Digital banking has been around for longer than most people think – at its most basic, since banks first introduced computers to their infrastructure in the 1970s.
But today, digital banking should mean more than a bit of computerisation. It should involve using technology to deliver a service as intimate as traditional branch-based banking whenever and wherever the customer demands it, with an immediacy and transparency unachievable before.
This cannot be realised by adding digital functionality to legacy systems. It’s not just about offering mobile and online access and real-time transactions.
It’s not even about layers of new technology that talk to layers of the old. For me, it can only mean one thing: a digital bank has digital technology at its core – its accounts, books, records and ledgers.
From this digital core, running from the top to the bottom of the bank, from the front to the back, it transacts, records, analyses, complies, as well as designs and delivers its services to its customers.
A great digital bank is digital first. It may have branches; it may not. But if it does, those branches must support the digital strategy, not the other way round.
This is because a digital bank makes a different proposition to a branch-based one – based on analytics, data and information. All this is what enables the digital bank to deliver the intimate, personal service that will make it great.
Before digital, banks offered services in branch. The manager made decisions about applications for loans, mortgages and savings products based on their knowledge of the customer. They used it to give financial advice. A great bank manager was the customer’s financial partner for life; it was personal.
Today, an excellent digital bank can do all that thanks to analytics that look at a complete picture of the customer – their whole banking history and beyond. But it can do it constantly and consistently, looking after the customer’s interests 24/7. At Temenos, we call it the single brain.
This single brain controls every interaction with the customer. It focuses on the customer’s demands and needs rather than on the transaction-driven model of old. It provides experience-rich banking – the new intimacy.
The single brain facilitates a digital strategy that goes beyond omni-channel to the point where it is omni-present. The digital bank is the customer’s constant companion – whether on websites, via mobile apps, social media or in chat rooms – to assist and advise them, while also driving cross-selling and upselling.
As a result of this uninterrupted presence, the bank can achieve a 360-degree picture of its customers’ activities, monitoring events via analytics and insight-gathering machines.
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This data is analysed in real time, then communication channels relay an offer within the parameters of credit and business constraints. The offer could be the best possible rate on a credit card, or be based on geo-location tagging and involve local retailers.
Clearly, this demands substantial investment in digital. A digital bank has to be a technology bank, and its most important resources will be IT and information/data.
But a great digital bank will not only collect data; it will also generate it. It will own the relationship with the customer by providing services that are so compelling that they wouldn’t dream of replacing it. In today’s competitive banking market, the great digital bank will become the dis-intermediary – the bank that replaces other banks and financial services providers.
An example might be that it offers a full review of a customer’s assets, liabilities, insurance policies, pensions. From this the bank recommends alternatives – perhaps beyond its own offer.
It might “see” that the customer has low excess rates on insurance premiums that are high in cost, but that claims are rarely made.
Crunching the data, knowing the market and understanding the customer, the bank could recommend alternative premiums with higher excesses at a lower cost.
It could then facilitate the change, agree the contract and pay the premium, entailing just one communication with the beneficiary.
The revised Payment Services Directive (PSD2) will usher in a new landscape that has been designed to promote this very type of activity. Digital banking is the technology required to fulfil it.
The best digital banks will find it easy. They will not be stymied by a spaghetti of different IT systems that are slow to program and expensive to change.
What is more, they will be able to deliver consistent services across their whole customer base – freed from the necessity to rely on a few good managers.
Best practice can be programmed, replicated and disseminated across the whole organisation.
Data analytics capabilities will also mean that a great digital bank will make banking services better, across the board. It will lift the competitive bar, forcing rivals to adapt to meet it or wither.
Finally, a great digital bank will be efficient. It will have lower costs, thanks to automation, and higher revenues as it moves beyond the scope of regular banking-sector activity.
A bank with digital capabilities may be able to do some of the above, but it won’t be able to do all of it. Legacy systems with digital capabilities bolted on top are never going to make a great digital bank. But a bank with a digital core, top analytics, data capture and compelling services will justify that description and more.
Sourced by Mark Gunning, director of business solutions at Temenos