If a bank wants to be a digital leader, fundamental changes in how it operates are required

If a bank wants to be a digital leader, fundamental changes in how it operates are required

Today, most banks want to be digital leaders because that is where the customers are! This has brought in a change in the attitude of many traditional banks. Arun S. Padaki, a seasoned corporate banker, credit risk and business process management consultant, explores what it takes to become a digital leader and who is already ahead in the game.

Digital disruptors are challenging the banking industry, redefining customer expectations and reshaping industry boundaries, or blurring them forever. All these developments are happening outside the core of banking, and this is what is shaking up the industry.

The industry boundaries are being redrawn as platforms reshape industries into interconnected ecosystems. Banks are increasingly engaging new digital partners, with traditional business partners or vendors dropping to second place, a situation, hitherto unthinkable as these vendors sat pretty, and dictated and consumed banks’ IT budgets.

Programmes to innovate and integrate applications and collaborate with existing and new business partners are on the rise. Experimenting with Platform-as-a-Service (PaaS) solutions or applying PaaS to large strategic initiatives to enable faster deployment and integration of disparate systems see an uptrend. Lean IT, outsourcing, cloud technologies, app-focused front-end, smart middleware, a robust core, et al are bringing an evolution within the IT organisation itself. Added to this, are the challenges with the transformation of organisations.

A flexible organisation will adapt to the changing times within a short time by ramping up growth options presented by disruption outside the core and a transformation to the core itself. We find digital strategies in place in banks of all hues across the world. How far have they gone and how do they plan to complete this journey? Some aspects, considered sacrosanct in a bank’s digital roadmap are discussed here.

Simple things unsettle big players… mobiles and smartphones
If a bank wants to lead in a digital economy, it most likely needs to make fundamental changes to how it operates. These changes are:

  • Mobile banking and smartphones have been instrumental in changing the banking world, ever since their display screens have grown in size and bandwidths have improved. Currently more than 50% of the mobile devices sold worldwide are smartphones and bound to exceed 80% by 2020. Mobile phones will play an important role in a bank’s digital strategy as it will grow to be the first touch point for customers. A dramatic increase in mobile banking usage in the UK – according to a recent report by British Bankers Association (BBA) – is a testimony to this. Mobile banking channel has outgrown all other channels.
  • Digital means hooked on to the connected world, all the time. Continuously staying connected is the rule here.
  • Just like footfall in a branch, mobile traffic will now be a key determinant – more traffic is building up the bank’s audience. New rules are already in play here!
  • Keeping pace with innovation, like the new Apple Pay features.

A disruption that is not put down but followed and adopted… agile models to handle disruption
Banks must respond by disrupting themselves and creating new options for growth outside of their core business. These could be launching a digital wallet, in-app commerce and digital ecosystems, providing integrated financial or non-financial solutions or data monetisation by using big data.

Seeking growth around technology disruption is akin to the shark-fin model. As disruptive growth options are being considered, a simultaneous transformation is needed all the way to the core. Core transformation is a structured and more traditional approach – like the bell-curve – is to open up the platform for any possible integration with applications that matter today and in the future. This approach encompasses customer handling, and at an organisation level, reviewing how the architecture fits into the overall digital strategy.

A peek into these broad aspects:

  • Customer engagement – focus on how to engage customers across digital channels, establishing a true omni-channel customer experience; digital channels; new digital products; remote advisory services, placing the changing roles of the branches and staffing, in the very few branches that would be operational.
  • Operations strategies – banks will have to open up their IT platforms to create efficiencies now and enable future growth through new business models. A digital IT blueprint enables the evolution of business models through new digital ecosystems – powered by open architecture and able to integrate with third party applications.
  • Enterprise strategies – key focus here on creating end-to-end digital enterprise, process digitisation; smart working and digital collaboration tools; and adopting a digital culture.

Banks on digitalisation path are in an “attractor state”. An industry attractor state describes how the industry should work in the light of technological changes and the resulting demands. These banks demonstrate future trends in banking. Having a clear view about an industry’s attractor state helps one ride the wave of change more gracefully.

The mindset is “customer first” and the understanding of efficient investments in IT at the right stages. This applies to both developed and emerging markets.

This is part 1 of a two-part article. In part 2, Padaki covers the entrepreneurial zeal required by banks for effective customer engagement with the use of technology, the criticality of its own people engagement to match up to the changing times, and who the pioneers in digitalisation are.