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ISFS614: Digital Banking — Session 1 readings - Coggle Diagram
ISFS614: Digital Banking — Session 1 readings
Six digital growth strategies for banks
(McKinsey, 2018)
Background:
Many banks (esp incumbents) are not sufficiently digitalised
Banks are extremely cautious about digital implementation — primarily responding to threats by competitors and disruptors (e.g., fintechs)
Large banks are confused as to how to digitalise the business and use digital technologies to create sustainable outcomes
1) Grow beyond your core into banking / non-banking ecosystems
See core / ecosystems
here
Benefits
Strengthen engagement: By creating their
own “ecosystems” that provide the services customers want at lower cost and with greater convenience
Capture data that will provide a more complete view of customers’ needs
Form a network of value across industries; generate new revenues
Tap their existing client base and
operational capabilities
Protect banks from the efforts of fintech
start-ups and digital giants to invade banking’s traditional turf
Banks should consider this option
if
they have significant market share in one or more core product areas.
2) Create a financial supermarket —
Aggregation model
: offer a curated and vetted mix of internal and third-party offerings.
Benefits
Provides customers with a one-stop, integrated channel to financial products to address multiple financial needs
Allows a bank to focus on the high-return side of the industry: the average annual return on equity (RoE) for product origination/sales is
22%
To build privileged relationships with customers, some financial supermarkets rely on
recommendation engines
, which use transaction, merchant, and customer data generated from the platform to provide personalized suggestions and offers.
Banks should consider this option
if
breadth of choice or price comparisons are important to customers.
3) Extend value across the customer journey
Background example
Most banks, however, tend to focus only on discrete, bank-centered moments in the customer’s overall journey, such as offering a mortgage, when the customer’s larger goal is buying the house.
Solution
Banks can grow by engaging with consumers at other stages of their decision journey. For example, a bank might give advice to customers on how much to borrow for a home.
Banks should consider this option
if
they have significant market share in financial products that are integral to a larger buying process.
4) Monetize your data
Methods
Use internal data more effectively for operations by adding new analytics capabilities
Most banks have a rich set of exclusive information on their customers. When used responsibly, with respect for regulatory constraints and privacy concerns, this bank data can be analyzed for insights valuable to companies in industries outside of financial services
Create new offerings, such as reports or benchmark analytics, based on bank data
Banks should consider this option
if
they already possess an information advantage over competitors
5) Become a product- or infrastructure-source factory — Large institutions can create significant value by leveraging back-end assets to provide products or services to smaller banks and other businesses
Method
Develop a portfolio of white-label products to sell to or through third parties, providing infrastructure-as-a-service (e.g., banks providing credit-card processing to retailers)
Banks should consider this option
if
they possess a significant back-end capability that others don’t have and the ability to extend it into other environments securely.
6) Become a digital attacker — By employing digital channels or novel business models, incumbent banks can enter new geographies or market segments
Banks should consider this option
if
they want to enter new markets or segments without the need to invest in the physical infrastructure that would otherwise make such moves prohibitively expensive.
What 'digital' really means
(McKinsey, 2015)
Attributes
Creating value at new frontiers
Unlocking value from emerging growth sectors requires a commitment to understanding the implications of developments in the marketplace and evaluating how they may present opportunities or threats
Being digital means
being closely attuned to how customer decision journeys are evolving
— that means understanding how customer behaviours and expectations are developing inside and outside your business, as well as outside your sector
Creating value in core businesses
Digital isn’t about just working to deliver a one-off customer journey. It’s about implementing a
cyclical dynamic
where processes and capabilities are constantly evolving based on inputs from the customer, fostering ongoing product or service loyalty
Core capabilities required to support this cyclical dynamic with customers
Proactive decision making
Contextual interactivity
: Analyzing how a consumer is interacting with a brand and modifying those interactions to improve the customer experience
Real-time automation
Benefits
Help resolve customer problems quickly
Personalize communications
Deliver consistent customer journeys
Reduce costs
Anticipate customer demand
Journey-focused innovation
: Serving customers well gives companies permission to be innovative in how they interact with and sell to them.
Building foundational digital capabilities (i.e., technological and organizational processes that allow an enterprise to be agile and fast)
Elements required
Digital mindsets
System and data architecture
Reports
Bank of the Future
(Citibank, 2018)
Bank X
(Citibank, 2019)
Going Digital in Banking
(Forbes, 2018)
There's a difference between digitising aspects of a bank and creating a truly digital financial institution
Case study: DBS Bank
Faced serious competition from:
Chinese financial platforms such as Ant Financial’s Alipay and Tencent’s WeChat
BBVA, Citibank and ING
Three years in the making (from 2018)
Changing the culture and mindsets of employees
Re-architecting the technology infrastructure
(e.g., cloud computing)
Leveraging Big Data, biometrics and AI to make banking simple
Problem
Banks look at a mortgage as a product but customers want the perfect home, so they are more interested in schools, amenities and are very emotionally involved in the process.
How can a bank help a customer in buying a home?
Solution
DBS Home Connect:
Anybody using the app can point a smartphone camera at a building and see information about prices, affordability, amenities and schools
It offers an augmented reality view of nearby properties and amenities
In addition, they can also save
previous searches and viewed transactions for subsequent comparisons.
Result
The bank’s share of Singapore mortgages grew from 24% when it started offering the house information to 32%
Uses data and analytics throughout the bank
Reduced cash-outs at ATMs from every
three months to none in 2017
HR: Reduce employee attrition by spotting early indicators in time to address issues
Improve personalization
Becoming agile and a learning organization
Used hackathons, human-centered design and customer journey thinking
Redesigned workspaces to be collaborative while also offering private work spaces for people who have projects they need to focus on alone
Offers employees a startup-fusion of energy, incubators and accelerators, universities and research centers
Pushing out minimally viable products and looks for feedback from the market to refine them
Move development in-house
Digital banking systems help DBS to scale to other countries at a lower cost
A lot of banks focus on a digital front-end, so they have a fancy mobile interface but the rest of the bank’s operations are old technology