Digital Banking – What is it?
If you are a banker, technician, agent or most importantly a customer in the BFSI segment, I would take it for granted, you must have heard the new buzz word ‘Digital Banking’. I’ve talked to several people in my circle and the interesting thing is that no two people perceive this the same way – ok, that’s a bit of an exaggeration, but you get the picture! It made me pause and think about what this might mean for someone like me, who is an industry insider, to answer if a colleague, friend or someone in my box asked me about it. As a true crossfit athlete, I at least follow the first rule – tell everyone you meet about crossfit.
The reason I mention CrossFit is not just because of my fascination or even obsession. CrossFit is a little complicated and intimidating to those who are not in the know, but in simple terms it is a strength and conditioning program that optimizes fitness. CrossFit defines fitness itself in terms of 10 components – cardiovascular endurance, stamina, flexibility, strength, power, speed, agility, coordination, accuracy, balance. But usually, if you ask any of your friends what fitness is, you might get multiple answers. For example, a runner will say the ability to run a half marathon, or a weightlifter might say deadlifts of at least 1.5 times their body weight, or a person who practices yoga might say they do 108 Suryanamaskaras. Well, each of them may be right in their own way. Your definition of fit might be I do all that, or you could just say I’m fit enough if I can do my 9-5 job without taking sick leave in an evaluation cycle.
Similarly, banks could interpret digital banking in their own way 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 have optimized a lot by adapting to IT / ITES (IT Enabled Services) and achieved varying degrees of success. However, due to lack of purposeful and long-term approach, creation of disjointed systems, rapidly changing business and operational scenarios, etc., the planned goals may not be fully realized. Some of these “failed” initiatives may have been driven by the institution’s desire to be an early adopter of a technology or trend (betting on the wrong horse). On the contrary, we can lose a huge opportunity if we do not recognize and bet on a winning horse. So the trick is to bet on the right horse, at the right time – ie 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 in understanding what a “hype cycle” is, please see Gartner’s methodology. I will try to bring together some of the key aspects of digital banking, as unlike most buzzwords, it is neither a service nor a technology.
Right around the time (2008-10) that I spent a year or so in Brussels, three major banks (Fortis, Dexia and KBC), which had always been extremely risk-averse bankers from the BeNeLux region, began to face a major pressure and their value fell significantly and caused heated debates in the community – who thinks that his money is always safe with the banks (as a depositor or a shareholder). What really happened there is very complicated. Key factors are the huge national debt ranging between 84 to 99% of GDP, the absence of a government for 533 days, etc. This caused liquidity problems. If you add to this other turmoil in the banking industry worldwide, it is easy to understand that “confidence” in the system has been threatened. How would we build trust? Being transparent. Customers need (not want!) system-wide transparency. The younger the customer base, the more acutely this need is felt. That when you look from the changing customer experience and expectations from retail (Amazon, Flipkart), transportation (Uber, Ola), food (Zomato, FoodPanda, ZaptheQ), you know where the banking industry is. Customers have reconfigured expectations around value, experience and options. The key takeaway for the banker – User experience – rich, uniform, mobile (anywhere), secure, enhanced value.
A lot of people I’ve talked to recently about this topic think that internet banking or mobile banking is digital. Yes, this is just the beginning of what digital banking can be. They probably cover an earlier set of customer expectations. Moving on, can we soon see a day when there is no paper in any of the banking transactions? When I say paper, I don’t just mean currency! A few things that are already in practice in several banks and gaining momentum everywhere are – digitization of bank processes (like customer registration, loan application), check truncation systems that allow you to take a picture of the check on the mobile your phone and send to your bank etc. – there by bringing efficiency to decision-making, the ability to customize processes to specific customer requirements, saving unnecessary trips to a branch, etc. In other words, this may mean implementing document/image management systems, business process management and monitoring systems, integrating these components into existing IT solutions. The key – digitization of internal processes.
Social media in the last few years has had the biggest impact across borders – be it the revolution in Tahrir Square, the Ice Bucket Challenge, which mobile phone to buy, how we order and pay for lunch or identifying a fancy place to eat and Dutch while sharing the bill . Social media is already bringing turmoil in terms of which bank to trust, what they can expect from the bank in terms of services, giving voice to their dissatisfaction. Which in turn means that banks need to be on the same social media, listening to their customers, selling their services and ultimately attracting new customers, retaining customers and more importantly, becoming ‘The Goto Bank’ if the customer has multiple accounts. As an example, what could not be expected a few years ago, in Kenya, one of our prestigious clients on Twitter (@ChaseBankKenya) uses Twitter to connect, launch and share CSR activities and very effectively address customer queries and concerns . It is, The Reach factor.
Another quiet thing that happens behind the walls in a bank is called Data Analytics or Big Data. They extract unprecedented insights into customer behavior and preferences, driving highly focused strategies. They also help clients understand their cost analysis, plan their budgets, manage financial goals, etc.
Apart from these key components, there are several others that could make the bank more ‘digital’ – chat and video discussion facilities to bring the bank closer to the customer when he/she needs, or training customers through online tutorials such as financial literacy, tax planning, etc., integrating various solutions and systems in the bank to reduce replication and data redundancy and helping the bank create more direct processing systems by reducing errors, cost of operations and increasing efficiency of the entire system. Banks could greatly increase the seamless exchange of data with other partners such as regulators, customers, government bodies, thus making the whole process much more transparent and efficient.
Finally, the big question is what needs to be achieved from the big list of tasks for a bank to be called a “Digital Bank”? Just like in fitness, there is no single solution or right solution. Each bank must define its own strategy, execution plan to achieve the objective of customer delight, operational efficiency and overall enhanced shareholder value.