The banking industry is being told, hourly it seems, to embrace “digital transformation.” But digital transformation has become such an overused buzzword pairing that it has lost almost all meaning.
The idea it represents, though — the ability to adapt to current needs and norms — has always been with us. History is fraught with examples of this, some of which may prove instructive. I’d like to share one that I find useful. It might not feel like it’s related to banking — but bear with me.
A simple cure, forgotten
In 1747, Scottish physician James Lind proved that citrus fruits were an effective cure for the potentially fatal disease scurvy. He did so in one of the earliest controlled medical experiments; it was a discovery that was sure to save countless lives, particularly those of sailors on long voyages with limited diets. And by the turn of the next century, all British Royal Navy ships in foreign service were ordered to serve lemon juice daily.
Eventually, though, the introduction of steam-powered vessels led to shorter, faster voyages. The British Royal Navy stopped thinking about scurvy until half the crew of the 1875 Arctic expeditions came down with it. Around the same time, there was a rash of scurvy among children in the British upper-class, and the disease also ravaged the U.S. during the Civil War.
Remember, this was an illness that had already been cured — more than once, in fact. Portuguese explorer Vasco de Gama had made the citrus-scurvy connection 250 years before Lind’s experiment.
And then, somehow, one of the richest, most educated, most powerful and most scientifically advanced nations in the world completely forgot the cause and cure for scurvy — and didn’t relearn it for nearly 100 years.
The problem, the forgetting, was caused by innovation — by technology and economics.
While steam-powered ships led to quicker trips, the Royal British Navy also traded their supply of lemons for limes, which had a much lower concentration of vitamin C, but were in easier, cheaper supply in a number of British colonies. Worse, they started boiling the juice to create more easily stored, “innovative” syrup formulas, rendering it ineffective. Many assumed they’d been wrong about the benefits of citrus. Most sailors and explorers moved on from the idea. And the cure disappeared. Again. Just like it had fallen away following Vasco de Gama’s discovery.
Technology changed how nations set out to sea and it blinded them to what they already knew, until eventually they forgot it. Until they had to learn it again — the hard way. The point here is that when things change, especially technology, people are very good at forgetting.
Banks have known forever that their success is tied to trust. Traditionally, that trust has been tied to branch visits. As interactions shift to digital channels, that face-to-face trust is getting lost and, to date, it’s rarely being replaced by something as effective or sticky as that personal interaction. Their “cure,” to follow our vitamin C metaphor, has gotten lost in the shuffle of changing technology.
The components of digital transformation
What does all this have to do with digital transformation? To make our case, we’re going to break down digital a bit.
Think of it this way. There are three primary components to success in the digital channel: engagement, operations and trust. Critics of the banking industry might argue that financial institutions are a bit behind the curve on all of these, but there’s a case to be made that banks are managing the first two quite well. In fact, operations and engagement are the table stakes of digital banking. If you’re a bank, you’ve likely got these covered.
What we call digital today really began as an engagement or networking channel. While not every community bank has a huge marketing budget, most understand and carry out the business of building and sustaining engagement pretty effectively.
Operations came next as digital evolved — workflows and design tools were developed around this new engagement channel and FIs have done a solid job structuring their operations around digital. Is there room for improvement? Of course, but only inasmuch as digital keeps rapidly evolving, there are opportunities to evolve with it.
The third piece, trust, has been harder to build in the digital channel, but it may be the most important. It’s crucial not only because it is valuable on its own merits, but because it amplifies the value of the other two.
This missing piece, trust, isn’t a fault of the digital channel itself. The issue, at least in part, is that transactions on a mobile app don’t — and aren’t meant to — replace personal interactions in a one-to-one way. The business gets done, yes, but the relationship isn’t fully realized.
Compounding the challenge is the fact that branch visits are shrinking while digital is growing. The COVID-19 pandemic has really put a spotlight on this. In the last year, we’ve seen one of the most dramatic spikes in digital adoption and demand since the introduction of the iPhone.
This trajectory will level off, but a new bar has been set. Dependence on digital channels and expectations around them will only increase.
On a positive note, banks should be proud of the impact they made through COVID. The rollout of PPP loans showed that the industry is capable of adapting quickly to new needs and challenges and helping their customers through trying times.
That said, a great many sources are worried that FIs need to adapt to the digital world more quickly and more completely — or else they may lose up to 40 percent of their revenue to digital-first competition.
Trust in the digital channel is built over time and across many experiences — the same as it’s built in the analog world.
Trust = Reliance, Convenience = Loyalty
There is no silver bullet; no single solution can create digital trust. A lone mobile transaction doesn’t create confidence or inspire your customers to fully rely on you. Trust in the digital channel is built over time and across many experiences — the same as it’s built in the analog world.
Consider the performance and habits of best-in-class e-commerce companies like Amazon. From initial sign-up, they deliver good customer experiences. Early in their existence, they discovered the value of UX (read about their $300M button in The Navigation Revolution) and they haven’t stopped learning, changing and growing.
When you add an item to your cart and it says, “FREE Delivery: Tomorrow,” you believe the item will be delivered tomorrow. You trust it. When you check the status on your phone later, it jives with your desktop experience. And when their data recommends related items, those recommendations actually make sense.
Amazon does what they say, and they say what they do. And they do a lot. And, because they’ve been reliable in what they’ve done to date, most of us trust that they’ll do new things well too — including financial services.
We’re living in an era of aggregators, AI, recommendation engines and seamless, mobile experiences. Relationships and trust are built on your ability to use these technologies and strategies to deliver consistently and conveniently.
As I said above, digital transactions aren’t a one-to-one replacement for in-person interactions, but they aren’t meant to be and don’t need to be. Digital trust is a different flavor than personal trust, but it has the potential to deliver rewards just as great, if not greater.
It’s possible, for example, for banks to offer account opening that’s as efficient as best-in-class e-commerce sites; to use data to generate relevant, timely recommendations; and to host an Appstore-like marketplace within their online or mobile banking application with all of the financial tools that consumers or small businesses need.
The degree of customer engagement that FIs could be experiencing is limited only by how much they offer and how well they deliver on their promises.
A lime is not a lemon
Returning to my historical example, the perceived failures or limitations of digital technology are analogous to expecting limes to be lemons. When financial institutions expect digital interactions to deliver the same results, data or engagement as person-to-person relationships, they’re doing the wrong math. And the converse is true as well.
No one expects a trip to Target to be exactly the same as an online purchase. What they do expect is for the transaction to deliver on its promises.
To be successful in either channel — digital or in-person — financial institutions need to be fully prepared for either. Put another way, a quick crossing of the English Channel by steam doesn’t require a crate of lemons, but an Arctic expedition might.
Though it’s been partially lost beneath a flurry of technological changes over the last decade, at the end of the day, banks know that trust is their vitamin C — it’s the cure to whatever disconnects may emerge in the digital age. It’s easy to forget that — and to plant flags in what seem like polar opposites: the personal, friendly branch or the cold, data-crunching digital world. But it’s possible to create and nurture trust in both.
Institutions looking to build digital trust should develop strategies like faster digital onboarding and convenient (not to mention revenue-generating) marketplaces in their online banking.
Digital can be a channel where engagement thrives — where future-minded FIs can look forward to deeper, if different, customer relationships.
Innovation doesn’t have to deliver amnesia; it can equip FIs for opportunity, exploration — like those sailors of centuries past — and the discovery of uncharted (and profitable) territories.
Greg Varnell has worked in the financial technology arena for two decades, with more than 10 years at Q2. He’s responsible for creating and growing Q2’s Caliper SDK and currently oversees the Q2 Partner Marketplace, a key strategic component of Q2’s Innovation Studio. Varnell holds a Bachelor of Business Administration in Business Management from the University of Texas at Austin.