What’s digital banking?
“Almost every single conversation I have with my banking clients they pose that question,” said Likhit Wagle, global industry leader for banking and financial markets at IBM Global Business Services. “Many have started to put significant chunks of money behind a digital agenda but a lot are just sitting there asking what is a digital banking, what should they be doing.”
It’s IBM’s job to come up with some answers, and Wagle has a couple.
One route is to set up a discrete standalone direct bank like ING Direct, First Direct in the UK or UBank in Australia
“A lot of evidence shows direct banking model is the most successful model in terms of attracting deposits. Their deposit growth is higher than any other model. Those banks that grow deposits faster are banks that perform better on ROE and total shareholder return.”
A separate direct bank can provide the agility, flexibility and brand image to compete in an internet domain faster that taking the established bank to an internet way of doing business, he added.
First Direct in the UK is a subsidiary of HSBC, but it is branded separately and has the top rating for customer service, while HSBC is ranked 8 or 9 out of 15.
A new bank could be set up with the technology in the cloud.
“You could do it with Temenos in the cloud, for example.”
A cloud-based bank’s time to market is extremely rapid and cost-income ratios are low because it has no real estate, he added.
“By exploiting new technology, such as bank in a box through a cloud framework, you should be looking at cost income ratios that are 10-15 percentage points below the main bank’s.”
A second approach for a bank is to develop a digital channel that include internet, mobile and social, an approach the industry is only beginning.
“Banks need a truly consistent experience regardless of the channel the customer is going to use. Customers need to get the same quality on mobile as in the branch or when they contact a call center. Customers expect to be able to start a process in one channel and finish it off in another, because they are accustomed to doing that in other businesses.”
To succeed at this, banks will need a comprehensive view of the customer, so a bank staffer in a branch or call center will know what the customer is doing and what they have done in digital channels when tehy walk into a branch to complete an application or transaction.
It’s a challenge to adapt existing banking processes to digital.
“With First Direct, anything they are offering is being designed first for digital — the Web site, portals, application forms, product design — they are all designed knowing that the engagements will be through that digital channel.”
Other banks are taking what they already have and trying to put it onto digital without making too many changes, which can create problems.
A North American bank moving to digital found it had to scrap about a third of its product portfolio to be successful in digital. Its mortgage offerings, which included a host of variable interest rates and durations followed the 80-20 rule, with most customers using a small number of mortgage products. So the bank reduce its offerings to a few popular products to make them easier to understand on a digital channel.
“A digital channel has to be frictionless. Customers need to get to their destination in a couple of clicks.”
A digital application process should offer features like the ability to photograph a drivers license which can populate 70 percent of what is required for KYC.
“You don’t need to key it in — just shoot it with an iPhone. That is setting up the account opening process in a way that has been designed for digital.”
Unfortunately, many banks stumble over their internal organization.
“The banks are organized by business silos or product silos, and a lot of what we have been talking about regarding customer experience requires the banking organization to be able to work across those silos.”
Placing some services in the cloud allows banks to meet digital demands faster. IBM is working with Westpac in New Zealand to deploy new online and mobile banking services faster and across multiple devices and platforms.
An IBM press release on Westpac cited Gartner in the importance of cloud to improve profitability: “by 2016, poor return on equity will drive more than 60 percent of banks worldwide to process the majority of their transactions in the cloud.”
