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How to Build a Digital Bank

The digital banking revolution is well and truly happening, yet still, some banks are cautious about jumping into the digital world. A large number are still offering their customers better and better websites and apps, however, the future lies not in a better version of what already exists, but in fully integrated digital mobile experiences in which customers use their smartphones or tablets to do everything from opening a new account to making payments and resolving disputes - and, dare I say it, a digital offer that is supported by a reconfigured physical network, where smaller ‘express’ style branches, lounges, pop-ups and ‘anti-traditional bank’ formats prevail.

As I discussed in my last article, it is important for Banks not to lose sight of their existing business, so efforts to digitise existing business are not wasted, but in the modern world, there has to be a balance between fast-moving customer facing enabler technology and agile experiences, and the often slower back-end systems that drive the engines of banking.

I have been involved in the development of a number of Digital Banks and thought it would help the bankers amongst you who are reading this if I offered you what I see as the six most important factors in determining the success of a digital bank.

Create value by talking to an audience of one

There is a temptation for banks to replace or copy their existing business models, replacing traditional banking services with digital services. This does work in some markets but may not work in others. To help decide what will work for your organisation, be sure to understand your value proposition both inside your business and with your customers... remember that a digital offer is, by definition, agile - it can be tailored from market to market - even if under the same brand.

It is important to understand how customers perceive ‘digital’ and specifically what they are comfortable ‘doing’ on a digital platform and what they are not - as I mentioned earlier, this can vary from market to market for cultural, business or regulatory reasons.

In Brazil, for example, a market that is known as an early adopter of new technologies, Santander has seen enormous growth in their car loan business by understanding the customer buying journey in great detail and offering ‘digital’ services that enable buyers to be approved for instant car loans - whilst they are sat in the new vehicle. This focus on talking to a customer of one, on the customer journey and on value creation for both the customer and the bank has seen Santander dominate the auto-loan market in Brazil

In some Middle Eastern markets, regulation plays a significant role in slowing the uptake of digital-only banks. In some markets, a physical signature is still required when opening an account, taking out a loan or applying for a credit card. This means that instant ‘Know Your Customer (KYC)’ is possible only possible in some markets, and banks need to find innovative ways to overcome these challenges in order to succeed.

Customer experience

Uber, Facebook, Amazon, Netflix, Google and many of the big names in ‘Digital’ have set the benchmark when it comes to digital customer experience. In a world where simplicity and instant gratification are the names of the game, banks that do not invest in creating compelling, simple, instant, accessible services that create value for customers and business, will fail. As a rule of thumb, think research, research, research, then iterate, iterate, iterate. The solution to creating a great customer experience relies on the marriage of logic and creativity.

Organise for creativity, flexibility and speed

In many cases, the old, conservative culture in banking does not work in the fast-paced digital world where banks typically are not used to iterative, fast-paced rapid incremental innovation. A new way of operating needs to be nurtured where teams collaborate across specialisms. This means that success will be driven by a committed central team of individuals, where technology teams working with branding teams, who in-turn work with compliance, legal and management in a flat delivery oriented culture. Think about working in short sprints, with each focused sprint aimed at delivering a solution to a problem or an innovation. Working this way will ensure you arrive at your destination more quickly than in the old way.

Create an ecosystem of partners

Successfully launching a new digital bank requires an organisation to quickly amass customers. Banks should consider forming partnerships with e-commerce providers and telecommunications networks. The former being useful partners as they can create lending services for existing customers and merchants. Alibaba’s ‘Ant’ is a perfect example of this, where the business serves small businesses with loans and financial products. It has grown to a $20bn plus business since it’s inception 4 years ago.

Build a two-speed IT operating model

Two different yet integrated IT systems are needed when launching a digital bank. The traditional, slower, secure and stable, transaction-focused back end and a rapid, flexible, customer-centric front end. Implement a culture of rapid-incremental-innovation, with short release cycles at both the front-end and back-end. Ensure your customer-facing offers are relevant, fast paced and innovative.

Get creative with marketing

Since digital-only banks don’t have the same customer-acquisition opportunities as legacy banks with branch networks, marketing is a major cost. This can represent up to 35 percent of total operating expenses - even for legacy banks that create digital start-ups. Digital-only banks will likely be targeting a younger, more digitally savvy customer than incumbent banks. Be resourceful, innovative and once again, understand what motivates your customer, what drives their choices, where and when you can communicate with them, build a relationship with them and offer them personal, meaningful and relevant services.

With many banks finally waking up to ‘Digital’, one thing is certain, in the new world, many customer motivations are the same as they have always been, yet the way they wish to conduct their business has changed dramatically. The future will see new names grabbing business from traditional institutions, some will succeed and some will fail. One thing is for sure, fast, agile and customer-centric businesses will be the ones who succeed. So get to it!

About the Author

Nicholas Griffin is Managing Director at Principle Global ( Information on how to contact Nick is in the footer of this web site.

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