Challenger banks (like Monzo) and encroachments from powerful brands (like Orange) and ambitious Chinese players (like Alipay) present competitive challenges to financial services providers. Easier authentication, payment, and customer service are at the heart of modern customer experiences, and customers have high expectations. The explosion in fintech and other emerging technologies creates opportunities to radically overhaul business models and business practices. But, change is hard, talent is scarce, and an environment conducive to innovation is a culture shock for many established institutions. To successfully transform, businesses must support innovation from initial experimentation through to new ways of doing business that will become the “new normal.” HFS recently spent some time with Capgemini’s Financial Services team learning about the challenges it’s facing with its customers in this vertical.

Capgemini is using the momentum of threatening forces advantageously and stretching toward opportunities

While Capgemini’s IT services customers span major industries, its biggest vertical is financial services, comprising over a quarter, or 27% of FY2018 revenues and supporting relationships with big names globally including Wells Fargo, ANZ, Allianz, Bank of Ireland, and Lloyds. The demands on the C-suite in this vertical are high. It must balance resources to support the current way of doing things—keeping the lights on—while delivering growth, driving down costs, retaining customers, and maintaining margins. Cybersecurity must be top-notch, too. All of this—while creating a whole new way of working! Driving persistent progress in building out new business models, ecosystems, architectures, infrastructures, and customer experiences involves trying many new things, some of which will fail.

Simultaneously, support the old, reduce costs, and invent to grow revenues

In a recent HFS survey, 368 respondents ranked digital transformation priorities. In Exhibit 1, we see the percentage of financial services respondents that ranked each item first compared to other verticals. Growing top-line revenue continues to be important for BFS firms, but taming costs ranks a close second. Compared to other industries, the priority order is telling. Any service provider helping BFS clients needs to focus squarely on helping them drive revenue.

Exhibit 1. Revenue growth trumps cost saving for BFS

_{Source: HFS Research, 2019}

Capgemini built a single digital transformation consulting business, drawing previous acquisitions (Adaptive labs, Fahrenheit 212) and other pockets of innovation-led consulting expertise together to go beyond ideation to realization. Capgemini’s design thinking approach bolstered by acquisition is not unique—IBM’s “cognitive garage” concept is but one that is similar. And, indeed, a steady increase in engaging with start-ups directly to bring emerging technologies directly to clients is commonplace. Capgemini is, however, bringing some joined-up thinking to the table, helping its clients figure out what’s what with new technology and who’s who in start-ups and categorizing it in a useful way.

Identify disruption and take action, keeping an eye on the long term

Three big challenges are apparent in banking; Capgemini’s responses to these challenges are largely in line with HFS’ views on practical routes forward:

• Customers have more choice than ever. The UK, US, Ireland, and Australia are experiencing this choice explosion; for example, Open Banking is now kicking in at pace. Capgemini favors a more agile or “beta” way of working—moving fast, trying things out, launching into the real market. HFS would add that in the switch to more innovative and agile working practices, you must set realistic expectations around agility if you aren’t replacing core legacy systems.

• Cost to serve is high; margins are low. Capgemini is supporting cost-cutting necessities with AI and automation. HFS advises against a piecemeal approach here; instead, aim toward integrated automation by building the longest possible chains of automated processes. Capgemini is also helping people cut through the AI hype by providing AI use cases with specific examples of complete project work. HFS welcomes any effective hype-reduction initiatives here.

• Innovation is threatening incumbents. Capgemini supports the new construct of “beyond banking” to create new relevance, often in adjacent areas. Early attempts in this vein include loyalty schemes and integrating with an accounting package. HFS thinks integration points are critical in building effective ecosystems. If you want to be a player in a bigger system, you must make yourself easy to work with, both commercially with business models and technically in terms of integration points with external systems.

Identify and integrate with partners that add value

Partnering is not embedded in financial services companies’ DNA today; it’s a new and growing challenge. Even identifying the right partners can be difficult, especially as fintech start-ups proliferate. Capgemini is developing a maturity assessment to help financial services companies navigate the world of start-ups. Do they have enough money, a good team, and a decent sales strategy? Once Capgemini qualifies a start-up, it takes a deeper look at stability and ability to scale. It categorizes start-ups and applies a rating, such as Promising or Emerging.

Capgemini is also supporting building out an ecosystem with partner system integration. TransferWise is integrating with banks’ online and mobile platforms to make its low-cost money transfer service available. Capgemini integrated a project with TransferWise at one large bank within two weeks, including the legals, commercials, and integration.

Establishing intelligent data-driven processes across the organization is the long game

Despite all advice, silos with disjointed data are rampant throughout financial services providers’ systems, and business processes are cumbersome. Capgemini’s Cognitive Document Processing (intelligent automation) makes a start here, extracting data from unstructured data sources.

Now is the time for ambition, pragmatism, and action, especially as ecosystems come into play. In addition to the existing challenges with internal systems’ complexity and silos you need to make processes work across external systems too.

Transformation is not optional; slavishly adhering to the old rigidity or merely scratching away at the surface with a cost-cutting mentality presents greater risks.

The Bottom Line: Experimentation must go beyond cost transformation and evolve into new ways of doing business, supporting co-creation of new processes and new ecosystems. The new challenge is piecing together new applications, architectures, and infrastructures rather than developing custom solutions.

Cost transformation is the main ask that customers make of Capgemini, more than digital transformation, but the agility that’s needed to underpin constant change is still not there, so a multi-pronged approach makes sense, reinventing for agility.

Interestingly, Capgemini is working toward new business models with shared outcomes. It’s also experimenting with some new intermediary roles such as aggregation, bringing others together and facilitating participation from non-traditional players. These new intermediary roles represent  a whole new way of thinking about the role of IT services suppliers as businesses transform, certainly a more progressive approach than the traditional IT services business model where time and materials is the primary pricing mechanism.