According to market surveys, close to 90% of businesses in financial-intensive industries – banking, insurance, credit cards, payments, etc. – see digital disruption as a looming threat. Conversely, and with somewhat staggering disparity, only a fraction of those companies – for example, just 3% of banks –consider their organisations to be ‘extremely’ disruption proof. The first statistic should come as little surprise - the ongoing proliferation of innovative digital technologies is, after all, seeing every industry worldwide facing its own transformation. The second should cause more concern for those operating in the global financial services sector.
The breadth of the challenge that the sector faces from digitally disruptive technologies was set out in a research paper created by SourceMedia, a B2B business information firm; the paper was sponsored by FICO, a leading analytics organisation that uses advanced analytics and optimisation to improve business decision making and drive growth, profitability and customer engagement. The purpose of the research, focused on digital disruption, digital transformation and customer-centricity, was to learn about the perceptions of senior executives regarding the core advantages, disadvantages, opportunities and threats posed by such disruption. It found that digital disruption is “mercilessly changing the competitive landscape in the financial services industry” and that those companies that thrive will embrace change through a dedicated focus on making smarter, faster and more profitable decisions.
FICO can inform those decisions. The business is a leading proponent of digital decisioning through its Centralized Decisioning solution, a unifying infrastructure that enables businesses to use raw data to better inform decision making and greatly improve the customer centricity of products and services or, as FICO suggests, “to take the offensive and be a disruptor, not a disruptee”. Customer-centric services are a key driver of change in all industry sectors, and yet many are seeing difficulty in becoming more customer-centric - 44% of banks and 24% of fintechs, for example, are not confident in their ability to anticipate customer needs and proactively offer ideal products and services, as stated in the aforementioned research.
According to FICO, this shortfall in achieving customer centricity is a result of many businesses’ operational frameworks relying on siloed, on-premises systems, data and processes. “Typically, in financial services, there are multiple disconnected ways in which companies interact with customers; you can bank with one institution but have savings or checking accounts, credit cards, mortgages and investments. What’s holding many banks back from truly embracing digital transformation is their starting from a siloed set of systems that don’t view you as a customer, but rather, view you as an account,” explains Bill Waid, General Manager of FICO Decision Management.
For Waid, the provision of a true digital experience that breaks down the siloed approach in order to focus on the individual is driving digital disruption across many industry sectors worldwide. He references, for example, Amazon’s digital retail experience, which has revolutionised the traditional consumer dynamic. Although not at this level yet, the financial services sector, he concedes, is on the brink of such a transformation. “From a digital experience perspective,” he says, “the risk of being disrupted comes from the connection and the experience that the consumer has on a very individual level - does the bank or insurance company understand me? Is it offering me the right products and the right level of engagement for my specific needs, and does it give me optionality and anticipate what I may need before I have to ask? These are essential questions to answer and the challenge is that, when you move to something like the financial services sector, the depth of that experience becomes even more complicated because there are multiple ways in which companies can interact with the consumer.”
Although FICO is best known for working with many of the world’s leading financial services organisations, the company also works closely with some of the largest names across several other sectors. According to Waid, the company has seen and worked with some early adopters of this customer-centric mindset that are taking efforts to drive their digital strategy and improve consumer experience. “Alongside that, you have several followers but also, unfortunately, many laggards across the sector,” he adds. “The numbers of those that have already begun their digital transformation journey and made some progress are relatively small; it’s a much larger number of those that will ‘go next’, from our perspective.”
Alongside banking, FICO recognises growing interest from the insurance sector - another industry that has historically engaged with customers in a disparate, siloed manner. Kevin Deveau, Vice President & Managing Director, FICO Canada elaborates: “In insurance in particular, companies across the board are rapidly realising that keeping pace with this digital transformation of the sector really comes down to defining that customer journey - or the ‘customer 360’. The businesses that are on the wrong side of that are losing out and paying a price, but that’s rapidly becoming true for any customer-facing business.”
Insurers have, says Deveau, made steps in areas such as claims handling, which has seen a redefining of the journey from accident to resolving, for example. “But, increasingly we’re seeing insurers building out their engagement and involvement with the customer; they want to be closely aligned with them throughout all the relevant life events. We view the insurance sector in particular as shifting from a state of detect and repair to predict and prevent, and this is where a digital, decision-first platform such as ours comes in, being able to gather, analyse and connect siloed data in a real-time environment. This enables companies in any sector to be more nimble, to be proactive rather than reactive and to provide that level of customer experience that they need to in order to be successful.”
The challenge for both insurers and banks, concedes Deveau, is that while most are now actively seeking to engage their experience offering, a large majority are still embedded in legacy systems and technologies. FICO’s Centralised Decisioning, for example, connects all business-critical insights across an enterprise, enabling that decision making process to be optimised across an entire customer lifecycle. FICO recognises several traits of a ‘best-in-class’ decisioning process, including a unified, scalable decision platform that optimises and monetises the use of people, data and analytics; the ability to create personalised customer treatments at scale; the ability to validate and simulate decisions before they are put into production; and the creation and management of the strategies, rules and analytics that drive decision and actions.
To give some perspective on these being put into practice, FICO and SourceMedia’s research revealed that just 5% of banks are using all of the data at their disposal, only a third (37%) are confident in their ability to make accurate decisions in real time and 38% are very confident that their customers receive consistent service across all channels. Notably these figures are significantly higher across the board for fintech companies. On customer centricity, for example, it was found that fintechs are three times more ‘extremely confident’ that their customers receive personalised treatment. Similarly, business users in fintechs are more than twice as empowered to manage analytics strategies than their counterparts in banks; they are also noticeably more confident in their ability to make accurate decisions in real time.
“The initial perception, quite often, is ‘we are interested, we wish to improve, but how do we take all of our systems we have used for years - often decades - and make them talk to one another,” Bill states. “The short answer is, you can’t. It’s too complicated and too difficult. The fintechs have a leg up on those incumbent institutions because they started with the premise of having all their data and systems connected. Banks should understand that getting all their data into a decisioning process doesn’t require the moving of that data, it’s about ensuring that they can consume that data in real time.”
Waid affirms that this is where technologies such as machine learning and advanced analytics play a key role, enabling a rapid assessment and decisioning process based on the information presented in the data. “Customers of ours that adopt this approach tend to start with the limited data they have, deploy these advanced machine learning models and strategies, understand the data and the build in rapid succession,” he notes. “Once you begin on such a journey, you then have the flexibility to pull in even more data, further enrich your process and continue to build. It’s an incremental change that works at ‘digital pace’ rather than IT pace, and it’s working very well in financial services and also increasingly in insurance.”
Such a system, according to Deveau, is one that FICO offers and something that those in the industry should consider “the holy grail: bringing all of your data together, building the models and technology as rapidly as possible, and move to making decisions and acting in real time. It’s that approach that will bring the financial institutions and insurers to the levels of success seen by retail companies.”
In order to achieve this ‘holy grail’, FICO works with clients on three pillars. The first of these is the ability to attach data and data sources, stream that data in real time and apply analytics and strategies to understand it at a customer level. Secondly, organisations should use the rich/enriched data to make better decisions about a consumer and improve the level of user experience. Lastly, understand the impacts of how data is applied and the decisions that it leads to in terms of the wider business outcomes.
“We refer to this as business simulation,” says Waid, “and it’s all about the ability to make comparisons, to understand the outcome should you make changes, take more risks with a certain customer profile and so on. Some of our customers refer to this aspect as ‘the brain’, as it’s specifically focused on the wider intelligence around their business.”
Understandably, as is the case with businesses in many sectors that are wedded to legacy systems or a particular company culture, FICO sees some hesitancy to fully adopt these three pillars in too quick a success. Waid states his belief that, if you are to make changes you must do so with confidence, understand the process and embark on a true digital transformation journey, while Deveau notes that, while many of FICO’s customers begin with small steps, once they see the potential offered by its services growth follows in rapid succession. For any business, what moves the dial is results,” Waid adds. “Most of our clients see results when their first use case goes live. They see material impacts to their business very quickly and that commitment to change, that desire to take the organisation forward, means that they want more to follow.”