Preventing The Largest Mistake In Digital Banking

It happens all the time. The next shiny object gets bolted to a bank’s digital platform, and a bank ends up with a hodgepodge of different applications, interfaces, workflow, and user experiences. For example, a bank may use two different applications for consumer and commercial account opening each with a different look and different set of business logic such as identity verification. To make matters worse, a bank may have different applications online as it does for mobile or in the branch. What a bank ends up with is an expensive and complicated mess of various user experiences and workflow problems that will make a bank platform almost unusable over time. In this article, we explore the problem and potential solutions.

The Problem

The heart of the problem stems from the bank not having a clear vision of where it is going and how it wants to deliver its products. Banks need to first decide not what its current customers want now, but what future customers will want in the future.

If a bank truly feels that they will not need to deliver mobile account opening, personal financial management, alerts, automated scheduling and the hundreds of other banking characteristics that are now becoming popular, then that is a proactive strategic decision. However, if a bank looks at its current account base and says to itself – no one is demanding mobile account opening, so we are not going to offer it in the future, then that is a lack of strategy.  You end up in the same place, but the difference is huge.

Having a strategy means thinking through not what you need to offer in the next year, but what you need to offer in ten years. Sure, there may be new technology by then, but the point is to understand that now and create a framework so you can proactively make decisions on what new technology is important for your bank and what is not. 

The top 20 banks have already determined that they will service both business and retail customers and do so in an omnichannel way. They will bank the customer however they want to be banked wherever they are. You can count on these banks to continue to invest in technology and continue to make the customer the center of the experience.

All other banks now have to make a choice. While they start to build an omnichannel bank or will they focus on mobile? While they continue to serve just small businesses or will the bank expand to go after mid-market companies and retail?

The Product/Service/Capabilities Roadmap

After a long-term strategy is developed and the bank has a vision for what it looks like in ten years with regard to customers and geography, it continues to need to work backward to develop a product roadmap. Some banks may want contactless ATMs and others may decide to skip over that investment all-together in favor of investing in cashless person-to-person payments.

Will your bank need automatic appointment setting from mobile and the ability of artificial intelligence to deduce why a customer wants to meet? If this is a desirable attribute, then it is important to roughly understand the priorities

Having a view of what future customers the bank wants and what customer segments are important then will drive decisions on products like lock-box, voice banking, trade finance and thousands of other products. Some of these products and attributes may be important some will not, but it is important to get these products out on the table to see where they cluster.

The Core Decision

Now that you have a roadmap of what products, services, and attributes you want, it is time to ask if your core system can get you there. Changing core systems is a five or more year process, and so it merits a proactive decision instead of being limited as to your technology options. If you want to become a retail-focused bank based on service, then having a core system with true open APIs and real-time processing might be important.  

Architecture

Part and parcel with deciding on a new core is deciding on your technology architecture. The major companion problem with bolting on new applications without a vision is that a bank will often choose vendors irrespective of architecture. Price, current capabilities, and user experience often get prioritized before if the solution is a good fit for the bank’s desired architecture. As a result, disparate data, inconsistent user interface and non-congruent business logic problems all creep into the system. Do this enough times, and the bank will be stuck with an unusable array of applications that don’t talk to each other, don’t create a seamless user experience and require highly specialized knowledge to keep operating.

For example, many banks have the current architecture shown on the left when they should be building the platform on the right. 

It’s a far better approach to pick a solution partner that has an application that fits your architecture and then work with them to build the data management, business logic, workflow and capabilities over time that you desire than it is to pick a partner with a fully built out application with the wrong architecture. This will be a little more expensive and slower in the short-run, but much better in the long-run. Too many banks are building a technology platform that cannot be sustained. As a result, their only end game will be to sell as their shareholders will not want to take the huge capital charge and customer disruption that comes with redoing your whole architecture.

Putting This Into Action

The good news is that many large banks didn’t heed the above lesson and prioritize architecture above other considerations. As a result, they are stuck with many legacy systems and all the companion problems. When you hear large banks are spending billions on technology, consider that in part, it is because their technology platform has grown so complex.

Community banks, by contrast, now have a relatively huge competitive advantage as they are just starting on upgrading their technology. For example, few community banks have adopted open banking which is already a game changer.

By taking the time to get the vision and then the technology architecture right, community banks will be in a fantastic competitive advantage going forward. 

==============================================================

If you are a financial institution, gain access to our Blog HERE , follow our micro-blog on Twitter HERE and/or subscribe to our podcast in iTunes HERE.

This commentary on this blog reflects the personal opinions, viewpoints, and analysis of the author and not CenterState Bank. This blog is only intended to provide general education about the banking industry, leadership, risk management, and other related topics and is not intended to provide any specific recommendations. Banks should consult their professionals and fully explore any opportunity and risk referenced herein.

CenterState Bank is a $16B (post-merger), publicly traded community bank in Florida experimenting our way on a journey to be a $25B top performing institution. Financial information can be found HERE. CenterState has one of the largest correspondent bank networks in the banking industry and makes its data, policies, vendor analysis, products and thoughts available to any institution that wants to take the journey with us.