Incumbent FIs attempt to create agile operations

Established financial services should build around agility, writes Peter Hewlett, partner, AT Kearney

19 October 2018

Many large, global financial services institutions are facing mounting pressure from new, tech-first competitors. The continued rise of fintech, the emergence of Open Banking and a desire by regulators to promote a more competitive financial services market have all led to real change in the banking industry.

Companies which have historically been seen as incumbents, such as Aviva, Legal and General and ING, amongst others, are rapidly realising the need to adapt, and are realigning their business to deliver quicker, more cost-effective solutions. As an example of the importance of meeting new challenges head on, ING, an organisation with customer deposits of close to €540bn across the globe, describes itself as a tech company that operates in financial services, rather than a bank.

Banks, insurers and asset managers are embracing agile working methods because it offers them the ability to deliver new propositions, be more innovative and creative and, crucially, respond to demand.

For the next era of financial services, agile working allows for the ability to quickly respond to change and trends. This agility is of course built into the operations of ‘digitally native’ challenger banks and GAFAs. But for traditional incumbents, becoming agile allows them to deliver innovative solutions for clients and customers more efficiently and cost-effectively. Changes of this kind are a must for banks if they want to match the pace of change of their digitally native competitors.

A key component of Open Banking is the data that can be harnessed – and by using agile working practices, new initiatives and customer incentives can quickly be proposed and set up based on the data story. What this means is that customer personas and changing customer behaviours can be quickly accommodated by banks and reflected in their product and pricing strategies. Agile working provides key benefits to the front and back office.

However, transforming to an agile model is not without its challenges. Organisations must first decide what they want to achieve by ‘becoming agile’ and then decide how much of their organisation they want to ‘migrate’. Many organisations are starting with “low hanging fruits” – introducing agile to the functions most suitable: product and proposition development, customer service and IT change and then subsequently scaling out from there.  However, some organisations with a high appetite for risk are deciding that a big bang change is required to stay relevant in this rapidly evolving industry. 

It is important that all areas of the business feel empowered by the change to agile, even if their own area is not initially involved in its implementation. For banks to succeed the corporate functions of HR, compliance and risk will play a key role in the roll-out of agile working, although they may not be part of the agile model themselves. The areas of compliance and risk are traditionally conservative, which do not lend themselves to agile, and agile practices should not be imposed for the sake of it. For agile to work in practice, all areas of a business must be engaged and on board with what agile means, as well the benefits it brings to the wider business. Getting the right organisational architecture in place is paramount. 

For many banks and other financial institutions, reconciling agile ways of working with legacy practice may prove hard for an industry that has traditionally been slow to embrace change. The best practice for financial services and other organisations in looking to integrate agile working into their operations is to look to their culture. This means fostering a collaborative working environment where agile and non-agile teams work collaboratively and not in siloes to achieve a common end-goal. Promoting an inclusive attitude to the debate around change and agility and highlighting the myriad of benefits that agile working offers is a good starting point. Change will only be adopted successfully if the benefits are seen and understood by those who are impacted by it.  A cultural change needs to underpin structural change, so that new ways of working are reinforced. To aid this move to agile, banks need to be clear on their reasons for its adoption, ensure that the organisation has the processes and infrastructure to cope with the changing business focus.

Retail banking is changing rapidly, with a much greater focus on digital solutions, and a move to deliver personalised solutions for customers and away from a one-size fits all solution. The agile revolution has just begun and brings with it tremendous opportunities to truly deliver change. The possibilities and opportunities have yet to be fully realised. By using agile solutions reaching these goals can be achieved sooner, and more cost effectively. We estimate that Open Banking is expected to generate value in excess of £7bn by 2022, so the opportunity is very real and organisations will need to be agile in order to capture it. It is up to financial services companies to make sure that they are well positioned to meet this growth and do not get left behind by their more agile competitors.

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