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What really is “digital banking”?

Consensus on this oft-used term’s meaning eludes

Bank tech trends can make your head spin. So each week longtime Tech Exchange Editor John Ginovsky does his best to “make sense of it all.” Bank tech trends can make your head spin. So each week longtime Tech Exchange Editor John Ginovsky does his best to “make sense of it all.”

Most people in the banking industry agree that digital banking is the wave of the future. Indeed, many would contend that it’s already here.

Yet there’s not all that much agreement regarding what “digital banking” really means.

“Digital banking” often gets confused with mobile banking and online banking, and even omnichannel banking. True, all these involve digital applications in one form or another. But what constitutes “digital banking,” or even a “digital bank” has yet to gain overwhelming agreement.

Consensus on the vagueness

“The views of what ‘digital’ means for banking are diverse, and there is little consensus in the industry. Celent argues that digital is fundamentally reshaping financial institutions and requires a structural change in banking,” says the consultancy in a recent report giving its own two cents (or bitcoins, if you are digitally inspired).

When Celent asked a sampling of bankers if they strongly agreed with various statements regarding investments in mobile/digital technology, results were:

• We aim to improve customer relationships through digital engagement—47%

• We have to do it to keep up with the competition—44%

• We aim to attract new customers and upsell customers through our mobile channel—32%

• We aim to reduce costs by migrating transactions from the branch channel—16%

So, clearly, there is a meeting of minds on something.

(It’s informative to note that when credit union executives were asked these same questions, the percentages for each were much higher.)

Is digital a “smart branch”?

IBM, a bastion of all things digital, works directly with banks around the world. Stuart Bilick, global banking industry market segment manager, writes in an IBM blog about the opportunities gained from big data and analytics to transform the customer experience.

Such an approach blurs the line between electronic and brick-and-mortar banking. Bilick discusses using such information “to provide innovative banking services at a new digitized, virtualized retail location called a smart branch.”

The example he provides is based on a branch run by the Bank of China, but smart branches are starting to pop up all over, including the U.S. This particular branch includes:

• A sales area where customers can try out mobile devices.

• The ability to direct customers to nearby branches that aren’t as crowded at the time.

• A QR code wall from which customers can purchase services or obtain additional information.

• The ability to capture anonymous user behavior to better respond to customer preferences.

In sum, Bilick writes, the branch “can deliver transformational services that tap big data and innovative channels to create new, more personalized customer experiences.”

All of which, furthermore, glom together mobile/online/omnichannel banking into something even more: the digital bank.

An urgency, not an academic question

It’s a very important distinction—meaning dollars, cents, and profits—as research from Javelin Strategy and Research finds in a recent report. It looked at the relationship between affluent/wealthy customers and their accessibility to technological banking opportunities.

“Time is of the essence, as approximately one in every ten wealthy customers is likely to switch financial institutions in the next 12 months. This puts 57 million bank products and services, $2.3 trillion in investable assets, and $348 billion in bank deposits at risk—just for those with $100,000 to $150,000 annual income,” the report says.

More to the point: “The digital banking platform is the key to servicing affluent and high-net-worth customers, as they are increasingly using digital channels to open and service their accounts. Wealthy customers gravitate toward online banking tools at twice the rate of in-person banking on a weekly basis (68% to 27%).”

Digital change goes beyond banking

Accenture and HfS Research, in a joint project, also have recently looked into the “digital transformation” going on generally across businesses, including finance and accounting services.

“Our research now shows that savvy organizations are realizing that new digital technologies can propel their use of more advanced integrated services to support unconventional areas, better focus on the external customer and supplier relationships, and enhance their competitiveness,” says Christian Campagna, global managing director, Accenture.

The researchers note the following trends:

Digital adoption is fueled by the need to improve end-to-end integration of internal and external services.

Nearly all organizations surveyed agree that one of the leading reasons for adopting digital technologies is the need to improve integration of processes and operations across functional boundaries—in other words, use tech to penetrate the silos.

“Forward-thinking organizations are clearly recognizing that digital transformation is not a mere trend or fad. It represents a critical evolution of new capabilities to boost their competitiveness, and its significance and value cannot be underestimated,” says Phil Fersht, CEO, HfS Research.

CFOs are taking on more technology leadership.

CFOs, who have long assumed a leadership position with respect to the prioritization, deployment, and management of shared services, are currently playing a strong role in determining which processes are most ready and viable for digital transformation. The firms’ research found that at 37%  of the companies surveyed, CFOS are making the final decision about implementation and another 52% are providing major input—compared to the CIO (40% and 47%, respectively).

“The CFO’s pivotal position at the intersection of finance, technology, and strategy makes him or her uniquely qualified to help the organization unlock the value of the digital revolution and maximize its benefits,” says Campagna.

There is a digital talent gap—which firms will tend to fill from within.

Many organizations plan to train and retool their current employees rather than employing the assistance of third-party experts to implement these new technologies.

“While the importance of digital technologies justifies the investments in developing skilled staff who understand them and can apply them to business needs, the pace at which they are evolving is increasing the need for many enterprises to rely on outside advisors who focus on these technologies day in and day out,” says Fersht.

Ginovsky’s own answer: Do you agree?

So, we come back to the central conundrum, what is digital banking?

Here’s my stab at a working definition:

Digital banking is the incorporation of new and developing technologies throughout a financial services entity, in concert with associated changes in internal and external corporate and personnel relationships, to provide enhanced customer services and experiences effectively and efficiently.

True, that’s a mouthful. Any suggested improvements to such a definition, or any comments at all, are sincerely welcome. Let’s see your definition in the comment space below.

Sources used in this article include:

Digital Transformation Enables Expansion of Shared Services Model to Non-Traditional Business Functions, Accenture and HfS Research Study Shows

Defining a Digital Financial Institution: What “Digital” Means in Banking

Customers enjoy better banking experiences thanks to big data and analytics

How to Attract & Keep Affluent Customers: Step One—Upgrade Digital Banking Features

John Ginovsky

John Ginovsky is a contributing editor of Banking Exchange and editor of the publication’s Tech Exchange e-newsletter. For more than two decades he’s written about the commercial banking industry, specializing in its technological side and how it relates to the actual business of banking. In addition to his weekly blogs—"Making Sense of It All"—he contributes fresh, original stories to each Tech Exchange issue based on personal interviews or exclusive contributed pieces. He previously was senior editor for Community Banker magazine (which merged into ABA Banking Journal) and for ABA Banking Journal and was managing editor and staff reporter for ABA’s Bankers News. Email him at [email protected].

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