Being digital vs doing digital
Beyond delivering channel solutions, I first started looking at Digital in 2013. At this time a search on Google for “digital banking” brought up less than a page of results and was largely focused on internet and mobile banking channels.
Within a year, the volume of material grew very rapidly and what was surprising was how many “experts” there were with NO experience of creating a digital bank.
Today, the landscape is vastly different, with over 200 new organisations either providing licensed banking solutions or leveraging open banking to provide new customer value propositions on top of traditional banks. We have also seen traditional banks enter the digital foray with the majority trying to transform their bank to be digital and some either acquiring or creating their own separate digital organisations.
It’s surprising how many do not clearly differentiate “being digital” versus “doing digital”. Put another way, “doing digital” is digitising a traditional bank. So, what’s the difference? Quite a lot I’d say, but in this post I’m going to focus on six key points:
- Business model
- Target operating model
- Key business driver
- Organisation structure
For a traditional bank creating your own financial products is mandatory or else you are not a bank. For digital banks, leveraging open banking is no longer a given but a choice. This choice boils down to whether the digital bank can manufacture and distribute products more cost effectively than traditional banks based on legacy technology.
Banks are process rich, and this normally means lots of people and paper which creates friction in customer journeys. When these have been in place for years it’s hard to see a world without them. In contrast, digital organisations are designed to operate with a frictionless process. Eliminating people and processes – if it’s absolutely critical – in turn allows them to scale at a lower cost.
For traditional banks, using the internet as a distribution channel augments existing channels, branches and call centres. For digital banks, the internet is their channel, and for some this means mobile apps only.
The driver for digital banks is growth as they start to target a customer base from scratch, whereas traditional banks seek operational efficiency so they can get closer to the cost base of digital players.
In terms of approach, digital banks try to re-invent customer journeys whereas traditional banks renovate their existing journeys. Here I believe, as I have written before, that we are seeing experience driven banks emerge that go well beyond the goal of trying to make banking better and really seek to embed banking into specific customer lifestyles or lifestages.
Finally, in digitising their bank, traditional banks are finding it difficult to move away from organisational silos that exist for products, channels and even processes. Digital banks with fewer products, processes and channels are much more customer centric today. However, it remains to be seen as to whether or not they will scale up and try to meet more diverse needs of customers, in addition to whether they can maintain real customer centricity. Plus, experience driven banks are designed on a customer centric need and I believe these digital players won’t face the same issues.
|Manufacturing Is core||Business Model||Manufacturing is optional|
|Requires people to operate||Target Operating Model||Designed with people/process|
|Internet is another channel||Distribution||Internet is only channel|
|Operational efficiency||Key Business Driver||Growth|
|Siloe’d||Organisational Structure||Customer centric|
Traditional banks are left facing the challenge that they can only “digitise” their bank or can acquire or build a separate bank in parallel what is designed to be “digital”. As banks execute their digital strategies, I’m just saying it’s best to be clear whether it is a truly digital development or whether it is in fact digitisation – there is a big difference.
Dharmesh Mistry has been in banking for 30 years and has been at the forefront of banking technology and innovation. From the very first internet and mobile banking apps to artificial intelligence (AI) and virtual reality (VR).
He has been on both sides of the fence and he’s not afraid to share his opinions.