Digital Transformation: Scaling with Technology

I recently posted an article about how the disruption in the financial services industry is such that companies can’t just look at what they’ve done in the past and evolve it. I want to split hairs a bit with the article and say that companies can’t just look at the recent past, because I think that there are some benefits to looking at the far past.

In my understanding of America’s Old West, you had small towns where everyone knew each other. If your plow blade broke, but you didn’t have money to replace it, you could go into the General Store and say to the owner, “Bob, I need a new plow blade, I’ll pay for it as soon as I get paid for the harvest.” At which point, Bob would in his head evaluate what he knew of you. (Were you honest? Did you generally get a good harvest? Did you owe anyone else money? Do I have enough cash to last until he pays me? etc.) There was nowhere for him to get a Credit Score, so he effectively created his own, because he knew the information for the small number of people in town.

Today if you go into the Apple Store and tell them that your laptop just broke, but you’ll pay them as soon as you make the presentation and get paid for your consulting gig, you will not get a laptop (and if you force the issue, you might get thrown out... or worse). Instead, you pull out a credit card which acts as the intermediary in providing the information.

The problem, of course, is that when there are intermediaries, there are fees. Because Bob was dealing with a very small number of customers, he could do the analysis of the community in his head. It was a ‘free’ benefit to his business. But no individual can do this at scale.

Scaling personalization is one of the many ways in which the Financial Services landscape will change in the next few years. Technology will enable companies to leverage information in ways that haven’t been possible at scale. If we look at Square, they are doing exactly that. They are taking the ‘exhaust data’ from small business transactions and using that to understand the financial health of the business (how much revenue comes in, when it comes, from whom it comes.) They are then using that to make better loan decisions.

They are effectively creating credit reports for small businesses with the data that is output from their service (and which are also more indicative than current approaches). This provides value for the small businesses (historically the lack of transparency has reduced the availability of credit) as well as value for Square. And given Square’s customer insight, they will be able to more effectively price their loans than any outsider. Conventional Financial Institutions would need to make much riskier loans to a wider population in order to match the loans that Square can make to the population that they know and target.

Anybody can do personalization. The questions is whether you can do it at scale?

This kind of innovation happens best when the business and the technology sides of the business collaborate. Are you enabling joint innovation between teams? Have you changed the way you think about value and client need drivers? Are you helping to reshape your industry?

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Brigid McDermott is General Manager, Financial Services Industry at IBM. She believes that technology can make life better for everyone—if more people focus on what the technology can do, rather than just how it works.