Fintechs have shown the path of digital innovations across payments, lending, wealth, insurance etc. As their business model is almost 100% focused on digital innovations (even if overall business may be pure digital or phy-gital), they are able to leverage the innovations to create top line as well as bottomline (may be bleeding initially).
Legacy institutions like Banks, NBFCs, Wealth firms, on the other hand, find it extremely difficult to correlate digital innovations with real business.
Why legacy businesses find it difficult to derive value from digital?
- They are already making decent revenues / profits and find it difficult to allocate management time and resources for digital initiatives.
- They have already built units to manage physical business model including sales, operations, compliance etc. These units are fundamentally impacted by digital as some of their work / decision making power moves into “software”. These units do not have incentive to embrace / promote digital. More often then not, these units turn against digital initiatives.
- They believe that Digital is just a short term phenomenon and that they can easily become digital leaders by
- Creating a small team under Chief Digital Officer
- Winning few awards
- Participating in Digital events
- Running a hackathon / accelerator
- They are not willing to build strong technology team as this increases “costs”.
- They are unwilling to hire right resources in Digital / Tech, which are not aligned to their internal compensation structure.
- They are unable to define KPIs / Products / Processes for Digital Initiatives, which is way too easier to manage in physical business models.
- In physical model, you open one branch, you allocate X resources, you track sales / costs over couple of years for turning the branch profitable else you close the branch and move to new locations. To ensure that sales team have incentive for selling, you build score card to maximize sales.
- In digital model, sales may happen through your own physical channels or your own digital channels or partner’s physical channels or partner’s digital channels. The products are also more complex to create and understand as some may be created as just “APIs”. Many products need co-creation with partner ecosystem to maximize business impact. Even operations work gets partially split across partners in the ecosystem.
- They are not willing to accept failures in Digital Initiatives and generally tend to overreact in case of any challenge.