The 5 Digital Transformation Identities of Financial Services Organizations

January 07, 2019

Contributor: Laurence Goasduff

Financial services firms take different routes and approaches to create value from digital business.

One-third of financial services CIOs identified digital as their top business priority for 2019, up by more than 8% from last year, according to Gartner. “Digital business usually means different things for financial services CIOs,” says Juergen Weiss, Practice Vice President at Gartner. “We can differentiate two completely different digital strategies in the financial services industry: Digital optimization and digital business transformation.”

Financial services business and IT leaders who focus on digital optimization are gradually improving and optimizing current business models, products, processes and customer experience, meaning the overall value propositions for each of these will not change.

“ Almost half of global financial services organizations are still in a very early or even immature stage of their digital transformation journey”

Digital business transformation introduces new business and IT capabilities that are the strategic foundation for a new, competitively robust, digital business model.

To evaluate the state of digital change within the financial services industry, Gartner analysts studied how financial services organizations create value (their approach to business models and IT strategies) and the way they operate (adoption of key emerging technologies and the organizational approaches to drive digital transformation).

“The survey findings helped us categorize financial services organizations into five different clusters that enable a much more granular analysis of the different digital strategies we find in the industry today,” says Weiss. “It’s remarkable that almost half of global financial services organizations are still in a very early or even immature stage of their digital transformation journey, as they fall either in the traditional business or early-stage digital clusters.”

Traditional business

The 26% of financial services organizations belonging to this cluster will typically rely on traditional business and growth within their existing markets as opposed to either process optimization or transformation via new technologies or business model expansion. For example, Ohio National announced it would cease selling annuities to focus on other lines of life insurance. Kansas City Life bought competitors to grow its footprint in its local market and product lines. Other insurance enterprises might lack the business case or culture for major changes.

Early-stage digital

Insurers and banking institutions falling into the early-stage digital cluster view talent as paramount to digital optimization. Therefore, hiring or training staff to work with digital technologies is at the forefront of this digital strategy. BMO Bank of Montreal, the regional winner of the annual Gartner Eye on Innovation Awards, created an entirely new way to pay bills by applying machine learning capabilities to recognize the biller, payee, account number, amount and due date across a range of corporations and statement formats. Gartner outlines the five digital clusters in which financial services organizations fall.

Digital fast-follower

Financial services companies falling into the digital fast-followers group take calculated risks in embracing new technologies or optimizing business processes. However, they will usually not pioneer innovation or bow out of their current value proposition. Some fast followers seek agility and speed to market to reduce response time to market changes or to competitors. Taishin International Bank in Taiwan, another 2018 regional Eye on Innovation Award winner, developed Richart, a complete digital experience with financial services provided through an app, with competitive, innovative and integrated products that are easily accessible by smartphone and laptop.

Digital innovator

Digital innovators are more technology-enabled and mature in how they embrace new approaches and strategies to improve. They are early adopters of new technologies such as blockchain and artificial intelligence (AI). These companies often seek technologies that can enhance customer experience by using chatbots and other tools to improve the customer service interaction. Bancolombia, which won an Eye on Innovation Award in 2017, was able to automate 40 business processes within the first year of a major robotic processing automation project, translating into a $1.4 million reduction in operational costs and a $7.5 million increase in the bank's income.

Digital transformer

Only 12% of financial services organizations are mature in their digital transformations and fall into the digital transformer cluster. Their top driver is disrupting the industry to unlock new areas for growth, enter new markets or create new revenue streams (like via data monetization). In this cluster, companies are more than doubling the rate of using technologies such as AI, blockchain or augmented analytics.

Allstate, AXA, Generali and other major global insurers have, for instance, implemented open APIs to expand their value chains and collaborate with third parties or affiliate partners. “For those companies, digital is the conduit to change and drive new revenue opportunities,” says Weiss.

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