The Corona crisis served as a catalyst for an evolution in the financial services industry that was already ongoing: the digitization of products and services. A commissioned survey conducted by Forrester Consulting on behalf of TrustBuilder in March 2021 demonstrates that not all banks and insurance companies follow the same timeline when it comes to digitization. It is clear that some banks are moving faster than others, yet a large majority of them regard connecting to third-party services as a priority.
Financial services players face manifold challenges. While it is not yet clear what the future role may be of big tech (Amazon, Apple, Facebook) in their market, banks are clearly under pressure from FinTechs. These entrants in the market offer specific functionality that excels in ease of use and eat into the margins of traditional banks. Open Banking, which forces banks to work together with their competitors brings other challenges, and COVID-19 provided an adrenaline rush for banks’ digital transformation.
Banking apps become lifestyle engagement hubs
As our Financial Service State-of-the-Market study shows, digital ecosystems have become the holy grail of financial services. Forward-looking banks and insurance companies are enhancing their business models by offering services that are outside of their traditional banking solutions. Banks are extending their banking apps to become lifestyle engagement hubs, connecting with external offerings like mobility services. Financial services companies can outpace the competition if they add these services faster than the market.
UK challenger bank Starling Bank is offering external services on top of its current account application to save itself the trouble of developing these services in-house. Their marketplace offers mortgages from Habito, for instance. That way, they can deliver a total solution to their customers, without having the overhead of developing and financing that particular application. In Asia and Asia Pacific, the same trend exists, for instance with Alipay that offers a full suite of services. And Spain’s Imagin Bank caters to the lifestyle habits of millennials by adding music services, online gaming and even a web shop that sells smartphones.
Financial services companies are growing in digital maturity
The survey showed that maturity is growing among European banks and insurance companies too to set up digital ecosystems. Asked about their strategic priorities:
- 68% set launching new business models to generate new revenue streams as a priority.
- 66% aim at expanding into adjacent markets by developing their own marketplace or ecosystem, while 59% aim to participate in marketplaces and ecosystems.
- 65% prioritize better integration for customers between their own and third-party provider solutions and 53% prioritize offering customers third-party services alongside their own.
As the shift to digital services will only accelerate over the next few years, digitizing financial products and services and improving customer experience are every financial firm’s top priority. When it comes to ecosystem maturity, the survey showed a limited number of leaders and a large majority of novices.
Security is a common challenge across financial services
Based on the results of the study, TrustBuilder refined its digital maturity model and now groups financial services companies in five different stages of maturity: Digital Developers, Experience Experts, Connected Companies, Ecosystem Extenders and Monetizing Masters.
It is no surprise that security and customer data are a common challenge for any financial services company, regardless of the maturity stage a firm finds itself in. Banks and insurance companies need to beef up their security as they open up their platforms and exchange more data with third parties. In our study, 41% of respondents see updating their security mechanisms to improve user experience of their digital products and services as a high priority. And 33% of participants call it a critical priority.
Assessing digital maturity of financial services in 2021
For financial firms, it may not always be clear what their current maturity stage is, nor what specific security challenges to address. That’s why TrustBuilder developed a maturity assessment tool. This assessment helps in identifying the current state of companies, detects the roadblocks that are holding organizations back from moving up the maturity curve. And, of course, the assessment also provides guidance on how to clear those roadblocks.
If you are interested in a maturity assessment, let us know here.
You can also download the Financial Service State-of-the-Market study or rewatch our webinar with Forrester Senior Analyst Jacob Morgan.