Christina Trampota

One of the top business buzzwords in recent years is “digital transformation,” which too often is used to describe the adoption of digital tools. But Ron Shevlin, Managing Director of Fintech Research at Cornerstone Advisors, believes it’s something much more fundamental.

In our recent discussion with Shevlin on the Fintech Growth Talk, Shevlin said that a more meaningful and description definition of digital transformation not only has to do with the digitization of all processes within a business, but also a cultural change that puts digital first and embraces the fail fast culture so prevalent in the tech industry.

That’s something that’s incredibly difficult for most banks and it’s why Shevlin thinks that the industry as a whole isn’t as far ahead as some seem to think. For example, in speaking with executives at traditional banks, Shevlin has found that migrating core applications to more modern and flexible platforms is a huge stumbling block for most banks to move towards digital transformation.

What’s more, Shevlin believes that the use of artificial intelligence (AI) is a key step towards achieving digital transformation. But effective AI requires a lot of data, and traditional banks’ core applications simply can’t provide the level of detail and amount of data needed for effective AI programs. “It’s still very early,” says Shevlin about the maturation of AI. And until that happens, Shevlin believes the industry will not be transformed.

In fact, Shevlin believes industry-wide digital transformation will only happen once Gen Xers and Millennials take over the industry. As digital natives, he argues, they bring a different perspective that Baby Boomers just don’t have no matter how much they embrace technology.

That might be the role that challenger banks are playing now and will likely continue to play as they further develop. In the U.K., approximately 20 percent of all challenger bank customers use them as their primary bank, while about 1/3 of millennials say their primary account is with a challenger bank. That means a large number of customers use challenger banks as a supplement to their main banking vehicle. Shevlin says these secondary often for specific types of transactions, such as international money transfers. Shevlin sees a lot of promise among challenger banks, as they focus their services and offerings for specific customer segments with specific features and rewards for those customers.

The biggest shift in Fintech that Shevlin sees isn’t with either challenger or traditional banks. The real driving change in payments and the adoption of digital payment tools is stored value merchant apps. The most well-known example of this is Starbucks, but there are many large retailers and other merchants that offer a similar feature, with the most frequent one being Walmart. In fact, according to Shevlin's research, 3/4ths of consumers have at least one merchant app, storing about $3.2 billion at any given moment.

Now, some of them offer stored value and others don’t. But the big change here is how merchants are now able to evade interchange fees by offering stored value apps. It’s also a huge shift in terms of data, as app data can be gathered to form significantly more detailed user profiles. And that can then be used to add new features that consumers love.

It’s a virtuous cycle (or beneficent wheel, as Shevlin calls it), where more app and digital payment tool usage leads to better data, which leads to a better AI, and which ultimately improves the consumer experience. And that’s the real driving force behind digital transformation, whether it’s done by traditional banks, challenger banks, or merchants.


Ron Shevlin is the Managing Director of Fintech Research at Cornerstone Advisors. Author of the book Smarter Bank and the Fintech Snark Tank on Forbes, Ron is ranked among the top fintech influencers globally, and is a frequent keynote speaker at banking and fintech industry events.

Listen to our full interview with Ron Shevlin here: