Academic journal article Chicago Fed Letter

Digital Innovation, Generational Shifts, and the Transformation of Financial Services

Academic journal article Chicago Fed Letter

Digital Innovation, Generational Shifts, and the Transformation of Financial Services

Article excerpt

In recent years, financial services firms have been learning-and adapting to-new ways of doing business as a result of technological advances and changing preferences among their clients and workers. This year's conference highlighted digital transformation of the financial services industry; the current and possible future applications of artificial intelligence (AI) and big data analytics for banking; the generational shifts among bank customers and employees; and the impact of these developments (and other factors) on bank risk and regulation.

Fifth Third Bancorp CEO remarks: A view from the corner office

In the opening keynote address, Greg Carmichael, CEO, Fifth Third Bancorp, provided his perspective on digital transformation. Carmichael said that society and banking are being shaped by consumer preferences to shop and transact online. He emphasized that strategic digital transformation of a bank is chiefly about taking care of its customers and delivering value to them. From his perspective, digital transformation is critical for a bank to retain or increase its customer base.

Carmichael identified three key elements to remain competitive in today's banking landscape: 1) delivering convenience; 2) offering value-added products and services; and 3) promoting an innovative culture. The first two elements are closely interrelated: Banks can deliver convenience to their customers by providing smartphone applications and person-to-person payment networks and by offering a ubiquitous multichannel experience-which includes a website, automatic teller machines (ATMs), physical branches, and call centers. Acknowledging generational shifts in consumer behaviors, Carmichael emphasized that tailoring products and services to millennials is vital. To develop a more innovative work culture, Carmichael said, his firm redesigned its workspaces;1 transformed its work processes with intelligent automation2 and iterative development3 approaches; and overhauled its technology architecture and infrastructure.

Strategic efforts to transform the ways in which financial services firms conduct business with their customers do not come without risks and vulnerabilities, Carmichael noted. As banks migrate to more agile and flexible information infrastructures, more cybersecurity threats may emerge, creating new risk-management considerations. Carmichael pointed out that communication within a firm and across the financial services sector is critical to fighting cyberthreats; he stated that efforts to thwart cyberattacks can be enhanced through the development of consistent industry standards and public-private partnerships.

How are financial institutions changing in response to tech sector developments?

A panel of experts discussed the emergence of Chicago as a technology hub. The panelists also talked about the ways in which their organizations are changing to compete for tech clients and to take advantage of recent technological innovations. Lamont Black, assistant professor of finance, DePaul University, moderated the panel discussion.

Fred Hoch, founder and general partner, TechNexus Venture Collaborative, began the conversation by describing a burgeoning tech industry in the Midwest. Hoch observed that many new and established tech firms have located parts of their operations in Chicago. Indeed, Chicago is currently among the top five technology centers in the United States, he said. Hoch argued Chicago is well positioned to help usher in the next wave of digital innovations. The city hosts world-class universities and companies-such as Amazon (with 10,000 employees in Illinois) and Microsoft, Google, and Salesforce (with over 1,000 employees each).

As a result of the growing tech industry presence across the Midwest, some banks with branches in the region have strategically targeted tech firms as customers. John Hoesley, head of innovation banking, Canadian Imperial Bank of Commerce (CIBC) discussed how his firm has gone one step further by revamping its financial services for technology companies-an effort it has branded as "innovation banking. …

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