Not a day goes by nowadays where you do not read about new fintechs, artificial intelligence or payment innovations changing customer behavior and challenging the existing players in the financial industry. So what is actually happening and what will be the consequences of this wave of “digitalization” that is filling blogs, newsletters and conferences? The question is especially relevant in our industry, where basically everything is already based on digital technology.

To find an answer to this question, I think it is necessary to differentiate between digitalization and digital transformation and to look at other industries that have come further on their transformative journey. My favorite example is the music industry, because we all use new digital music services on a daily basis.

When music was digitalized and we moved from LPs to CDs, this was the first step in the digitalization of music, but it was not yet a digital transformation. The value chain stayed the same: we as consumers still bought 20 songs on a physical device and needed a CD player to play the music in the same location where we used to listen to LPs. But then we were able to rip CDs and create MP3 files from the songs. This step in the digitalization process led to the rise of illegal music sharing sites like Napster, and to people sharing vast amounts of music on hard disks, as well as to the rise of MP3 players that enabled us to take music with us and listen to it without bulky and shock-sensitive devices like CD players.

The winner in this new form of music consumption was Apple, who created the ecosystem of the iPod and iTunes, thereby legalizing the purchase of digital music. (And in the next step revolutionized the telco industry with the iPhone, but that would be a separate story.) I assume that most of us have some old MP3 players at home that we are not using anymore, which leads us to the next phase of the digital transformation. Even if Apple enabled us to buy the music we wanted and listen to it on cool devices, this was not really fulfilling the needs of most people listening to music.

Today we use services like Spotify or Pandora, where we subscribe to a music service that enables us to listen to all kinds of music, instantly and anywhere, on the devices that we are already using and have with us all the time (PCs, Smartphones, tablets, Sonos…)

This example shows very clearly how the DIGITALIZATION of music was enabling and driving the DIGITAL TRANSFORMATION of the music industry. Since the transformation, people’s consumption patterns have changed, the payment model is completely different and most parts of the value chain have been replaced with new devices and services. The perceived value for the end user has shifted from cool LP covers to the best playlists on Spotify.

So what does this mean for the financial industry? Which parts of the value chain will be digitized next and what kinds of value clusters or ecosystems will be created? What will the end users perceive as having the greatest value and what exactly will they be paying for? What kinds of insights and business models will be possible based on the data that is created in our industry, and, more importantly, who will benefit from that – the existing players like banks, new fintechs or the tech giants that base their whole value creation on the use of (customer) data? (How do you actually pay for using Google services?)

I am sure that there will be different answers for different parts of our industry and that the market will become much more differentiated. Based on the example of the music industry, we have to ask us the questions mentioned above and create customer-centric strategies, not technology- or product-driven ones. The winners will be the ones that are able to transform their operations and create enthusiasm for the new possibilities in their organization. It will become very clear whether your culture is bottom-up and customer-centric, or if this is only a top-down marketing slogan.

But one thing is for sure: the digital transformation will have a huge impact on our industry, the way we interact with our customers, the way we deliver our services and the way customers pay for our services.


Stephan Erne
Chief Digital Officer

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