Digital Transformation - Framework for Banks

Credits: Iscoop.eu

This article offers a digital bank transformation roadmap and framework with a way to effectively realize a digitalization of banking processes with a focus on, among others, mobile, cloud, user experience, data analytics, chatbots, mobile wallets, self-service and front-end and back-office integration with APIs.

Nimble financial technology companies (FinTechs) are luring customers away with better online service, lower fees, and cheaper transfers. Consider a huge cost of digital transformation for banking corporations and you see legacy players can have a hard time catching up with the newcomers. Apparently, the banks were not going to simply give up. Over the last five years, they spent tens of billions of dollars setting up innovation hubs, buying competitors, and changing operations.

Small banks also have distinct advantages over FinTechs, e.g. diversified services, established brands, loyal customer base, community support, focus on security, and more. They just need to utilize these strengths in the new digital environment.

Community banks can’t throw the money around but they can play a smarter game. This calls for a cautious and actionable approach to banking digital strategy. A plan with clear stages that allows a bank to transform on a relatively low budget. Let’s call it:

Start small, Add platforms, Scale success

This cautious strategy allows to transform a bank in iterations focusing on process automation. Here is the roadmap:

Stage 1: Start small

Clients call for zero human interactions. They don’t want to wait in queues and go to the branch to carry out every transaction. Wasting 30-60 minutes just to check the balance or perform other routine operations is extremely frustrating, especially for the millennials.

Workflow

We saw several high-profile banking digital transformations in 2017, e.g. Deutsche Bank, ABN Amro, and the likes.

Compared to these full-scale campaigns, launching a robust mobile platform seems like a relatively trivial project. If outsourced, it can be set up and implemented within several months and with a reasonable budget.

What’s more, retail banks can start mobile platform development right away without the need to change their internal processes. In this scenario, a bank uses an open API to connect its existing legacy architecture with a newly created mobile application. The system simply extracts data from the backend and presents it to the user through an app.

At the “Start small” stage, a bank can implement further changes that will not require dramatic redesign of the internal processes.

Here are the key features of the first transformational stage:

·      Launch a secure mobile app with great UX. It gives clients a convenient access point to all key financial transactions eliminating the need to visit the branch.

·      Start with a single application (e.g. iOS) built in compliance with all existing regulations. A robust and secure system with ultimate data consistency. Two-factor or multi-factor authentication with Touch ID or Face ID. On-premise solutions for the key functionality and possibly cloud-based for the supporting tasks.

·      Add self-service points at the branches. Automated kiosks decrease hours of teller operation and require less staffing. This feature is critical for retail customers and SMEs alike.

·      Automate some back and middle office tasks without changing existing processes.

Implementation

It is hardly possible for a bank to develop a sophisticated mobile platform in-house. Luckily, there are digital vendors, vastly experienced in the financial sector.

They build fast, secure, and robust solutions for all popular platforms, including web, iOS, and Android. Suitable vendors are already familiar with the security, compliance, and further requirements of such development.

Offshoring and near-shoring are viable options as well, as they can mean further cost reduction. Notable vendors that create solutions for financial service industry are in the Czech Republic, Romania, Estonia, Poland, and Ukraine. For North American and European banks, outsourcing to these countries offers 25-50% cost savings without compromising quality.

Stage 2: Add platforms

With the first platform up and running, you can port it to other platforms and devices. You can already use data analytics to boost client mobile service and increase customer engagement. At this stage, you can analyze how users behave with the app to make tailored offers.

A mobile platform also offers many integration possibilities ranging from the highly sought (Understanding Financial Consumers in the Digital Era: https://www.cgi.com/sites/default/files/pdf/br_fs_consumersurveyreport_final_july_2014.pdf) reward programs and mobile wallets to digital payments and chatbots.

Workflow

Analyze user behavior to improve your app and support more devices:

·      Polish application UX.

·      Add further platforms and devices, e.g. web, Android, Apple Watch, Alexa, etc.

·      Analyze user journeys to draw conclusions and anticipate customer needs.

Extend app functionality:

·      Add mobile wallets, contactless payments, mobile check deposits, and more.

·      Add other services: credit card points, retail discounts, cash-backs, rebates, and more.

·      Add digital payments like PayPal, Venmo, Zelle, or Stripe.

·      Extend app functionality with fintech solutions, e.g. MultiBanking, personal finance advisory, etc.

·      Add chatbots for Facebook Messenger, WhatsApp, Snapchat, and other messengers. 80% of all client inquiries are outright straightforward and you can easily automate them with chatbots. There are ready-to-use solutions and you can seamlessly integrate them with the banking app.

Stage 3: Scale success

Merely adding an app to an AppStore is not a complete banking digital transformation. There is no way a legacy bank can successfully launch an innovation digital banking strategy without changing its internal processes. Hence, a mobile platform should be an inception point, not the final destination.

The next step is to introduce a new backend system and to remodel the underlying processes.

Some community banks might want to skip that stage, as it requires a thorough redesign of the operations. However, there are two important implications to consider:

1.   First, legacy banks face rising transaction costs and a decline in teller transactions. Process reorganization addresses both of these issues simultaneously.

2.   Second, sticking with the old backend can jeopardize future improvements of the mobile application. Just look at how quickly technologies evolve. Fail to change the legacy system, and any significant app upgrades will be impossible within two to three years after its launch.

This stage is the most challenging part of the digital innovation in the banking sector. Banks are generally pretty clunky, so the resistance to change inside the organization is usually the biggest issue.

This calls for a huge effort from the management to fully back the transformation and properly communicate all coming changes.

Workflow

When a bank already has a fully functional mobile app, it’s time to change the backend system and to redesign the underlining processes. After that, newly created core systems can be connected to an existing mobile application with APIs.

The new infrastructure will greatly boost the functionality of the mobile platform.

At the third stage of digital transformation, a bank can pursue one of the two options:

1.   A multichannel system is a cheaper alternative that fits well into small bank’s constraints. On the downside, it is still siloed and can have scalability issues.

2.    An omnichannel platform offers several advantages such as tailored marketing, better tracking of the customer touchpoints, and more. Still, this is a more expensive alternative and its implementation requires more effort from the team. Omnichannel and the underlying microservices backend infrastructure have made a lot of buzz lately, but they often get extremely challenging to implement.

Irrespective of the path chosen, the development phase still implies the upgrade of the system. Here are the key features of the final stage:

·      Create backend platform and link it to existing mobile and web applications.

·      Redesign back and middle office operations to support the new IT infrastructure.

·      Integrate machine learning to boost cyber security and automate data analytics.

·      Deeper collaborate with FinTechs to create unique selling propositions.

Drivers for success

Start by finding a suitable vendor

Make sure your solutions provider has proven experience in fast, secure, and scalable apps and can choose the best tech stack for the project.

Next to cross-platform mobile development, the vendor has to be fully familiar with the financial services industry including compliance and strict security regulations. Domain knowledge is also essential for handling common financial technology development issues such as the logic behind financial operations, ultimate data consistency, and the high load.

The following project functions can be outsourced:

·      Business analysts

·      Software designers

·      Project managers

·      UI/UX designers

·      Software programmers

·      Quality assurance

Launching a decent mobile application requires a lot of effort from the bank’s team, too. The CTO and the head of the customer experience department have to be fully involved in the project. This way you can make sure the application fully matches your customers’ expectations and your back-end capabilities.

Keep employees informed about the changes

Fear, uncertainty, and opposition accompany any change initiative. Still, when people are badly informed, the resistance can get really ugly.

Communicate the transformation is essential for the bank to survive. Assure people that the change will not happen overnight. They will have plenty of time to accommodate to the reorganization.