Digital banking platforms – the new core
Whilst analysts like Gartner and Forrester have discussed digital banking platforms (DBP) for a few years now, doing a Google search does not provide you with many answers. So, what is a DBP, why is one needed and who needs one?
Essentially the key problem a DBP solves is managing the customer lifecycle. Clearly banks have been doing this since the beginning so what is different now? Firstly, managing customers was often part of a core banking system, and this is still the case with many core banking vendors.
Larger banks separated customer management into a separate system in the 90’s. I was part of a project at Lloyds Bank in the early 90’s where close to a billion pounds was spent developing a separate customer management system, and at the time, it was the first to do so. These were the days before customer relationship management (CRM) solutions existed.
The need for a separate platform for managing customers is simple and clear. As banks ran multiple core banking systems for different product lines, customer data and its management was being duplicated. So, if a customer had three products and moved to a new house, you would have to update their address in three places (this challenge has only increased in complexity with the need for consistent, omni-channel user experiences).
Most of the CRM and analytics was done offline, which had been fine in the past since marketing to customers was done through paper mail and later through email. But as customers moved online the need was for marketing to occur online, and powerfully in “real time”. Being able to make an offer for a loan or credit card because a customer had just paid a larger than expected bill has proven to be far more effective than simple sending a letter or email. This is because the offer can be both timely and relevant. Also, as customers moved online, there was a need to provide the customer with a single view of all their products. Customers didn’t expect to log in separately to see their mortgage, credit card and current account. Clearly it was logical for customers to have all their products accessible through one login. There are other drivers but the core the requirements for a DBP is to manage the customer lifecycle in real time.
This leads us onto what is in a DBP. At its basic level it is a customer database with customer management capabilities; it is the “shop front”. If a customer changes address, the DBP updates its record and passes the update behind the scenes to any other systems that need a copy of the address. The same is true for any request, for example, a payment request is recorded in the DBP and passed to the core banking system or payments hub. When the payment is confirmed (this could be in real time or later), the user is told. This processing of requests is sometimes called order processing and is a key part of a DBP.
Clearly another key part of the platform is the digital channels. An omni-channel approach is facilitated by the DBP. It means, for example, that the DBP not only provides internet, mobile and possibly conversational interfaces, but it manages permissions (entitlements) of what the user can do within those channels.
Next the DBP should understand what products the customer has (product holdings), and with open banking, this means the single view of their products both within and outside of the bank. To facilitate the aggregation of third-party accounts the DBP needs open banking components to manage consent (permission to access third-party banks) and aggregation (the collection of third-party bank data). The need to make the aggregated account view useful to the customer, hence money management features such as budgeting and spend analysis are part of the DBP. Often banks have used personal finance management (PFM) platforms for this aspect.
One of the most important parts of a DBP is onboarding customers and selling products. To sell, the DBP must have a catalogue of products and their base products features. This product catalogue must be super flexible as most banks sell their own and third-party products like insurance and investments. Banks are also partnering with fintechs to sell their products more frequently. The sales process needs to support product illustrations, like how much a mortgage or loan will cost over time. Upon acceptance, the DBP then needs to support the onboarding of customers and the acquisition of the products.
At the very core of a DBP is customer engagement – a solution to drive and increase interaction with the customer. As customers interact less with bank staff, the need to sell, service and advise customers online increases. I’ve written extensively about this before, so I won’t cover old ground, but I will reiterate how important it is for banks to get this right. I’ve also previously covered how leaders in engagement platforms have incorporated gamification features.
There are additional value-added features that can be part of the DBP, but what I have listed are, I believe, the core elements. Additional components can include an app store (marketplace) so that the bank can engage with fintech offerings more easily. Content management and social media could be managed separately or integrated into a DBP. Rewards and loyalty schemes, especially when combined with gamification, can be a powerful extension of a DBP. Another key aspect of the DBP is analytics and business intelligence – again this could be a part of a separate platform that is integrated with the DBP.
The DBP is work in progress and much like the early core banking systems or CRM solutions has started with a fairly basic set of components and features, however over time we will see an expansion led through investment or acquisition.
Whilst there is a whole new batch of cloud native core banking systems, I’m just saying that banks that want to own their distribution, should also have a strategy for DBP in place, or face losing distribution to new players. The market for DBP is bigger than core banking (logically this is because there are more distributors than manufacturers of banking products), hence core banking vendors may also lose a massive new opportunity without creating a core agnostic DBP.
About the author
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.