United Kingdom Financial Services Digital Readiness Report. Moving from Strategy to Sustainable Business

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1 United Kingdom Financial Services Digital Readiness Report Moving from Strategy to Sustainable Business

2 Executive Summary When it comes to strategy, it s no longer good enough to just talk a good digital game banks and insurers have to actually deliver on their digital plans. Today s financial services (FS) customers expect effortless and convenient digital experiences just like the ones they get from other sectors like retail and technology which, in our study, scored higher than banking and insurance. Banks and insurers should be digitising the entire customer experience, rather than simply digitising their product propositions. By doing so, they can help to manage the threat posed by potential new market entrants (e.g. Google, Amazon and Uber) who are significantly more advanced when it comes to doing digital, and who already know the customer very well indeed. Similarly, institutional investors expect banks and insurers to be doing digital and to be seen to be doing it. In today s more volatile stock markets, having clear KPIs and reporting around digital initiatives and customer outcomes helps to reassure investors that a business is both relevant to modern consumers and ready for the future. According to our research, whereas 90% of UK insurers include digital as part of their strategic vision, only 28% have dedicated budgets visibly attached to digital programmes. In these respects, insurers and banks have some digital catching up to do compared to other consumer-facing industries, and there are big lessons to be learnt from other sectors. For example, why do the majority of banks and insurers still view disruption as something that is done to them, rather than looking for opportunities to expand into, and disrupt, other sectors? Nobody questions the idea of a search engine designing and building driverless cars, so why can t insurers who actually underwrite the car and the lives of the people in it picture themselves getting involved in that sort of activity too? As observed in most other countries covered by the research, the UK s FS industry has focussed most of its digital investment on customer-facing initiatives. However, in order to unlock the true value of digital, a far more holistic approach will be required. This will involve harnessing digital in areas such as product innovation, enhanced customer propositions, and more efficient back-office operations. In a nutshell embracing digital across all parts of the value chain 2

3 The European Context When it comes to being prepared for digital disruption, European financial services firms are currently focused more on planning than execution. If they want to succeed in fending off competition from new digital entrants, banks and insurers will need to improve digital performance across all aspects of their businesses. These are some of the findings from Accenture s European Financial Services Digital Readiness Report. Using the same public information that is available to potential investors and customers, Accenture assessed organizations against four key elements of their business activities: strategy (categorised below as Plan ), production ( Make ), customer experience ( Sell ), and operations ( Manage ). Not surprisingly, digital leaders companies such as Google, Salesforce and Uber scored at the top of the index, with an average score of 3.5 (on a scale of 1 to 4). With a score of 2.4, European financial services firms fell in the middle of the pack, scoring above utilities, consumer goods and energy, but coming in behind communications, electronics and high-tech firms. As shown in Figure 1, banks and insurers from Europe s five largest countries France, Germany, Italy, Spain and the UK scored best against criteria that related to planning and strategy, with an average of 2.7. Selling and customer experience came next (at 2.5), followed by making and product development (at 2.3) and managing and operating (at 1.9). With some digital leaders actively expanding into different areas of the financial services value chain including lending, payments and value-added services traditional banks and insurers cannot ignore this apparent gap in digital readiness. Improvements across all four business elements are required to enable these firms to remain relevant and competitive. A closer look at the digital readiness of banks and insurers across different markets serves to illustrate some of the areas requiring more urgent attention by European FS players. It also reveals some of the best practices they should consider to elevate their overall digital performance. Figure 1: Average digital readiness scores for European Banking and Insurance organisations 3

4 United Kingdom Financial services firms in the UK reflect the trends across Europe. The banks and insurers in the study demonstrate clarity around their digital agendas, and leverage digital to engage with their customers. However, they fall short when it comes to internalising the benefits of digital, through enhanced processes and technology. Overall, the UK showed strong results across the four areas Strategy, Production, Customer Experience, Culture and Operations ranking first or second in the industry in each one. 4

5 Plan: Building a Digital Transformation Strategy Define The Digital Readiness study considered three key activities within the planning and digital strategy space: 1. Seeing involves recognising digital as a major trend with the capacity to fundamentally change an organisation and a market. 2. Planning is the first response to the trend and involves establishing a digital strategy as well as a related budget and dedicated leadership. 3. Acting is the execution of the digital strategy at a fairly high level, from promoting the company via digital channels to collaborating to enhance digital capabilities. Measure UK banks and insurers achieved their highest scores in the Plan area, leading the field with a score of 2.9 out of 4.0 overall, well ahead of their European peers. Like most other companies in the index, UK financial services firms tend to be strongest when it comes to recognising the importance of digital. But, while firms in the other markets studied tended to lose focus when it came to planning and acting, UK banks and insurers consistently followed through. The Digital Readiness study found that 90 percent of UK financial services firms built digital into their strategic vision (vs. 86 percent of other European firms), and 70 percent assigned the budget needed to launch a comprehensive digital action plan (vs. only 37 percent in the rest of Europe). Improve While most European financial services executives are thinking about digital transformation strategies, in the UK, leaders are also thinking about business transformation strategies powered by digital. UK firms are aligned with the rest of Europe in viewing digital as a strategy for business expansion, but 87 percent also view it as a strategy for internal transformation (vs. 59 percent across Europe). This shows that, despite the low aggregate score in internal digital readiness overall, the UK is well ahead of the European pack when it comes to putting ideas into action both inside and outside the business. An awareness of the power of digital in the marketplace can also help empower digital within these organisations. Executives should monitor the best digital practices of their competitors, in their domestic and other markets, as well as across other industries, to avoid becoming obsolete. Digital leaders who participate in EU and government consultations (such as the recent Green Paper on Retail Financial Services or the consultation on the Digital Single Market) can help shape the digital discussion, positioning themselves effectively as digital players and gaining valuable insight around the regulatory outlook for digital Digital Transformation Strategy United Kingdom See 3.1 PLAN France Germany Spain UK Italy Plan 2.9* Act 2.8* *highest score for FS Europe 5

6 Make: Embracing Digital Production and Delivery Define The Make category comprises three key activities: 1. Design, which means developing products with the aid of digital technology, or viewing technology as part of the process and not just the end product. 2. Building a product, which does not have to be done in isolation. In fact, the digital eco-system can be invaluable here, facilitating co-creation with developers and alliance partners. 3. Meanwhile, the Run activity is what most organisations tend to think of in this arena, as they seek to launch products with digital features. Measure When it comes to embedding digital into product design and execution, British firms are on par with companies in Spain and France with an overall score of 2.4, and trailing just behind Italy at 2.5 out of 4.0. Across Europe, Accenture Research found that 58 percent (60 percent in the UK) of banks and insurers are using crowdsourcing and other open innovation activities to generate innovative ideas. However, not many of these concepts will actually hit the market. There are only few examples of digital solutions in banking products besides payments, such as fingerprint and voice recognition for mobile banking as well as innovative savings apps. Meanwhile, several insurers offer telematics-based pricing on certain motor insurance policies. However, more can be done. Of those firms studied, the UK firms rank second behind France in use of open innovation, with 80 percent of firms utilising it vs. 92 percent in France. However, this is well-ahead of the European average of only 60 percent. Improve The same eco-system that is luring digital leaders into the financial services market can help established banks and insurers to remain innovative and relevant. Rather than looking at product and service development as a solo endeavor, leading companies are seeking out joint ventures and partnerships with collaborators from other industries as well as from the FinTech start-up world to bring innovative offerings and capabilities to their customers. Indeed FinTechs, which are often seen as competitive threats to traditional financial firms, offer many ideas that can accelerate the digital agenda and grow the footprint of established players. Opening up to new ideas from a range of sources broadens the reach of a company s products and helps maintain existing customer relationships while simultaneously granting access to new ones. However, participating in and leveraging the digital eco-system requires having the right technology in place to expose data safely. Organisations need to prepare for the API revolution, which will follow the implementation of the new Payment Services Directive (PSD2), and be ready to aggregate best market offers under their own umbrellas. Digital Production and Delivery United Kingdom Design 2.1 Build 2.8* Run 2.2* MAKE France Germany Italy *highest score for FS Europe 6

7 Sell: Creating and Sustaining Digital Customer Interactions Define There are three key activities around the digital selling theme: 1. Engage can be as simple as employing social media and integrating physical and digital experiences. 2. Selling digitally involves using analytics to customise marketing and facilitating purchases. 3. And organisations Serve customers by informing and advising through digital channels and by protecting customers in digital interactions. Today, consumers want to be able to conduct their banking anytime and anywhere. In 2015, 11 out 16.5 monthly interactions that UK consumers have with their banks happen through digital channels (online, mobile and social media). The role of branches is still visible at 1.1 interactions per month but stable (in 2014 there were again 1.1) i. Measure Customer experience tends to be top-ofmind for most executives when thinking about digital, which means investment and budget often follows. The UK and France scored highest among European financial services firms in the Sell category at 2.6, followed by Germany, Spain and Italy at 2.5, 2.4 and 2.3 out of 4.0, respectively. Banks and insurance companies in Europe use a variety of means to engage customers: from online magazines and YouTube videos, to free apps. Yet the UK lags behind in this regard. Only 55 percent of UK financial services firms handle customer feedback online (e.g. customers can submit and monitor resolution of complaints), versus 86 percent of all European firms. Banks also tend to be slightly more advanced in offering mobile services and receiving feedback 90 percent of banks can handle online customer feedback versus 81 percent of insurers. While online customer service is now standard, more advanced functionalities like loyalty programs and online appointments vary among countries and players. Most firms provide comprehensive information on products and services, enable online sales, and, to a lesser extent, offer real-time communication (chat). However, while the UK is on par with the rest of Europe in providing marketing content via digital channels (90 percent for UK; 91 percent for Europe) every bank and insurer in the UK index targeted content based on browsing history, compared to only 62 percent across the region. Improve Making a digital impact with customers does not always have to entail a major initiative. Some financial services firms have seen great results from simply updating an app with a new look or functionality, or adding kiosks to a physical branch. Established players in the industry also have the advantage of historical data on customer purchases and habits. New technologies can leverage big data and analytics to offer new insights into existing customers, allowing firms to tailor services and offerings. Again, there are opportunities to reach customers through the products they acquire from other non-financial services providers. For example, automakers equip cars with black boxes to record driving habits and behaviour, which might present insurance companies with an opportunity to partner in driving safety initiatives. Similarly, synergies may exist for banks to pair with real estate websites and offer mortgage services to consumers browsing for property online? As digital disrupters enter the financial services market, one response is for financial services firms to look further afield for opportunities to sell their services and expertise. Digital Customer Interaction United Kingdom Engage 2.6 Sell 2.6* SELL France Germany Spain UK Italy Serve 2, *highest score among European financial services firms 7

8 Manage: Operating with a Digital Culture Define There are a further three key activities associated with the theme of embedding digital into an organisation s operations: 1. Organisations should Assess the status of digital capabilities and determine the effectiveness of any investment to date. 2. Then, firms can Improve operations by equipping employees with digital skills and tools, digitalising processes and leveraging the eco-system to generate new business. 3. And, as digital capabilities continue to evolve, Renewal becomes essential, fuelled by the latest data analytics to monitor current operations and motivate employees and executives to embrace continuous improvement. Measure For insurance companies and banks in the United Kingdom and throughout Europe the biggest gap in digital readiness occurs in the area of operations. The UK and Italy led in this area with a score of 2.1, with France and Spain following close behind with 1.9. Very few firms have made the switch from being companies with digital capabilities to being truly digital enterprises. Similarly, few appear able to transfer their digital agenda across other corporate functions. Only leading companies apply big data / analytics solutions to internal processes or customer data. And leaders also use cloud solutions to automate internal processes and drive collaboration. Very few players report on their return on digital investments or cybersecurity assessment. Indeed, of the companies in our study, only 37 percent of banks highlight reviews of their digital investments, while only 11 percent of insurers do so. With just 53 percent of firms training employees on digital skills, it is no surprise that outsourcing of non-core functions is becoming more popular. Rather than build digital skills, most players seem content to deliver the same set of business skills through digital and e-learning channels. This is a missed opportunity. Improve Financial services firms have the longest way to go in closing the digital gap around their operations. The first step is to look at infrastructure - the technology and processes that drive these businesses. Exploring modern technologies and looking for systems, applications and solutions that can help elevate and sustain the position of an organisation at the forefront of the digital revolution is an investment likely to generate a good long term returns. Yet at the same time, organisations must also ensure their legacy systems do not impede progress by slowing down the development and adoption of enterprise innovation. Perhaps the biggest impediment to digital operations is the shift in workforce that is involved. Insurance underwriters, bank branch staff and claims adjusters may feel at risk of losing their jobs to automation. However, FS firms like any other enterprise will need creative thinkers to drive future value, and the workforce of today will benefit from digital skills training to enable them to collaborate with automated tools and services for the benefit of customers and enterprises alike. Efficient financial services firms will of course be alive to the massive cost-reduction opportunities presented by automation, and an effective talent management strategy will also ensure sufficient inflows of employees with the required digital skills and expertise to drive the digital workforce of tomorrow. Digital Culture and Operations United Kingdom Asses 1.7 Improve 2.0 MANAGE France Germany Spain UK Italy Renew 2.6* *highest score among European financial services firms 8

9 Closing the gap Given the information-based businesses both banks and insurers run, it is perhaps surprising that the financial services industry is in the middle of the pack in terms of its digital readiness. And yet most financial services firms are channelling their initial digital energies into strategy and customer interactions, betraying a reluctance perhaps to dive into the messier work of tackling their legacy systems to embedding digital deep inside their operations. That effort involves establishing new costs structures, operating models and processes, all while maintaining service levels and financial performance. Embracing a multispeed IT approach can help organisations as they make the shift from technology supporting the business to business supporting the technology. Given the pace of innovation and the rich opportunities in the digital space, the best way to close the gap between digital disruptors and traditional leaders is for the latter to step up their game. By sharing best practices across firms, industries and regions and by collaborating with FinTechs and other sources of innovation financial services firms can redefine their models, ensuring a position of relevance in the minds of investors and their customers. 9

10 Accenture Digital Readiness Research Methodology An Accenture Research team created the European Financial Services Digital Readiness Report by analysing the extent of digital transformation of 53 leading banks and insurers in five countries: France, Germany, Italy, Spain and the UK. It uses publicly available information (such as annual reports, websites and press releases) to assess each competitor s digital operations; this outside-in methodology is fundamental to the research process, as it provides a level playing field for comparison whilst not threatening confidentiality. Each organisation s digital activities and capabilities are analysed using a framework of 117 detailed metrics grouped under 42 themes. These themes consider the use of digital across all parts of the business, from corporate strategy and product design through to sales and back-office operations. Scores for individual metrics ranged from 1 (basic level) to 4 (best practice). Firm scores represent an average of scores for each component. Country-level scores were obtained by weighting individual player scores by revenues (or gross written premiums in the case of insurers). The European average is a simple average of the country level scores. The resulting benchmarks can help organisations achieve higher performance, assess how digitally competitive they are compared to their peers, and understand how their own industry compares to others. 10

11 Contact us Gareth Wilson UKI Banking Practice Lead Roy Jubraj Digital and Innovation Lead Insurance UKI Cora Stone Managing Director Financial Services UKI Robert Stubbs UKI Head of Research & FS Research Lead Schira Lillis Accenture Principal Director Global Financial Services Research Francesca Caminiti Accenture Senior Principal Europe Financial Services Research Notes i 11th Global Consumer Pulse Research Survey Retail Banking 11

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