Financial institutions aiming for long-term success need to revamp the way they think about digital transformation.
This article is reprinted with permission from the original.
There’s a great line in the movie The Princess Bride: “You keep using that word. I do not think it means what you think it means.”
“Inconceivable” is the word the movie character was referring to, but if we were to apply this quote to the financial services industry then the word that is constantly being used is “digital transformation”—and based on Cornerstone Advisors’ research, most credit unions have no idea what it means.
In our annual "What’s Going on in Banking" survey, Cornerstone asked executives at mid-size banks and credit unions, “What new products or services does your institution plan to launch in 2021?”
The number one answer was digital account opening, which tied with existing system modifications/improvements.
This is a perfect window into most financial institutions’ thinking on digital transformation: “There’s nothing wrong with our products. We’re losing ground to neobanks and other fintech companies because we haven’t digitized the delivery of our existing products and services. Therefore, our first priority for digital transformation must be digital account opening.”
I have bad news—there is something wrong with most credit unions’ products. It’s why traditional banks and credit unions of every size are losing ground to neobanks in the fight over primary checking accounts. It’s why buy now, pay later has suddenly become one of the hottest sectors in consumer banking. It’s why Stripe is the most highly valued venture-backed private company in the U.S.
The trait that all these companies share is that they are laser-focused on solving the entirety of their target customers’ problems.
This means building innovative financial products, yes, but more importantly, it means embedding those products into larger, interconnected ecosystems where their customers can go to address bigger, more meaningful problems; problems that often have little to do with financial services in the minds of those customers.
The shift from products to ecosystems is having a profound impact on the competitive dynamics within the financial services industry. Credit unions that hope to successfully navigate this shift and position themselves for long-term success need to completely revamp the way they are thinking about digital transformation and focus, first and foremost, on building digital ecosystems for their customers.
Alex Johnson is director/research/fintech at CUES strategic partner Cornerstone Advisors LLC, Scottsdale, Arizona.