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How Digital Banks Can Stand Out From the Crowd

Ramya Vishwanath
Ramya Vishwanath

In recent years, digital-only neobanks have been springing up with increasing frequency.

Thanks to new virtual banking licenses in Singapore and Hong Kong, digitally native companies—both neobanks and non-banks—are offering financial services, without the operational burden of legacy technology or branch networks, to highly engaged customers hungry for better experiences.

In Hong Kong, the government regulator handed out the first batch of digital banking licenses in 2019, allowing new entrants to vie for the retail banking business in the city. In all, eight virtual banks are in the market today.

Meanwhile, in Singapore, four digital bank licenses were given out in 2020: two for digital full banks and two for digital wholesale banks.

Established banks are also catching up by tapping into an ecosystem of partners with a range of digital capabilities, allowing them to overcome disruptive challenges and better serve both new and existing customers with new non-banking services.

In December 2021, SCBX Group teamed up with Publicis Sapient to launch SCB TechX, a joint venture creating one of the largest fintech entities in Southeast Asia. It provides platform-as-a-service solutions to help banks reimagine customer engagement while driving efficiencies in the back office. Beyond that, the business will also provide non-banking services to commercial institutions and consumers in the region.

To stand out in this increasingly saturated market, all banks must become digital. To do this, they need to be able to adapt continuously—in an agile fashion—to constant change and disruption. Although the financial services industry has been digitizing its processes and products for nearly a decade, this shift has accelerated sharply over the past two years. The road is still fraught with challenges, and it is important for banks to understand and avoid common mistakes along the way.

 

Rushing in, losing out

One common issue is that banks often rush to develop a digital product, or adopt a single digital technology, and expect it to transform their business. Experience has shown that a project- or product-based mindset does not help in the long term.

For example, developing a mobile application that offers an attractive front end may not be enough to cover up the lack of capabilities in a back end system that is run on legacy hardware. When a customer taps on their phone screen to view transaction records from more than a couple of months ago, the app slows to a crawl because legacy back end applications are unable to scale and provide quick response times.

In the rush to digitize, many banks can lose sight of the fact that revamping banking infrastructure is often a multi-year exercise that comes with increased cost and risk. Some boards, unfortunately, choose to build a product or service in a few months and use it to spearhead their digital efforts. Larger issues with the back end tend to snowball, creating a negative experience for customers. These issues then need to be rectified later, increasing cost, time and effort in the process.

Business units operating in silos with myopic product visions are another issue when creating individual products for short-term gain. Without a more holistic strategy in place, businesses risk having multiple products and services competing for the same market and customer share. Multiple apps targeting various customer segments end up increasing costs, failing to drive revenue and undermining adoption rates. It also confuses the customer and ruins the experience!

 

Enterprise agility in digital transformation

Enterprise agility is the key to successful digital transformation. For banks, achieving enterprise-level agility is particularly challenging, but once implemented correctly, it not only enables quick-to-market product releases, but also sets them up to adapt to disruptive change.

It is important to note that there are various layers to the concept of enterprise agility. An agile mindset must guide a bank’s values, principles, practices, tools and processes. If there is no end-to-end business transformation effort, it becomes harder to change to newer and better tools and processes down the line. A bank may have an advanced front-end application but still get dragged down by back end systems that were not designed to keep up with their agile ambitions.

Understandably, it’s hard to decommission old servers and applications that have been doing the job of delivering services with certainty for years. However, both direct and indirect costs will add up if legacy technology infrastructure becomes more difficult to manage. This makes it harder to establish a more agile solution in the long term.

Conversely, banks that have moved away from legacy technology will benefit from a lower cost of creating new apps over time. With easier scalability through the cloud, development teams can create, test and deploy apps much faster. And using application programming interfaces (APIs) to connect to and call services from a more responsive back end reduces the need to create new apps from the ground up each time.

Instead of creating apps in a “waterfall” fashion, this firm foundation helps create a repeatable pipeline of apps or microservices that can be replicated easily or adapted quickly to meet new needs.

 

Standing out from the crowd

What will ultimately distinguish one digital bank from another is agility, and how quickly the organization is able to respond to changes and meet customer needs with the digital tools already at its disposal.

Many banks rightly now see themselves as technology companies in the business of delivering financial services due to the constant innovation needed to compete.

Constant iteration is a necessary part of this agile process, coupled with performance metrics that help provide a measurable indication of how well these services and products are performing. This can come in the form of customer feedback given through an app, or through A/B testing to see which path yields the best outcomes for a specific set of customer and business requirements. More importantly, a bank’s management as well as its development team must constantly review pipeline builds and backlogs, checking how far in the agility journey they have progressed.

Change is not easy in banking. It’s a highly regulated sector where service delivery standards are stringent, and downtime comes with severe penalties. To this end, it’s unsurprising that stability has long been regarded a critical factor of success.

However, a change of mindset is needed now more than ever. Being quick to market is important, but this can only be sustainable in the long term if there is agility from end to end. This includes overhauling legacy technology and taking the necessary risks.

Committing to these changes is not easy but is necessary to be truly agile. The winning digital bank of the future will not just be able to deliver high performance in uptime and experience, but will be constantly updating itself and delivering fresh and consistently performing offerings over time.

Ramya Vishwanath
Ramya Vishwanath
Director, Agile Program Management, Publicis Sapient

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