One of the world’s leading consultancy groups, McKinsey & Company, has described the spread of digital technologies as “a do-or-die challenge” for banks.
It is right. In fact, the challenge is likely to be of a comparable scale across the whole financial services sector.
This, after all, is the age of ‘big data’. We are all growing ever more aware that new ways of using personal information are transforming how organisations of every conceivable kind work with consumers and each other.
Moreover, we have barely started to scratch the surface of what may be achieved.
A key issue for many consumers is whether their data will ultimately be used for them or against them.
Their fear is that the wealth of personal information they generate – in tandem with the additional data produced by every element of the supply chain that delivers the services they use – will be employed to harm rather than to help.
This poses a tremendous challenge for the financial services sector, where the concept of big data has provoked surprisingly little enthusiasm in certain quarters.
With many customers unlikely to wait for their providers to catch up with the digital revolution, how might we explain this enduring and potentially self-defeating reluctance – and, more significantly, how might it be overcome?
The truth is that in the great scheme of things, not least in light of the technology now widely available, most financial services firms have extremely limited relationships with their clients.
Their use of customer data is extraordinarily narrow – the digital equivalent of looking through a keyhole. For example, retailers that offer loyalty cards have a much bigger window on their customers’ lives.
This seems a remarkable state of affairs when we consider the relative importance to the consumer of a financial services provider versus, to continue the comparison, a retailer that offers a loyalty card.
It is even more remarkable when we consider that data is now commonly referred to as ‘the new oil’ and that financial services providers, as a rule, are not renowned for missing out on highly attractive, long-term trends.
It is possible, of course, that providers, like consumers, may harbour concerns about the security implications.
Yet if we look elsewhere in the world of commerce – the airline industry, for instance, where almost every stage of the customer experience has been relocated online during the past decade – we see such a stance is conspicuously out of step with the proactive approach favoured by other industries.
Cost, too, constitutes a weak defence. The competitive advantage enjoyed by those firms that make the transition quickly is liable to be substantial.
McKinsey has estimated that banks could cut up to 25 per cent of their cost base by embracing the move to digital.
Perhaps one perceived difficulty lies in the belief that big data is yet another milestone in the journey away from what we might call ‘the human touch’.