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Truly Digital Banking?

Via LinkedIn : The digital banking journey has just begun. So far, the playground has been limited to small initiatives, such as app suites, video advisory, and PFM tools. Digital bank is a complete deconstruction and reconstitution of a traditional bank, rebuilt ground-up with digital principles, technologies and architecture. It has a different technology plumbing, organization structure and culture. It doesn’t mean an online only or mobile only bank with no branches, – though it could be this for some banks – but is a bank where all internal and external facing functions are redesigned based on digital principles, so that the bank will not only survive but thrive for the next 30 years.


With digitization, another wave of value-chain disaggregation is likely to occur. The demand for more sophisticated elements within the value chain, such as managing customer insights and closing the capability gap banks have with industry leaders, will open up doors for new entrants. Big IT providers and niche financial technology players are entering the market with innovative solutions. And once customers get used to that kind of service, banks will need to react, either by shaping up their internal capabilities—a lengthy and expensive process—or by teaming up with new service providers. In one possible scenario, the value-chain disaggregation could start with know-your-customer (KYC) services, where more advanced players provide deep customer insights from banking transactions and a variety of other sources such as social networks, digital footprints, and shopping preferences to better understand customer needs and align CRM actions accordingly. After CRM, the next logical step could include risk-scoring activities, where the CRM provider delivers insights to better understand risks associated with customers. This scenario could ultimately split up core banking businesses, such as product development to external providers that know about customer preferences and associated risks, reducing banks to pure transaction handling—a highly regulated aspect that is less attractive to non-banks. Although this scenario may seem distant and improbable, it highlights the importance of building the right capabilities early enough to navigate toward the most desired outcome instead of waiting for others to make the first move. Banks in Northern Europe and the United States are scrutinizing processes and entire value chains to determine which players will be in charge of the customer and which will be purely product providers. Around the world, banks and non-banks are looking to work out new solutions and propositions to better serve their customers. The much talked-about move into banking by telco players and large players such as Google and Amazon is another scenario that could disrupt the industry. While legislation and regulation are still preventing fast-moving companies from fully entering the market, closer collaborations are likely to occur. For example, Google could provide deep customer knowledge and manage demands while the bank moves to the background as product provider and processing unit. Disruptive changes are also expected in the product and service portfolio and in the revenue model. While banks are working on rationalizing their core product portfolio in terms of variants and specific offerings, the number of value-added services will surge as technology paves the way to support customers’ quest for convenience, individualization, and transparency.

Banks worldwide are on the move. They may not be moving at the same pace, but digital banking is on every player’s agenda from the United States to Europe and Asia Pacific. However, regional environments are defining each county’s readiness for digital banking.

Digital Banking reediness index:


Source: A.T. Kearney and Efma global retail banking study

The Netherlands, Australia, and Singapore show strong banking capabilities, including advanced digital offerings, strong financial positions, and digital structures while the United Kingdom strongly benefits from a very dynamic market with an attractive financial sector and aggressive technology-oriented companies spurring change in banking solutions. From a customer perspective, the markets in Singapore, Sweden, and Denmark are the most advanced with many digital natives, high smartphone penetration, and strong e-commerce shopping behavior.

Top countries in digital banking readiness index:


Source: A.T. Kearney and Efma global retail banking study

But given the existing organization silos, competing priorities and incentives between them, and legacy technology, we see that banks are investing more and more dollars to dress-up their traditional banking reality to appear as a cool digital bank to their customers. But this is not sustainable and those banks that don’t have digital plumbing internally will be unable to cover it up and provide the experience customers are looking for in the years to come. The difference is already becoming apparent. Even in an area like a mobile app, the new start-up is getting better reviews than traditional banks.

So what makes bank truly digital?

Let us look at what makes a bank a truly Digital one based on all the trends we are seeing.

  • The bank needs to move beyond products, processes, business silos, channels into one which is organized around customer data
  • The bank will expose APIs of its services to customers and partners. It will allow customers, partners, other companies to build apps and widgets on top of this.
  • The bank will also publish a basic set of apps and widgets that can be used along with other widgets/apps by the customer to construct the user experience they need. In effect, the customer will design the bank experience he/she needs and not the bank.
  • These apps and widgets will continue to proliferate across platforms (including Facebook), devices, and social space and expand to leverage localization, customer context etc. Banks might not build all of them, but will allow the ecosystem of partners and software providers to leverage the APIs to do this. Banks will approve many of these apps and widgets.
  • Products will also be assembled by the users in many cases.
  • All interactions with the bank by customers will be personal, and context aware based on leveraging customer data /Big Data.
  • Security will be more critical than ever before.
  • Banks will offer services for various currencies and virtual money and offer ways to store and move all types of money – real or virtual.
  • Transactions will be free, products will be commoditized; value added services and products are where the banks will make money.
  • The revenue model of penalizing the customers for late payments, overdraft etc. will not survive.
  • Banks will become advisors for the financial affairs of the customers and will reach out to them and assist the customer instead of waiting for the customer to interact with the bank. Customers and the bank will be always be connected and share data in real-time.
  • Banks should be extremely fast in rolling out new APIs, apps and widgets. They will be as agile as the open source community or top software product players.

In order to deliver the above, banks need to have the following technology building blocks:

  • A middleware or SOA layer that can expose APIs securely outside
  • Services published as apps and widgets across devices and social space
  • Data (including Big Data) capture, analysis, insights and actions for each customer in real-time.
  • Security layer across all technology, processes, and data
  • An agile technology organization which rolls out services and apps for the customer and external ecosystem

Beyond technology, banks need to also consider the following to become digital:

  • Organize the bank around customer data and not around line of business, products or channels
  • Redesign the branch and call center to augment the Digital bank. Branches might morph into something new.
  • Build a strong partner and software developers ecosystem. Compete as a network and not alone.
  • Outsource some of the standardized processes to utilities and use them as widgets and apps to compose services.
  • Change the incentives of Sales, Relationship managers, Tellers, Contact center staff to align to customer service and digital KPIs instead of silos and conflicting incentives

Disclaimer: The views in this article are in my individual capacity and do not anyway represent/relate to my current or past employers.

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