Digital Banking – What is it really?

by Surya Prasad, Director, bfsi consulting.
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If you are a banker, techie, agent or most importantly a customer in BFSI Segment, I would take it for granted you must have heard the new buzz word “Digital Banking”. In my circle, I did chat with several people and interestingly, no two persons seems to perceive this in same manner – well, this is kind of exaggeration, but you get the picture! This made me take a pause and think what this could mean to someone like me who is an insider in the industry, to answer if a colleague, friend, or someone at my box asks me about this. As a true CrossFit athlete I follow at least the first rule – tell everyone you come across about CrossFit.

The reason I bring up CrossFit is not just because of my fascination or, even obsession. CrossFit is a bit of complex and daunting to those uninitiated, but to put it simply it is strength and conditioning program, which optimizes fitness. CrossFit defines fitness itself in terms of 10 components (If curious, please see this). But, typically if you ask any of your friends what is fitness, you might get multiple responses. E.g. a runner will say ability to run half-marathon, or a weight lifter might say deadlift of at least 1.5 x body weight, or a guy into yoga might say doing 108 Suryanamaskaras. Well, each of them may be right in their own way. Your definition of fitness may be doing all of those, or you could just say I am fit enough if I am able to do my 9-to-5 job without taking any sick leave in an appraisal cycle.

On the same lines, banks could interpret Digital Banking in their own terms and similarly, people like you and me will have formed some opinion based on our own exposure.

Over the years, banks of all sizes and shapes optimized a lot by adapting to IT / ITES (IT Enabled Services) and they have achieved varied degrees of success. However, due to lack of focused and long term approach, creation of disjoined systems, rapidly changing business and operating scenarios, etc., the intended goals might not have been fully realized. Some of those “failed” initiatives could have been driven by the institution’s urge to be an early adaptor of a technology or trend (betting on a wrong horse). On the contrary, we might lose a huge opportunity, if we don’t recognize and bet on a winning horse. So, the trick is betting on the right horse, at a right time – i.e., when the odds are low. Typically, industries use what is called a Hype Cycle to evaluate a new technology or trend. If you are interested to understand what is a “hype cycle”, please see Gartner’s methodology. I am not going to analyze the hype cycle of Digital Banking here. I will try to string together some of the key aspects of Digital Banking, as unlike most of the buzzwords, it is neither a single service nor a technology.

Just around the time (2008-10) I spent about a year plus in Brussels, three big banks (Fortis, Dexia and KBC) which always came across as extremely risk averse bankers from the BeNeLux region, started facing major pressure and their value eroded significantly and triggered heated debates in the community – who thought their money is always safe with the banks (either as a depositor or share holder). What really happened there, is very complex. Key factors being, huge sovereign debt hovering between 84 to 99% of GDP, lack of Government for 533 days, etc. These triggered liquidity issues. If you add to this other upheavals in the banking industry globally, it is easy to realize that the “trust” within the system was under threat. How would we build trust? By being transparent. Customers need (not want!) transparency in the whole system. Younger the customer base, that need felt is more acute. This, when you look from the changing customer experience and expectations from retail industry (Amazon, Flipkart), transportation (Uber, Ola), food industry (Zomato, FoodPanda, ZaptheQ), you know where the banking industry is. Customers have reset the expectations in terms of value, experience, and options. The Key takeaway for the banker – User Experience – rich, uniform, mobile (anywhere), secure, enhanced value.

Many people I have interacted with recently on this topic, opined Internet Banking or Mobile Banking as Digital. Yes, this is only the beginning of what could be Digital Banking. Probably, they cover earlier set of customer expectations. Moving on, could we see a day soon, where there is no paper in any of the banking transactions? When I say paper, I am not just referring to currency! Few things which are already in practice in few banks and gaining momentum across are – digitizing processes within the bank (like customer on-boarding, loan application), cheque truncation systems which allows you to take a photo of the cheque on your mobile and send to your bank, etc. – there by bringing efficiency in decision making, ability to customize processes to specific customer requirements, save some unnecessary trips to the branch, etc. This could mean in other words, implementing document/ image management systems, business process management and monitoring systems, integrating these components within the existing IT solutions. The Key – digitizing internal processes.

Social Media in the last few years have brought biggest impact across borders – be it, Tahrir Square revolution, Ice Bucket Challenge, which mobile to buy, how we order and pay for lunch or identifying a fine dining place and going Dutch while sharing the bill. Social Media is already bring disruptions in terms of which bank to trust, what they can expect from a bank in terms of services, lend a voice to their dissatisfaction. Which in turn means, banks have to be on the same Social Media listening to their customers, selling their services and also ultimately, attracting new customers, retaining the customers and more importantly, becoming “The Goto Bank” if the customer has multiple accounts. As an example, what could not have been expected few years back, in Kenya, one of our prestigious client’s Twitter handle (@ChaseBankKenya) uses Twitter to connect, launch and share CSR activities, and address customers’ queries and concerns very effectively. That is, The Reach factor.

Another silent thing happening behind the walls in a bank is called Data Analytics or Big Data. These churn out unprecedented insights into customer behavior and preferences, driving extremely focused strategies. These also help customers to understand their spend analysis, plan their budgets, financial goal management etc.

Apart from these key components, there are several others which could make the bank more “digital” – chat and video discussion facilities to bring bank closer to the customer when he/she needs it, or educating customers through online tutorials like financial literacy, tax planning, etc., integrating various solutions and systems in the bank to reduce data replication and redundancy and helping the bank make more Straight Through Processing systems there by reducing errors, cost of operations, and increasing efficiency in the entire system. Banks could significantly increase seamless data exchange with others partners like regulatory bodies, clients, government bodies thus making entire process much more transparent and efficient.

Finally, the big question is what should be achieved from the big task list to call a bank “Digital Bank”? Just like in fitness, there is no single solution or the right solution. Each bank has to define its own strategy, execution plan to reach the goal of customer delight, operation efficiency, and overall share holders’ enhanced value.

With our sharp focus on Core Banking Solutions, and wide range of experiences in consulting, implementation, testing, integrating several solutions at various banks across the globe, we at Bfsi consulting will be glad to engage with you or your team to help realize some of these goals.

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