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Growing digital - retail banking conversion agenda

Author: Inna Tataryna

     Clients all over the world are actively embedding digital banking. Financial ventures have to accelerate adapting to the transformed environment or jeopardize themselves in becoming rusty.

     In a nutshell, the digitization in the banking industry is pushed forward by the clients who are looking for better and faster servicing with cut cost. And this is exactly the area where cutting-edge digital information technologies come to the rescue. The interconnectivity / mobile communication, Internet of Things, Big Data, Automation, Artificial Intelligence, cloud & blockchain are capable of making difference in delivering advanced retail banking services such as small- and middle-size crediting, payment transactions optimization, international money transfers for individual clients.

     As long as the digital processing of the retail banking business calls for a deeper assessment of true customers’ needs as well as the complete transformation of financial organization’s business specifics and lots of working efforts involvement, the acutest technological solutions have to be deployed. Indeed, each bank has to consider its own digital strategy depending on the market expansion model, products and services assortment, investment capabilities, information instruments to be already experienced with and, what is the most important, the prospective insights of further development vectors. Yet, there are a few concepts to be perceived evenly by any financial organization passing through the digital transformation process. As soon as the bank decides how its future business model has to look like, the digitization must take into the consideration the specifically designed plan.

      Being similar to the full-scale construction process, in the very beginning digital transformation requires the basis to be settled that in particular means deciding the question of financing the changes and shifting to the digitized plane.

Becoming digitally based

     For the banks and other financial organizations that have been established recently, digital transformation is a bit easier challenge or is not a task at all as they were launched already as digital-supported entities. Yet, for the older bank structures with a worldwide network of branches and representative offices, it can be much harder to accomplish the whole range of digitization steps. The problem is such huge and unwieldy companies were founded as the solid-based organizations with the focus on traditions, hard copies model of data processing and strong dependence on human personal communication obstructed by corporative bureaucratic regulations. As such banks have been already existing for decades, the generations who created this business model are not working anymore and the younger managers who replaced previous workers, have a very limited understanding on how to navigate these obsolete corporations.

     Such lack of knowledge brings lots of potential threats that may lead to significant loss in terms of finances and bank’s credit rating under the condition of continuous intense market competition. Because once the bank system is considered to be unable to match the requirements of today’s digital environment in some time it may suddenly occur that the company can’t fulfill its basic obligations in favor of their clients. For example, if the customers can’t use their accounts with IoT for a very short period of time on Black Friday, it will obviously push many of them to change the banking institution already the next day.

      Still, this problem can be specific not just to the big-scale banking market players. For instance, smaller businesses, who have adopted some part of IT infrastructure, like internal network and servers, may also lack swiftness in the adaptability of digitization tools.

     The most crucial step for such organizations is to shift to the digital terrace in order to gain fundamentality and flexibility at the same time. In fact, the digital platform is a basis to create effective multi-directional communication schemes and broad opportunities of digital banking services. And although such transformations may seem rather voluntary, in some regions, like European Union, special regulative requirements already exist, called the 2nd Directive about Payment Services that is called to help to make Fintech industry more transparent and better managed. Furthermore, this legal innovation is being closely monitored by the governments of many other countries which is why soon it may get a status of the international standard.

       Choices on the table: construction, purchasing, acquiring or sharing?

     There several variants to transfer the bank from the conventional rails to the digital platform including the possibility to create the infrastructure by themselves, to buy it from the vendor, integrate present solutions or to get involved in a partnership with another business entity. This choice has to be solely made based on the financial resources, level of previous experience in digitization, the presence of a sufficient number of qualified staff and so on. In this stage, the business leaders have to decide whether they intend to digitize the whole company’s system that will comply with European regulations on digital payments or to transform certain branch of activity.

      Constructing a digital platform on your own

      It is worth to say at the very beginning: this option is not for everyone. Only huge-scale entities with powerful IT resources and funds can afford to handle their own design and building digital platform. As one of the most successful examples in this field, Banco Bilbao Vizcaya Argentaria can be named. They have explained that in this way they planned to establish a united basis for all digital products generation as well as to get a complex tool to monitor the processes on a real-time basis. Again, such projects are pretty expensive, so smaller firms can consider it in cooperation with bigger investors.

      Purchasing finished digital solution

    Interestingly, this option is not that popular, probably, some bright cases will be observed in future. The case we can recall right now is ABN Amro which employed Backbase products.

      Absorbing the inbuilt platform

      This strategy will definitely suit the banks with sufficient funds and short time reserves. Buying a whole company with the inbuilt digital platform is a convenient way to pass through digital transformation with little efforts. Basically, we’ve observed such pattern when Scotiabank conducted acquisition of ING Direct. The core interest of this deal was Tangerine that declares to function independently, however, in fact, it is already a buyer’s asset.

      Cooperation with another bank owning digital terrace

     This variant is preferred in case the bank which intends to integrate the digital platform has no financial capability or intention to acquire another bank, possessing digitization set of instruments. As the bright example of such collaboration, Fidor Bank can be named.

      How to choose right digitization solution supplier

      If the acquisition of the company with already integrated digitization package is too much and at the same time there is no proper partner to collaborate with, purchasing software set from the vendor will look like a prospective choice. It is worth to remember that although IT developers declare supplying completely ready product, it will take some time and efforts to adapt to the company’s business specifics, to educate the staff and to polish the system to make it shine.

      Talking about options on the table, on the market we can find the range of experienced IT firms dealing with the banking industry as well as other sectors that need digital transformation. Oracle, SAP, Infosys and few other ones can be considered as true leaders in Fintech that gained their experience by thorough implementation of the project by project. The second category of vendors assimilated smaller businesses with experience in Fintech, like Finestra which has acquired a few ventures, and, thus, became one of the most prominent market operators. Naturally, this market is permanently supplemented with younger firms which actively build up Fintech expertise, and Backbase is one of them.

       What is important, these days the banking business leaders are able to select the type of digital platform they would prefer. When making this choice, vendors even do their best to help customers to determine what will the suitable for them by publishing special researches, like Ovum and Forrester did.

      In particular, the investigators determine the list of top criteria based on which the choice of digitization vendor can be done:

  • Performance quality. The depth of technical expertise, availability of high-skilled experts and solid experience in similar projects implementation will likely ensure sufficient reproducibility rate of the results obtained.
  • Technological coverage. The broader list of digitization tools, including big data management, Artificial Intelligence, the blockchain, IoT, micro-segmentation, the vendor can handle, is, more various tasks can be executed in favor of the most exacting clients.
  • Market positioning and reputation. The ranking position of IT developer on the digital solutions market or other customers’ comments on its work can be a useful tip for making a decision whether to stay with the given vendor.
  • Specificity in the offer. Under the conditions of tough competition and intense promotion, the multiple vendors’ self-description may look similar. Yet, the phrase “we can supply everything you need” may rather signify the lack of expertise than about its excess. Therefore, focusing on the vendor which declares one of few areas, for instance, augmented reality or cloud tech, being explored more intensively than other fields, will lead you to beneficial choice.
  • Strategic thinking. The good vendor has to deliver you a solid strategy of digital transformation that may take months and years, so each your and vendor’s step has to be precisely drafted and adjusted. We recommend preferring such long-goal oriented firms over simple one-time task execution.

     Be optimistic

   Digitization in banking is a complex operation as it may include shifting the enterprise data storage and analysis to the blockchain, integration AI in customer communications, IoT use enhancement in individual crediting etc., therefore, this experience may not always come easy. However, in future digitization will definitely deliver solid profits, so expected yield is worth of every penny. In order to discharge a bit project burdens, you may cooperate with experienced vendors and Fintech companies.

    Digitization is not only the way to raise benefits and improve business process efficiency, but a tool to protect the bank from the existing threats which normally are market volatilities, legal regulations change, macroeconomic changes, reputation damage, and information security.

     Digital banking as a part of Fintech industry is vulnerable in front of acute cyberattacks this day. Fortunately, digitization provides with a broad set of instruments to secure financial data, for example by applying distributed ledger database models. Therefore, thanks to this and other reasons status of retail banking digitization is dynamically changing from digital innovation, implemented voluntarily, to a must, determining a company’s viability on the market.

 

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