Few corners of our lives have remained untouched by tech innovation. The rise of a networked, tech-centric culture continues to disrupt almost every established industry, including travel, music, film and television, and transit. Behind each paradigm shift has been a fundamental change brought about by the way technology impacts both front- and back-end processes.
As travelers took control of booking their own flights and hotels, airlines and hotels used sophisticated algorithms to manage dynamic pricing, forecast demand, and drive operational efficiencies. Industries that fought these changes found themselves struggling to survive. Record companies that refused to embrace digital distribution watched while customers moved on to file sharing platforms and streaming start-ups cornered the industry.
Global financial services may be the next major sector in the sights of the digital revolution. According to McKinsey’s “The Rise of the Digital Bank,” European banks are facing a major technological crossroads. Surprisingly, retail banks across the Old Continent have only digitized “20 to 40 percent of their processes” and “90 percent of European banks invest less than 0.5 percent of their total spending on digital.” The situation, as McKinsey sees it, presents banks with an opportunity for significant cost-savings, but if banks are slow to embrace these technological solutions, they will find themselves at risk of losing out to aggressive start-ups.
Though banks have made moves to embrace web-based account access, mobile banking, and deeper self-service options at ATM machines, McKinsey believes “banks can realize 40 to 90 percent cost reductions in a range of internal processes through careful deployment of work-flow tools and self-servicing capabilities for customers and staff.” One area with significant opportunity for improvement is the mortgage application and underwriting process, where the conveniences of online lead generation quickly give way to tedious, antiquated, and consumer-unfriendly technologies such as photocopied and faxed documentation and application management.
Financial institutions have already experienced erosion in “high-turnover” areas of small consumer loans and payment processing. Traditional merchant point-of-sale processing has given way to third parties such as Square, and peer-to-peer loan platforms such as Prosper have provided online alternatives to community banks. McKinsey suggests that bank accounts and mortgages may also be susceptible to third parties as well. This is of major concern to traditional institutions, as “more than 50 percent of many banks’ revenues” will be impacted.
While this report focuses primarily on the state of European banks, it’s worth noting that financial services have long grown across borders and will continue to do so as emerging economies mature and look for opportunities around the world. In developing economies, many traditional banking structures have proven unusable, giving rise to technological solutions. In Africa, for example, mobile micropayment platforms provide populations access to services they were previously unable access. As networks expand into remote territories, technological flexibility and innovations in digital banking will be essential if established players wish to compete.
As banks increasingly digitize their services and extend them across borders, one of their major challenges will be linguistic. Many tech start-ups have already recognized that a strategy for a diversified, growing market share is adopting translation and localization early. Financial institutions will need to follow their lead. Translation and localization of their front- and back-end services will be an important step as they seek to cater to a diverse, international audience. Releasing and maintaining localized versions of apps, while an investment, will also be a way to manage risk while dramatically increasing the overall potential customer base.
If we’ve learned anything from the tech revolution, it’s that our assumptions about our most established institutions can be undermined and reinvented with astonishing speed. Today more than ever, banks have an opportunity to innovate — to leverage technology and strategic localization in order to remain relevant and competitive in our global economy.
