In my previous posts I described my view on both the concept I call “Digital Seamless Banking” and the details of its scope from both the customer facing & backend functionality required. For more details please refer to my previous posts:
In this post I would like to share how I see the internal essence of the bank beyond its functional & technological aspects as I believe this is the main leap banks must do if they want to act in this business. The aspect I am talking about is how do you operate such a bank? What kind of business functions you need to have and where the revenue of this bank should come from? Is it same as the current bank just branded differently? Or is it something completely different?
I assume that if you read my previous posts you can imagine that I see this kind of bank differently than just re-branding the current functionality and setup to be called “Digital” and this is because according to my understanding “Digital banking” is very different than “Digitizing current Banking” and it requires a totally different approach in how and what you do as a bank , the kind of services you give your customer together with how you expect to monetize your efforts in comparison to existing banking.
And what are the main differences? Well these are the things I see:
- The customer expectations from the bank – I discussed this already in my previous posts that in the new digital world the banking world split into two :
- The day to day money services & low risk credit in which people are using to perform daily transactions.
- The complex, heavy duty and high risk funding requirements people need mainly in specific events in their life. It could be buying a house, starting a business, investing in the stock market or dealing with their long term wealth management.
The main change we see is in the first type of money services for day to day transactions, here the customer expects a different service and experience than the one traditional bank provides and he turns to variety of solutions coming from retail & technology vendors (PayPal, Amazon, Google, Apple).
- The Interaction Model – in the new world as appose to the traditional one, the interaction with customers is indirect. A customer of PayPal never met a single PayPal employee or offices however beyond using their payment services he receives from time to time all sorts of electronic communications updating him on policy changes, new features and business offers.
- The Pace – the pace of change in the new world is dramatically higher than traditional banks used to. The change is not only on technology side which many banks focus on but on working models , new players and new needs from the people. Today’s new world introduces new buying behaviors, people communication approaches and business models on a daily basis which requires fast reactions especially to those on the front.
- The monetizing model – traditional banks expects to earn money in the traditional manner : fees on different type of services they enable their customer to do and interest on credit they provide , however in the new digital world you have a different way of monetizing models : advertising and direct/in direct selling all by leveraging your customer base. That means you don’t charge fees for enabling your customer to use your services on the contrary you give it for free and encourage them to use it as much as possible. Because in this world the more they use your service, the more you get from third party (advertisements, sales commissions, etc.)
Current traditional banks which means their organizational structure, business policy, business model and employee mind set is totally different from the above therefore even if the money services requires by a “Digital Seamless Banking” are quite simple from techno functional aspects I doubt such banks could offer this to customers using their existing backbone (organizational , processes , etc.).
So how do I see this bank? Well I will try to describe it schematically touching the main functions and their objectives. Before I describe them I think the most important thing is to set the ground for some principles I see when thinking on such bank:
- Lean – a “Digital Seamless Bank” needs to be very lean, why? Because if one wants to be fast & always up to date he must apply a lean organization that act fast. The big and complex organizations most banks usually are cannot make it as it takes too long to identify change, analyze and approach, approve it, budget it and act when you need to pass long processes and many people which all has their point of view , interest and so on. It could be an internal unit within a bank however it requires independence in budget, decisions, and technologies and so on which is very hard to setup from my experience working with banks globally.
- Computerized as possible – this is what makes it digital; the bank’s services must be computerized to the extreme with no human decisions required. It is easy for deposits and withdrawal however it must be the same also for funding. Meaning when a customer “involves” the bank during his day to day process (purchasing a car, a product online or a service) this should not have any human “banker” involvement/interaction, all automatic with fast seamless response.
- Paperless – one of the biggest faults we still see in today’s banking is the paper based processes, even though technology is so advanced still banks (driven by regulation and habits) asks us to sign papers, send them by mail (not e-mail) or bring them physically or in a best case fax them. A true digital seamless bank must change and get rid of his paper addiction. Beyond that banks can actually take this point and leverage it to become the “digital identity provider” being perceived as a trusted entity (but this is for another post maybe).
- Branch-less – of course we discussed this already, the Digital Seamless bank would have no branches, and as such will make sure its customer can receive all required services (banking & support) by the bank’s digital channels and business Ecosystem.
After clarifying the main principles a Digital Seamless Bank need to be based on let’s review its main business functions which would touch both organizational aspects and business model:
Customer Management – on the first thinking this function seems obsolete now that I have no branches and move all my customer servicing to both applications and external service providers from my Ecosystem (like retailers) , however when you think of it its actually not the case. The customer management is different however it is much more important as Digital Seamless Bank would be successful only if it will be attractive to its customers and will be able to increase his customer base/service usage dramatically. To do that you must have a dedicated function that knows who are your current and potential customers? What are they doing in their daily life? Where do they need you as a bank? Where they already use you and where not? Beyond that there is of course the daily support required for customers which would be technical support for problems, how to use the bank’s services, raise awareness of existing and new service offerings and more. Of course this function must adhere to the above principles to be lean, computerized, paperless and branch-less.
Sales & Marketing – this function reflects the main money engine such bank would require to actually making profit from the simple banking business. It would not necessarily deal with “banking” aspects as we already discussed the fact that banking profit models of fees and interest is going to be very simple. This function would need to drive transaction volume by preparing attractive bundles and raise them to the potential customers leveraging the different interaction channels the bank has with his existing and potential customers. This function would need to know what data is required on customers, where do fetch it, where potential customers are being in the digital space and how to get their attention and so on. This function would need also to deal with revenue potential by selling the customer base / transaction volume to relevant entities.
Business Development – this function needs to think always on the future however not the far future (which some call it strategy) but the near future from both technology and people behavior. As our digital world is constantly changing, new players coming in, new business models and new technologies the Digital Seamless Bank must identify these changes on time and react by developing new capability, partnering with a new player or just adjusting his messaging and lingo according to new things happening. Why only the near future? Because no one really knows how the world would look 10 or even 5 years from now due to the fast changes happening so it is really a waste of energy trying to predict it, however what is already here and gaining momentum in the next year or 2 this is something that definitely possible to analyze and predict, and of course act upon.
Ecosystem Management – as we discussed the Digital Seamless Bank would need a strong Ecosystem for his being, from retailers to serve its customers, online stores and service providers, social networks to interact & acquire customer information up to technology partners to enhance the bank capabilities. Therefore the Digital Seamless bank would need a function that manages this Ecosystem from identifying who they are, closing and maintaining contract and agreements with them, up to monitoring the day to day business done via them.
Technology & Information Systems – this function comes without saying being the backbone of the Digital Seamless Bank. However such bank would need to decide on the size and shape of such function. Should it be like in today’s banking world of huge IT departments developing and maintaining their information system and technology or a leaner function uses external providers as required? First answer which seems logical is to say lean function however I did not analyze it deep enough to provide a concrete answer as it could have different considerations and options (maybe in future posts…).
As you can see all of these functions are tied together and serve each other, the actual organization structure might be different combining two functions together (customer management with sales & marketing, or sales and marketing with business Development) and the size of each function could also different from bank to bank however this is the logical aspects I see in a digital seamless banking. From a business model I believe the picture is clearer, the money would come from bundling day to day products and services into the money required to acquire them. The more you know on your customer money usage behavior and where he is spending his time on the digital world the better you can offer him a fast and convenient money services from your bank. Using your customer base for promotions and sales activities is another money engine which is very common to this business.
There is another world of Digital Seamless Banking for small & medium businesses however this is a different topic for future posts …..