Digital Banking Demands New Tech & Vendors

Emerging and startup digital banking platform technologies are the key to success of digital initiatives in our new hi-tech economy, says Gartner, Inc.

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Banks face intense pressure to increase efficiencies and reduce costs while, at the same time, delivering next-generation digital services, although Gartner (the world’s leading information technology research and advisory company) are quick to highlight the fact that incumbent application vendors have been slow to respond to new requirements. Gartner predicts that, by the end of 2019, 25% of retail banks will use startup providers to replace legacy online and mobile banking systems.

New vendors are emerging to meet both customer and bank needs for channel integration and dynamic customer experiences that make banking easier to accomplish on the devices customers want to use. These vendors challenge the traditional - often incumbent - vendors of traditional online and mobile banking and core banking solutions.

Gartner believes that the most important reasons the market for digital banking solutions has opened up is that most legacy vendors that offer bank channel applications have been slow to react to new customer requirements and the demands of digital banking.

Blue Chip spoke to Stessa Cohen, Gartner’s USA-based research director, about the challenges and opportunities that lie ahead.

We’re living through an incredible age of digital and technological advancements, but what do you believe CIOs should keep in mind when developing their strategies?

CIOs need to keep in mind that digital banking enables (and requires!) banks to build new ways of creating value based on prior business and technology innovations, as well as to pilot new approaches to conducting digital business. From a technical perspective, information, connectivity and context require a new platform to support new services networks. Digital banks leverage e-commerce-developed supply chains, pricing models and channels, and an integrated process/workflow set to augment analog activities. The digital banking strategy includes, but is not the same as, a bank’s consumer online banking strategy. A digital bank will also leverage the emerging IoT and, specifically, how IoT devices and sensors are connected to the Internet, to enable the development of new revenue opportunities.

Some of the most important challenges are not technology. For example, banks need to have digital-savvy board members who can help guide the bank from focussing strictly on the tactical aspects of using digital technologies and towards innovation. Some banks face organisational and cultural challenges that must be addressed before the bank can collaborate, create and innovate without regard to lines of business – whether on the business or IT sides. Seriously facing and changing organisational and IT silos will facilitate innovation and a bank’s ability to take full advantage of a digital banking platform to deliver new customer experiences across devices and channels and to create new data and advice-driven services that can be accessed across devices and channels.

There’s also the challenge for bankers – in IT and business – to change their focus from transactions and products to customers. How can we meet customer needs (ie “I want to pay off 50% of my credit card debt this year”, or “I want to pay a bill before I get charged a fee”), rather than delivering transactions (such as funds transfer) – and, in so doing, risk leaving it to the customer to figure out how to have their needs met elsewhere? It’s a huge opportunity as well, though, as banks have a lot of data to help them change this focus – that being the data that can advise customers in making decisions around these needs. Digital bank platforms provide the means to do that when and where the customer wants – whether as an entirely self-service transaction or with the assistance of a member of the bank’s staff.

A further challenge is to use digital technologies to improve customer experience and operational efficiencies now (ie, in the short term) while at the same time pursuing a longer-term strategy that moves the bank towards new products and business models that are able to generate revenue, to leverage partner and fintech ecosystems to create those products and services, and to leverage existing and new digital technologies to achieve these innovations. For example, if the bank uses a digital banking platform to make existing online banking and mobile banking capabilities easier to use, then these improvements will spur further process improvements in addition to the IT’s skill with using digital banking platforms to reduce friction and create needs-based customer-centric capabilities using open digital technologies.

Finally, a key challenge is to know that digital banking is not an IT play only – rather, it is using a digital banking platform to enable the bank to achieve its business and digital business goals.

Could a bank survive if it refused to stay in touch with digital changes and refused to progress from their legacy system?

What would you say about a bank that does not offer online or mobile banking today? That did not have ATMs but required customers to go to a bank branch, during traditional branch hours, to get cash? Sure, some customers would be okay with this, but for many, many customers this bank-driven and controlled process is not convenient. Some banks may choose not to pursue this future and be faced instead with the challenge of sustainability. To not stay in touch with digital change means ignoring the way customers – whether they are business or consumer customers – are living their lives and using digital technologies to do that. It means ignoring the shift of control from the bank to the customer in terms of process, as customers use their own devices now to access banking services, as they do for other non-banking services such as shopping, streaming music, and so on. They can use these devices any way they want to get the services they want, and that includes seeking out non-bank alternatives for banking services.

"Banks need to have digital-savvy board members who can help guide the bank from focussing strictly on the tactical aspects of using digital technologies and towards innovation." – Stessa Cohen

Legacy in and of itself isn’t bad – unless the vendor provider has not kept up with all the same changes and challenges I’ve mentioned above. Legacy delivery systems that do not enable the personalisation of the customer experience, and the rapid deployment of new capabilities across channels and devices, to new channels and/or devices, will hamper the CIO’s ability to keep up with customer needs and, thus, the business demands.

What are the challenges of open architecture?

To take full advantage of an open architecture, a bank must have the willingness to be open, to expose data across the enterprise, to enable collaboration and the likelihood of failure, and it must also to be open to success, especially success that they may not have “predicted” or anticipated.

What are the opportunities for service providers?

The challenge for service providers is very similar to those for banks, as simply relying on long-standing relationships with banks will not be enough to stay relevant. They must develop solutions that address the needs of digital customers – whether consumers, small business, high net worth, or corporate. These providers have to ask themselves some key questions. Have they adopted an agile software development process? How are they dealing with the disruption of fintech? Have they developed a digital banking platform that is not channel or device centric? Does it enable a customer experience that follows customers across channels and devices – whether it’s the customer’s mobile or the bank’s ATM or a contact centre representative? Does the provider take a digital approach versus a channel and device-centric approach to enabling the delivery of banking services?

Legacy bank channel applications are restricted because they are channel-centric. They use older technology that does not enable the bank to bridge channel silos and requires them to develop the same capabilities (think “open account” for each channel and even each bank product). This keeps the legacy solution focussed on the channel, the transaction and the tactical. The legacy solution and provider that can’t support the bank in the environment of constant change (such as new mobile devices, wearables, IoT) is going to be in trouble.

Where do you see banking in 10 years?

First, digital banking will just be banking. Some banks will make the transition and others will not. Non-banks may take on banking activities, yet banks as a trusted source of risk and compliance may well be the main source of banking activities. Some banks will be making loans to smart machines. The integration of smart machines with humans and banking will probably happen. Beyond that? The constant and quick evolution of technology makes it difficult to predict what will happen beyond the next three to five years.

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