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Going digital means changing everything

Fintech’s fine. But so are culture, collaboration, and customer satisfaction

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.”

It’s becoming more and more apparent that banks must begin their transformation into digital banks, if they haven’t already.

Customers want tech-savvy banks, plain and simple.

“We’ve reached the tipping point where at least half of adults expect and demand innovative solutions for their banking needs,” says Steve Powless, CSI’s chief executive officer, in a recent commentary.

Many others have weighed in on this. For example, here’s Stuart Bilick, writing in IBM’s banking blog: “Smart financial institutions understand that banking customers are more than just a mish-mash of demographics, and they are using data to personalize and enhance the customer experience.”

He continues: “Customers want to know that their bank is paying attention to what’s going on in the world and how it could affect them. They want their bank to be helpful, but also want the ability to choose what they want and how they want it provided—whether it’s payments, investments, services, or delivery channels.”

The Mercator Advisory Group issued a report recently that reaches conclusions that should come as no surprise:

“Smartphone ownership has reached a tipping point in the United States, and two-thirds of financial institutions’ banking customers now own some form of a smartphone. Consequently, mobile banking has become popular. With the consequent convergence of the online and mobile banking channels under way, the era of digital banking, which includes the best of both channels, has arrived. Banking customers now have a wide variety of choices as to how, when, and where to bank, including ways to access their accounts via computer, mobile phone, or tablet.”

Are you really a digital bank?

In a separate blog, IBM’s Bilick adds this perspective on what it truly means to be a digital bank:

“Starting a new mobile bank does not necessarily turn a bank into a digital bank. A true digital bank is built on the value proposition that most products and services are delivered digitally. Its customers expect to use digital channels for their day-to-day banking activities. The digital bank’s infrastructure is optimized for real-time digital interactions and its culture embraces the rapid change of digital technologies. [Emphasis added]

“Sustainable digital banks optimize customer interactions, products, processes, and data around digital technologies. They are appealing on the front-end and digitally efficient on the back-end, taking advantage of mobile and digital technologies to lower customer service and enhance higher touch services. Designing a digital bank requires optimizing interactions, products, processes, insights, and the organizational culture.”

Change of mindset, not just label

So, transformation into a digital bank goes beyond simply adding new financial technology. It requires a complete revision of the organization’s whole approach to conceiving of, and delivering, its products and services.

Rachel Fraser, writing in Oracle’s financial services blog, observes after coming back from the recent Sibos fintech conference that the main themes now are digitization, transparency, and collaboration. Some of her comments:

Digitization—“Digitization … continues to grow at such a speed that some banks are finding it difficult to keep up and are wary of the potential threat it can be for them if they don’t look at enhancing their digital offering.”

Transparency—“Banks especially need to focus on changing the way they do business and making sure that their customers are at the center of everything they do. Culture is key to this and banks need to invest in their people to ensure they have the right skill set to deal with the growing demands and changes.”

Collaboration—“Banks shouldn’t be scared of new entrants but instead should look at ways that they can work together.”

Many bankers, at this point, likely are saying, “Hey, I’m a banker. I’m no techie. What do I do now?”

Collaboration may be the key

The answer seems to be in Fraser’s third point, collaboration, a concept also featured in Celent’s recent report regarding fintech innovation.

“Banks can either resist fintech startups or seize the opportunity to actively embrace working with them,” writes Stephen Greer, an analyst with Celent’s Banking practice. “Resisting could mean disruption in the long run, and the disintermediation of a business that has been relatively unchanged for decades. Banks need to start taking these new players seriously.”

Greer expands on this point in a related Celent blog post:

“Banks will need to adapt to new behavioral patterns and trends in technology. Success for banks will require a change in mindset. They need to start looking at fintech startups as an opportunity, not a threat. Many banks have already started acting, and it’s time for fast followers to get on board.” [Emphasis added]

Three paths to partnership

Greer posits three strategies bankers might pursue in this regard:

Partnering with startups—“From a technological perspective, the evolution of technology deployment has made it easier than ever for banks to engage in strategic partnerships. This can be as simple as an agreement between entities to drive referrals or route website traffic.”

Acquiring fintech—“The main benefit of acquisition is that these companies are largely already established. The company has a culture that has been shown to be successful, and there is an existing base of customers from which to grow. Often the injection of new capital by the buyer can give a startup the resources needed to flourish.”

Launching venture capital business units—“A number of institutions are establishing venture funds to actively invest in startups from the beginning … [However] all but the top banks are going to find this route difficult.”

Oracle’s Fraser perhaps sums it up best:

“Technology will continue to dominate the banking landscape and…banks will need to exploit new technology to enable growth. What will be interesting to see is if the banks will adapt their business models to keep up with the changes.”

Sources used for this article include:

Banks Need To Recognize Fintech Startups As Opportunities, Not Threats

Innovation Quarterly: Latest In FinTech Innovation Q4 2015

Designing A Sustainable Digital Bank

What Do Today’s Banking Clients Want From Their Bank?

Digital Banking Is Opening New Opportunities For Banking Customers and Financial Institutions

Digitization, Transparency and Collaboration: Themes Banks Need to Address to Stay Ahead

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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