outpacing the Technology, Life Sciences & Healthcare, Industrials, and Consumer industries.
“Consumer demand led the first wave of digital transformation in financial services; customer centricity took it to the next level,” said John Petzold, global co-head of FinTech and global leader, CXO Optimization at Korn Ferry. “Financial services was historically a bit behind, creating an interesting ‘leapfrog’ effect wherein lack of current infrastructure led them to create more forward-looking efforts than other industries.”
The global study created an index of digital sustainability by combining proprietary and publicly available data from nearly 400 companies across five industries and 14 countries to quantify digital sustainability. Performance was evaluated based on data in five key areas— agility, connectivity, openness and transparency, empowerment and alignment variables and discipline and focus—and summed to form a final index score out of 100. In terms of financial performance, our research shows that digitally sustainable companies enjoy higher profit margins than their peers—a 10-point raise in Digital Sustainability Index scores leads to a 1.5 percentage point increase in profitability margins (EBITDA).
Both traditional and non-traditional financial services companies have excelled at creating new, relevant, and authentic digital experiences that meet not only the expectations of current customers, but also the demands of potential new ones. There are new payment services, including Venmo and Square, online lenders, such as Lending Club and SoFi, and robo-wealth advisors Wealthfront and Betterment.
Traditional banks have also upped their digital experience game. Bank of America, for instance, caused a stir a few years ago with its unlikely partnership with Vice News on a video series on personal and macro financial issues for millennials. A more recent example is the introduction of cardless options to access A.T.M machines (customers use their smartphones). JP Morgan’s partnership with Ondeck Capital, which leverages the latter’s open platform to serve small business customers more efficiently, is another example.
“The new starting point for many organizations will no longer be product or line of business. It will be digital customer experience. Products, customer service models, and operations will be in service of that,” said Brett Pitts, head of digital at Wells Fargo. “This transformation represents an existential challenge for most industries and is incredibly worthwhile to undertake – successfully done, it orients the organization around customers and employees and puts the right business and technology support in-place to build competitiveness and prepare the company for the next decade.
Korn Ferry research shows that focusing on creating effective customer journeys by providing utility with speed and simplicity, building trust through authenticity and relevancy, and designing experiences that go beyond just transactions will be the blueprint for the digitally sustainable financial services enterprise of the future.
Still, significant challenges remain. Agility tends to be an issue with financial services companies because the strong correlation to the regulatory environment impedes progress. Fintechs and areas like sub-Saharan Africa are actually more agile than traditional financial services companies in established regions because they don’t need approval for different regulatory bodies or lack legacy banking infrastructure. The sheer size of most financial services companies also poses problems for transformation, as does their naturally higher risk management needs.
“Customers have unlimited options in how they transact with one another and with the financial system,” said Melissa Swift, Korn Ferry’s global leader for digital solutions. “Large financial services companies still have unparalleled access to large customer bases, and if they are nimble this can be an enduring source of competitor advantage.”