Digital Transformation and Disruption in Payments

The primary purpose of a functioning bank is to enable a consumer to pay and the merchant to receive the pay. Payments are the heart of banking ecosystem. Almost every application, system and process has to correlate with the function of payments unit within the bank. The exchange of service and value through payments has evolved heaps and bounds since the inception of Banks. Originally marked as barter system, moving on to token system and further in to pooling and cashless, the transformation has been enormous.

Banking transformation is progressing at a massive pace and so is the key function with in banking – Payments. Just in the past decade, we have seen contactless, mobile – apple and android, OBeP (Online banking ePayments), Online market places, Crowd funding, QR Codes, SMS Payments, NFC and better schemes such as faster payments. There has been an unprecedented change in the customer behaviour with the evolution of ecommerce channels. Customers have now lowered their footfall on highstreet shopping habits and constantly looking for E-tailing options. This form of customer behaviour is constantly evolving and omnicommerce is the need of the hour.

It follows from there with the current introduction of new payments regulations around schemes like ICS (Image Clearing System), Payments consolidation and Open Banking (PSD2) to enrich the customer journeys and experience. Further to this there are larger disruptions taking place across the industry such as Distributed Ledger Technology, opening out payments through non-physical interfaces such as VR and voice assistants and UPI amongst a few. All in all, the magnanimity of transformation through the opportune technologies and the landscape is exciting.

Banks have realised that transformation with in Payments and participants is inevitable. It has called for banks to bring in agile technologies and consider the changes in the industry effectively and immediately. Legacy models and banking systems are evolving at a rapid pace to accommodate the needs raised through customer expectations, innovations in the market and the digital native revolutions. Fintechs are becoming more prominent with the innovations and regulations supporting the customers. The cost to income ratio for the banks is becoming more and more mature and the banks have to compete with payment service providers, fintechs and evolving markets along with traditional banking institutions. B2B, B2C payments are largely driven through regulations however, C2C is an area that is actively driven through technology and fintechs and technology giants are capturing this niche area of payments swiftly. The economy of scale that this segment generates is a key factor for the digital native organisations. Convenience, ease of use and agility are the drivers for actors in this area.

Payments are continuously integrating more POS, Channels, Agile and simpler processes involving lesser hops to serve the customer needs. The cumulative culminations of all of the foresaid integrations support the customer journey transformation and make the banks digitally evolve to handle disruptions. Devops and continuous integration patterns are now standard to support most of the application changes and technical advancements. Cloud is no longer a vision, it is definitive in managing the rapid and ever changing customer needs. Internet of things is paving significant opportunities in transforming the customer expectations for multichannel/omnichannel and closed channel services. Settlement cycle has been diminishing with advancement in regulations.

The landscape of payments has been enticing for the banking and nonbanking institutions alike. Irrespective of the macro and micro economic changes the function of payment is essential for banks to continue their business as usual. While banks can continue to move forward, incoherence to the factors listed above in payments will bring dormancy to the core service (payments) if the banks fail to address the customers’ expectations. Having said that, it is not easy for banks to consider the changes and still continue with the regular day to day service. Hence, the symphony of synchronizing banks to cater for the challenges that the current transformation is providing is essential. It is an iterative process and banks have to plan, build and deliver. Strategies have to consider the cycle of planning, building and delivering in very close and frequent quarters.

I wish to conclude this article by mentioning some of the immediate planning activities that the banks may wish or already progressing with to deliver in responding to macroeconomic changes around payments.

• Influx of digital natives/fintechs ready to disrupt the payments landscape and the delivery of advanced financial services 
• Refactoring the legacy set-up to rapidly respond and cater to changes regularly/quickly 
• Expanding financial services to broader geographies 
• Responding to customer stickiness, customer churn and cost to income ratio 
• Easier inclusion of POS, Channels and Customer engaging models

Gauging Digital Maturity

There has been an increasing advancement in enriching businesses through Digital transformation across all industries in the recent past. While businesses continue to gather momentum in this path, there is a growing need to understand a competitive measure of where they stand. The success of every strategy is relative; sometimes it is relative to what/where we were yesterday to what/where we are today and sometimes it is relative to competitors. Digital transformation strategy also has to consider some milestones if the business wants to consider the success/failure of the same. It is also important to gauge the progress of this transformation while it is underway to ensure that the future relies on this foundation. A Digital Maturity Model should help businesses address these concerns of and certify that they stay successful over their digital transformation journey. This blog tries to address when businesses should concentrate the relativity aspect (as discussed earlier) along with what should constitute a Digital Maturity Model.

The theory of relativity in this transformation aspect springs up from the decision of management to address the customer expectation evolution or the competition evolution. If the competitors have evolved a digital offering, the business may succumb to the pressure and follow the competitor or concentrate on innovative ways to focus on differentiation as a long term strategy. If the customers are pampered by competitors through digital offerings then the businesses have to address their offerings by enriching their provisions in the past. The seed of demand of a better supply often doesn’t start with end customers. It is the businesses in the same space that try to focus on differentiation who bring such demand. As and when competitors follow the differentiator and try to generate similar service offerings to customers this demand which started as a seed becomes a bare minimum standard. Some businesses just like processes are broken, if you don’t second it, at least Seth Godin thinks so. These bridges to these broken processes are also demands from customers that businesses address as they evolve.

Coming back to when businesses should consider relativity against themselves and competitors and a maturity model. Every business should always look at where they stand when adopting Digital strategy. They should answer whether it should be a bottom up or a top down strategy. Regardless of whether it is bottom up or top driven it should always be driven and backed up by senior management. The necessities of long term aspects of transformation through cost sensitive elements like Big Data, analytics, IOT and so on need to be addressed across all verticals of the organization. There are low hanging fruits and process enhancements that can be pursued through short term strategies by adopting workflow tools or robotics. The elements that constitute the internal assessment of digital transformation and maturity are Digital DNA, Service Models, Product Portfolio, Cash flow and Market Share. I will dig deeper into each of these aspects in a follow up blog.

The success of internal digital transformation should be gauged through NPS scores, customer support efficiency, process efficiency improvements, customer satisfaction and the propensity towards the differentiation path. As businesses achieve significant improvements in the foresaid areas from yesteryears performance they are geared to look at the competitors’ progress in similar areas. The internal assessment will enable businesses understand the success of the foundations laid from the digital transformation journey. When the businesses advance to the comparison of competitors’ performance on digital journey, they should gauge customer perception of digital capabilities of themselves against competition. The value a business offers to the customer is often measured against customer perception, and digital transformation success is no different.

When businesses compare their digital maturity against competitors, they should consider the aspects such as Integrated Data/technology models, Contextual Content effectiveness, Service models, Customer engagement, Channel effectiveness and Organizations strategy. I will dig deeper into these aspects in a follow up blog.

Digital Commoditization - service standardization through Digital enablement

For starters, Commoditization, a word coined recently, refers to a phenomenon where products and services that were distinguishable in terms of their characteristics end up becoming mere commodities to the market and end consumers.

Businesses across all industries are becoming more Digitized in an attempt to be increasingly efficient, relevant, reachable across a multitude of channels and realize instantaneous benefits. There are various factors influencing this business decision in becoming digital such as competitors’ progress, managing customers’ expectations, maintaining industry standards. As the rapid advancement towards digitization progresses, every business will encounter Digital Commoditization. Digital commoditization will refer to a bare minimum standard of satisfactory service and experience the end customer will expect from any business. Digital Commoditization will impact businesses irrespective of their decision whether to be a cost advantaged or differentiated service/product. In laymen terms for e.g. MS Word commoditized our memory of recollecting spellings, mobiles have commoditized phone books, maps have commoditized addresses.

Businesses in any form and genre thrive on three pillars of competitive intelligence viz. relevance of their products/services to the market, difficulty of imitation and the breadth of application. These pillars make businesses distinguishable from their competitors and often form their USP or core competency. These pillars of competitive intelligence help businesses develop the market intelligence practices which assess actions of competitors, look for long term prospects, gain information and develop proactive plans and reduce chances of unexpected news. 

In essence every business identifies their USP through various tools/mechanisms in order to make a decision whether to stay competitive in the current industry or to migrate to a different industry. Bowman’s strategy clock is one such tool that identifies the competitive positioning of the business. Porter’s generic strategies/BCG matrix and many others serve a similar purpose. I want to focus this discussion to cost advantage vs differentiation advantage.

Businesses both large and small make calculated decisions in choosing whether to be in a cost advantage position or in a differentiated position. This is normally done based on the customers they are targeting. Customers are just one aspect in making this decision; generally all the entities of the value stream map right from operations to transportation affect the decision of being a cost advantaged or a differentiated business. The customers’ value perception also depends on various factors about the business and the product or service. Intent of buying decision emerges when the perceived value of the customer meets the competitive positioning of the business.

Businesses need to make informed decisions and generate quality leads for business. The value perception of the customer is a behavioural, interest based entity. Businesses should target their campaigns based on these aspects because if a customer is looking for a low priced product or service it is ineffective for the cater campaigns on differentiated service.

While there has been tremendous progress in sending meaningful campaigns to customers and gathering their attention, this has become a basic necessity. Campaigns in the current day emerge from an understanding of their legacy customers, geographies, interests, behavioral instincts of the target customers.

Businesses are increasingly moving closer to Digital enhancements. These enhancements support them to achieve better customer service, improve their market cap, and be available/reach to the customer through various channels. The Digital transformation in operational excellence/efficiency, process efficiency, customer satisfaction, marketing efficiency, customer management are changing every day. There are new developments and innovative ways of addressing these areas and make them more efficient than the traditional ways. For e.g. Customer service has been traditionally through contact centres. Businesses have often found cost effective ways of managing this piece of value stream. They moved to cost saving geographies while enabling the customers to achieve satisfactory customer service. Technology enabled this enhancement in the older days. With the emergence of digital channels, the traditional customer service has become obsolete. Businesses today are managing customer service through mobile apps, emails, IVRs, self-serve portals to meet customers’ expectations. These channels are becoming far more innovative. Businesses now understand customer queries through social channels. IVRs are more meaningful than a mere press ‘0’ for executive support. IVRs convert voice to text and robotics or workflow tools support the customers rather than human interaction. Businesses are able to bind customer queries from various channels including social along with system generated service alerts to provide proactive support to customers. Businesses are more available to customer today and are confident on resolving issues more efficiently. All this and so much more is happening just around customer service. There are similar developments happening across all areas of business value chain. 

As these developments are progressing, some aspects have become industry standards. Social customer service is one good example. Although the service is naïve and improving, more and more customers are inclined to get service through a tweet or a message on Facebook page.

These Digital enhancements that businesses are digesting and are supportive of is making the industry move more towards Digital Commoditization. As we see a successful Digital transformation initiative in one business more and more businesses are accepting it making this an industry standard.

In the future, Digital Commoditization will become very obvious. This will mean a superior yet quicker customer service, offerings through various channels/reach, IOT, making customized service available to customer, relevant/meaningful conversations/campaigns, adaptable infrastructure (open sourced), depictive/predictive/definitive analytics, efficient processes for op ex/minimal human errors will be a dire basic need for any business.The traditional business strategy of being a cost advantaged/differentiated service has to accommodate the digital commodities as a prerequisite to stay competitive.

The faster businesses progress towards Digitization the sooner they encounter Digital Commoditization.

Digital Enablement - Long term and Short term

We can confidently consider that Digital enablement for an organization has become the need of the hour. The fit and the purpose of the digital enablement spring from various factors. The organization’s strategy, systems and structure are the core elements that define these factors. It is also quintessential to consider the skills, style, staff and shareholder values in emulating the path towards digital enablement. While the hard and soft ‘s’ support the organization in understanding the relevance of adopting long and short term digitization, an overview of company’s context, customer’s perception and competition’s progress drives the speed of going digital. As discussed above the digital enablement consider multiple internal and external facets that determine the organization’s goal of improving operational efficiency, customer acquisition, customer satisfaction, customer perception, process efficiency so on and so forth

BigData has been synonymous with Digital enablement and has been heard loud and wide in the current market place. The voice of BigData is heard across all industries over the past few years, clearly because every empirical measure needs data. The data, in the current day, has multiplied many folds because of the emergence of data from the source systems to the end consumable systems (IOT). There have been discussions on managing the data streams but the evolution of technology has supported the digestion of data over the past few years. There have been significant advancements in the areas of storing humongous amounts of data and processing the same. The discussion around the infrastructure capabilities is a topic in itself. Analytics drive the effective use of the available data. The business analytics which are dissected into operational and customer analytics often try to address the problem at hand. The success of digital enablement is validated by the expected results from a BigData environment against the business problems falling into the operational or customer buckets.

It is important to not limit and tie Digital enablement to BigData. Digital enablement can successfully sync up with the process improvement and digital transformations teams with in the organization and utilize disruptive technologies in achieving quick benefits. Digital is all about reaching the market or providing a service quicker, making those decisions faster and delivering the product or service better (lesser human errors).  To this end of meeting the short term digital strategy, there are various off the shelf workflow and robotic tools that need minimal customization to make organizations faster, quicker and better. The process improvement teams identify the areas that can be digitized, areas that have repetitive and laborious actions, which can be addressed by the digital transformation teams through workflow or robotic solutions. The organization strategy is relative to making processes more efficient by adopting systems that support the current structure. The learning curve of the staff in adopting these systems and the progress they make in moving from denial phase into acceptance phase is the key driver. The training and development teams also play a major role in enabling the staff with the skills. The organization’s value perception, customer focus can be quickly realized and the dynamics of competitive positioning will be achieved through operational margins from faster, quicker and better processes.

The pretext to the success or failure of the Digital enablement in a BigData environment is to enable Systems at an infrastructural level. Although there are admirable advancements in the data storage and data processing capabilities in the recent past, it is an ever changing and fast paced environment. The relevancy of technology in meeting the digital needs across various verticals within the organization should be common. The legacy model should digest the goals of all verticals and enable the inclusion of changes in the period ahead.

BigData essentially supports the organization to understand the context of the customer and the relevancy of business content to the customer. The elements that tie into the long term strategy of the organization that are supported by the organization design, structure and value chain formulate the accommodation of systems and skills. In general the organization’s strategy is about answering “how are we winning in the period ahead”. This could mean improving customer acquisition, customer perception, understanding the business more and collaborating with other channels. The association of a person with his/her interests from social data to the business of the organization promotes the customer funneling life cycle from a suspect to a prospect and further into advocate. BigData allows organizations to reach the right customer, at the right time, through the right channel with the right information. Identifying the customer context, generating the contextual content and promoting personalization are the key aspects of using the customer analytics. For e.g. If I intend to do bungee jumping now and I post it on social media, Insurance companies can tie this information and give me an insurance policy for the next one hour during the course of my bungee jumping. The customer life cycle or the customer journey mapping starts from my intent to do an activity and ends through my subscription and closure of a service. This near real time observation of bringing data sources together is the Holy Grail of utilizing BigData.
The significance of an organization to be a cost focused, differentiation focused or cost leader will rely on generating this contextual content to the customer. The focus on generating personalized content to the customer and through the right channel will drive buying/business decisions. The near real time segmentation or dynamic segmentation of customers and the meaningful virtual conversations the organizations make will define and differentiate market share. This probably is the ideal end state that organizations want to achieve to stay competitive. The speed at which the competitors make progress in achieving this end of digital enablement will drive competitive positioning.

Digital Customer Experience is the tip of the iceberg in Digital transformation, what lies beneath is the business in millions

Digital transformation across any business primarily targets achieving superior customer experience. Customer experience supported by business functions such as better Insight driven customer service, data driven operational efficiency, efficient warehouse and product maintenance, scalable support systems etc. Many often believe that the simultaneous orchestration of all the said business functions together is necessary to strike the right chords of delivering superior customer experience. While seamless superior customer experience still remains to be the golden jewel that every business wants to achieve, it is only the tip of the iceberg. The business functions that need transformation to achieve this end of customer experience stand strong underneath the iceberg.

It is extremely difficult and practically impossible to synchronize all the business functions together simultaneously to achieve this transformation. It is ideal to break the pieces of puzzle into a hierarchical order of influence over achieving the optimal performance in their respective functions. For e.g. in a retail baking customer journey identifying the services that the customer has already opted for and offering the cross/up sell assistance which is emerging from customer’s interest is the need of the hour. Developing a customer context stands as a precursor to formulate any customer journey. In developing this customer context sources of data such as product/service data, customer data, support, click stream etc. should be intertwined together. In order to reach the right customer context it is empirical to incorporate the accumulation of data from the inception of customer’s journey with the bank. Ideally onboarding processes position as the first interface between the customer and the bank. The era of the involvement of underwriters during the accumulation of documents from customers is long gone. Banks are relying on scanning documents such as pdfs, images, text both structured and unstructured to digitize this process. The accurate digitization of this on boarding process supports the organization to realize huge savings in the OPEX costs for banks.

In most scenarios customers often see the advancements in the Banks as shown in their front offices. In order to achieve these advancements there is an impeccable handshake of physical functions performed in back office through human interventions. The future of banking is entirely about digitally enabled customer experience. This enablement requires empowering every business function and process to be empowered with the strategy and technology to be ready for the transformation as a Digital Bank. 

The digital empowerment of enabling digital boarding processes is the primary step of the Digital bank transformation. The ability to extract information from any and every form of legalized KYC document resolves the down time of processing applications coming in for a retail bank. Legacy Banks systems already encompass credit risk, compliance etc. automation engines. The information extracted can be pushed down stream to manage insurance policies for expiry, premium payment, renewal or converting the existing policy into other services from the retail banks. 

Are red ocean strategies the dead ocean strategies in the information age?

Organizations that thrive on competing in existing market space and beating the competition that exists are categorically red ocean strategy believers. They believe in getting their hands dirty, struggle and propagate their business. In doing so they try to exploit the available demand by either creating greater value to customers at higher costs or by creating reasonable value at lower costs. In business terms, exploiting the available demand through value cost trade off. The choice of differentiation is two pronged which are directly related to the cost and the service.

Microsoft is the best example to define a red ocean believer. All the factors as discussed above are addressed by Microsoft Windows and Microsoft Office. They have succeeded in the 20^th century. They made huge profits. However it has to be noted that between 2001 and 2014 the market cap raised by a meagre 3 percent ^(Source).

Organizations that consider differentiation while being two pronged will mainly deal with differentiation in service and low cost are blue ocean believers. The differentiation is optimized by saving costs through eliminating and reducing the services that the current industry thrives on and by raising the buyer value through creating elements that industry has never offered. The value innovation that arises from this approach is the blue ocean strategy. In laymen terms, organizations that create an uncontested market space and thus making the available competition irrelevant while capturing the new demand are blue ocean believers.

Apple is the best example to define a blue ocean believer. Since the Macintosh, Apple has been feeding the market with innovative products in those areas that are not maximally tapped by a given market. Macintosh, iPod, iPhone, iPad to name a few. Apple has still considered the value it delivers to its customers while saving costs on industrially varied offerings. Apple’s market cap has improved 75 fold in the period between 2001 and 2014 as its sales and profits improved ^(Source).

In a similar sense, in the current information age (Digital world) considering the network effect of internet of things it is imperative to say identifying the blue ocean strategies are the viable livelihoods for any organization irrespective of the service and business they render. In the current world limiting and fighting for the current market cap is irrelevant because of the pace at which the nomadic customer is willing to move to a future market. This statement is further strengthened by the recent development in retail market in China.

Alibaba, the Chinese ecommerce giant (US$231 billion) started in 1999 as a business to business portal to connect Chinese manufacturers with overseas buyers ^(Source). The company now provides consumer to consumer, business to consumer, business to business sales services through web portals. It has payment gateway, shopping and cloud computing services to sustain its business model. In 2014 on China’s singles day Alibaba reported a sale of more than $9 billion in one day by bringing all its strengths together ^(Source).

The details as listed above makes it a red ocean believer increasingly because it has exploited the current market and by offering value to customers at a differential cost. However, Alibaba sprung up as a blue ocean strategy believer in a manner no one could have ever imagined. Alibaba used the digital strengths it has developed from its e commerce customers like contextualizing, personalizing, customizing and by reaching them at the right time and through right channel etc., Alibaba has entered in to Banking domain. Alibaba has ventured into the Wealth and Investment Banking division and has captured US$100 billion in assets in the second year since its launch. Tencent another online giant is building a financial network based on a huge online platform ^(Source).

Blue ocean strategy has been enticing for the thought leaders, innovators and mere leaders. With the evolution of the Digital world the mechanism of reaching the nomadic customer is neutralized. This neutralization as seen with Alibaba and Tencent will bring in business offerings that are capitalized not only by the industry’s competitors but also by those competitors who are ahead in the Digital strategy from other industries.

IT Strategy Consulting - Part I

This post is directed towards breaking the different aspects in contemplating the IT Strategy and Consulting. This introspection of what I understood from the term IT Strategy occurred when I attended an interview in which I was asked what IT Strategy Consulting meant. 

At the outset it is imperative to think who would need a Strategy now? Be it any sector. Any respectable organization in any sector now should/must have formulated their Strategy over the years. During the early 1970s and mid 1980s most of the organizations have dwelled with the fantasy of strategizing their businesses. However IT Strategy and Consulting is ever evolving and is equally applicable for the software providers and clients, consumers alike. 

Strategy in any sector without direction is a crime. The key element of breaking the different aspects of IT Strategy stands in understanding who, why, what, when and how determine this direction.  For ex. A retail market chain giant willing to engage consumers by formulating cool offers through real time data enhancement or introducing a new era of billing system for consumers willing to pay by NFC. In this scenario the CIO of the retail market giant should consider all the requirements of their future direction and point them out to the IT services delivery team either an internal one or an external one. The requirement gathering from the CIO comes from various discussions organized across length and breadth of the value chain. There could be another scenario, where in the IT services companies would wants to decide whether to strategically target at the customers who need the trending solutions or to develop relationships through infrastructure projects that run for a couple of decades. These two perspectives one from a Client sided approach and another from a Service provider approach cause the term “Strategy Consulting” in IT to be a Cliché, meaning that in one scenario the Client Strategically looks at a particular requirement and Consults a Service provider. In the other the Service provider itself is strategically challenged whether to approach clients with emerging technologies or nurture relations to enjoy a couple of decades of contracts. It is a completely different ball game when we speak about the product based companies who all strategically strive to deliver a unique selling point. This is where Apple Inc does very well following The Golden Circle approach (talked about in my previous blog).

However I aim to target at the basic elements of IT Strategy Consulting from the above mentioned broad landscape. 

From a Client approaching a service provider perspective, the visiting CIO in collaboration with the senior leadership team does a process survey within the organization and comes up with a requirement. Such projects can be handled by independent consultants or big names. They would follow a DMAIC (listed below diagrammatically) approach and give some improvement suggestions to the client. Most often some of those suggestions generate providing smart software solutions to the consumers.

Based on the process enhancements suggested by the consultants or by the organization itself, an IT strategy is formulated by the CIO on consultation with an IT consulting firm. The following elements are generally seen in a Client and Service Provider consulting environment.

The control part often features outside the regular consulting lifecyle. This is where most of the IT Strategy and Consulting is channeled. (To be continued with the Control part soon)