Keep calm, you have a USP
"Tamedia to become the shopping mall of Swiss e-commerce." In one way or another, this was how the public perceived the company following the announcement of its full-year results this March. Therefore, it seems as if there is nothing more to content than a means to draw as much people as possible to their platforms. This strategy obviously renounces the company’s original core competency, leading it to adopt a completely different business model. Has digitalization made this transformation necessary?
Digital disruption has been a major talking point in the financial industry, especially in the area of wealth management. Naturally, the transformation process has been somewhat more structured than in the media business. Innovation teams have been stamped out of the ground, design thinking teams have been devising new products and services, think tanks have been summoned to ward off so-called new entrants in an increasingly competitive market with ever declining margins.
Banks should not lose sight of the fact that their USP is the advisory business, and that this will probably remain that way. It is relatively easy for new entrants to gain a foothold in the areas of lending, trading and financial transactions. As opposed to banks, they have no legacy systems; they can develop the required technology from scratch and thus design more efficient and perhaps even more effective services.
However, new entrants cannot copy or replicate the actual advisory business that easily. The advisor’s knowledge is of huge value as is, on the other hand, the personal connection between client and advisor. This direct "channel" to the client enables a dedicated and personal client-advisor relationship. Recognizing this USP should be the first step of any digitalization project for wealth management clients. Therefore, the client advisor is by no means the problem as has often been assumed for different reasons such as scalability. On the contrary – the advisor should be part of the solution even though this may increasingly be found in digital products and solutions. Direct competition from investment business platforms such as Wealthfront may make sense as a complement to existing and functioning business models since these platforms have to prove they deliver margins that lead to sustainable business.
There are striking similarities to the media business. If the media had focused on its core competencies from the onset of digitalization about 15 years ago, namely to produce relevant and high-quality content, it would have been clear from the beginning that the internet was "just" a new sales channel, and there would have been no need for changes to existing business models. The fact that content was distributed over the internet free of charge reflects a lack of confidence. However, confident publishing houses still publish profitable newspapers and journals today (e.g. The Economist). The Economist recently brought a new digital product to market. Its mobile app Economist Espresso provides five short news stories a day to its users. Other media companies have held on to their actual core competency and are trying to make a profitable business out of it (again), e.g. NZZ which launched nzz.at recently.
Client relationship and interaction should therefore be at the forefront of any digitalization project. Incremental innovation is key, and short-term investing should focus on strengthening the existing advisory business. There are numerous good examples of onboarding or of the actual advisory process which involve increasing digitalization of information flows before, during and after a meeting with the aim of meeting more and more client needs. It might well be that new products and services are developed as a consequence. An obvious area is digital identity as its management has become increasingly important. With regard to credibility, banks are especially well equipped to enter this new business field. Gartner’s report "Taxonomy of Digital Financial Services" provides a good summary of medium-term development options.
In view of these medium-term developments, of course banks can also consider new products and services in the longer term and more fundamentally. However, they should do so based on their core competency of advising clients on their assets.
In any case they should keep calm, focus on their actual core competencies and move forward step by step.