Becoming a digital bank
At a time of rapid innovation, fierce competition and spiralling customer expectations, many banks are assessing how different technologies can contribute to their digital transformation strategies.
There are no easy or short answers. Much depends on the starting point of the individual bank, in terms of existing operations and infrastructure, not to mention its unique competitive and regulatory position. Equally important are the things that a digital transformation strategy is expected to achieve, e.g. growing wallet share, entering new markets, increasing customer satisfaction and/or reducing costs, delays and risks.
Going digital can help achieve all these objectives. But it’s worth underlining that digital transformation must be a far-reaching and whole-hearted undertaking. A superior customer experience cannot be delivered by offering apps at the front-end without following through deep into the back office and beyond. Only by digitising the entire value chain – from client onboarding to product development to trade execution to reporting – can banks deliver high-quality, tailored and responsive services at scale.
In this article, we look at how certain key technologies can support the attributes needed by banks to thrive in the digital age.
A flexible future
When not only customer service expectations are evolving at an accelerating pace, but also their technology preferences, banks must be flexible in how they build and supply services. Since the advent of the personal computer, delivery of banking services has migrated with increasing frequency and speed to the next latest device. More than ever, clients’ expectations of banking services are propelled by the rich functionality, immediacy and responsiveness provided by the technology they enjoy in their personal lives. Many expect today’s smartphone-based banking apps to be overtaken by Alexa-style interfaces, an evolution which will demand further investment.
Flexibility and speed are also integral to product development. Few banks, if any, have the mix of resources needed to anticipate and meet the needs of a diverse and demanding client base across a range of service areas. Thus, it is imperative in today’s market to ascertain whether to augment one’s specific areas of specialism and expertise, extend an existing service, bolt on a complementary one or quicken time to market.
For these reasons and others, the ability of banks’ systems to interface smoothly and efficiently with third parties via APIs is now a fundamental building block of any service proposition. As such, banks must keep up with the development of open APIs, including standardisation initiatives, to provide differentiated digital services over the long term.
Data that delivers
Similarly, it is a prerequisite for banks to secure the necessary cloud access and distributed architecture to support digital data flows – at high volume and/or velocity – between themselves, service partners and clients. This is a complex challenge due not only to the pace of technology innovation and customer demand, but because of the intricacies of complying with evolving data privacy regulations across multiple jurisdictions.
Europe’s General Data Protection Regulation (GDPR) may evolve over time into a global standard whose principles are replicated across markets worldwide. But for now, banks have to contend with a regulatory patchwork, which their global data architecture must accommodate.
In parallel, banks must prioritise data quality and governance. Artificial intelligence (AI) and machine learning (ML) are on the brink of ubiquity in banking, thanks to their ability to automate, standardise and increase the efficiency of key processes that are highly inefficient in human hands. From information security and financial crime compliance to customer service and trade execution, AI/ML can deliver at a higher level of speed, scale and accuracy. But any AI/ML model is only as good as the data upon which it has been trained and refined. For structured and, in particular unstructured data, quality relies on appropriate storage, maintenance, transport and cleansing.
The immense popularity of the cloud – even in a cautious sector which initially eschewed hybrid and public offerings – has led to an increasingly mature and robust industry. Today, the commercial cloud sector has the resources, expertise and service levels to support sophisticated big data and AI/ML programmes so that all but the very largest banks can buy, rather than build, the supporting infrastructure.
Whilst they are increasingly enthusiastic in their exploitation of the cloud, banks have not yet utilised it to the maximum. Aided also by API-based connectivity, it will soon be possible for banks to accelerate and automate much of the path from product idea to production deadline, with the necessary coding, testing and other resources called up with a click. In short, resources accessed from the cloud will help to digitise the product life cycle, enabling cheaper, faster deployment.
Time may be running out for some banks, as well as the patience of their customers. The fact that banking lags other sectors in its adoption of digital technologies can be traced to innate caution, traditionally high barriers to entry and the challenges of dealing with decade-long waves of regulatory reforms.
Some argue that regulation inhibits innovation. Regulators do not like surprises, but they often welcome innovation that is demonstrably supportive of their objectives and which is well thought through, with the necessary risk controls in place. Most know your customer (KYC) processes, for example, are clearly sub-optimal, often neither efficient or effective. AI-based initiatives are being developed which alleviate staff of repetitive data collection tasks by programmes that conduct the legwork and present recommendations for approval. Not only can this digitised approach accelerate onboarding, thereby minimising customer inconvenience, but also increase accuracy, thus supporting regulatory priorities.
As noted above, there are as many approaches to digital transformation as there are banks. But most of the technologies that are increasingly available to banks have practical applications across business lines and throughout product lifecycles. Marrying up strategy, tactics and tools is no easy task, of course. Nevertheless, the means to construct the digital bank is within the grasp of all.
By Ashok Kalyanswamy, CIO, Saxo