Digital first in banking: Going beyond the interface

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Think of the changes in the past ten years in terms of how we deal with our banking needs. We moved from telephone banking to online or internet banking. The iPhone became more popular and apps got better and more secure. It is hard to remember how we managed with the rudimentary tools of ten years ago; so turn on your imagination and wonder what banking will be like ten years from now. How should banks prepare for the digital future?

Patrick Rood, Backbase Global Head of Alliances & Partner Business, thinks about these challenges every day. As he said recently during his session at Think 2019, “Being ‘digital first’ for us is not about the interface. Rationale for change should happen on a much deeper level. It’s all about embedding banking into a person’s life.”

Below were some of the key points during the session.

Steps to digitally transform

The ingredients that will help execute the digital first mission include:

  1. Customer experience: Who are the digital-first customers and what do they expect?
  2. Make it seamless—and smart
  3. Business models: What can we learn from tech-savvy disruptors to anticipate what our new business models could look like?
  4. Execution speed: How can we go faster?

Customer experience

We need to consider the needs of all types of customers. There are classic customers who use traditional models and traditional channels. Some have converted to also using digital channels. These customers may be satisfied for the present.  Your executive teams may feel that their current mobile apps and internet banking operations are sufficient.  And yes, for now you can still reach profit objectives and meet C/I ratio targets—while investing in more mobile and internet banking capabilities on the side.

To ensure success in 2025, however, the focus should be on customers who use newer models in digital channels: Generation Y, Z, and Alpha, too—the children of millennials. We have seen what happens in just ten years. The old saying in hockey about  “skating to where the puck is going to be” is true here, too.

It starts with seamless digital onboarding. Neo banks, such as N26 and Revolut, are leading the way with super slick—all digital— customer onboarding flows. They already do it, without branches or paperwork, and in under four minutes. One hundred percent digital. This meets the expectations of generations Alpha, Y and Z.

And they are 100% self-directed, so they prefer that everything is in the mobile banking app.


Use case: Focus on the millennial market with mobile

Virgin Money had an aging collection of customer-facing applications. They lacked a coherent channel architecture and a mobile presence. They needed a digital agility layer to help them scale and meet their future roadmap. They chose the Backbase digital banking platform on the cloud, which provided the required elasticity and cost efficiency. With IBM Design Thinking Loop® and the Backbase platform, a mobile app went live after six months. These new capabilities help Virgin Money appeal to millennials.



Seamless security—and digital workflow

Another essential ingredient for a digital first future is seamless security. Passwords are no longer the safest mechanism—certainly not for managing money. Smartphones, with their built-in security features, are providing a unique opportunity for a password-less future. Embedded biometrics are allowing companies to become tokenless. Soon enough, the ability to embed such security protocols in a mobile device will go from a competitive advantage to an everyday expectation.

Also, digital alone is not enough—banks must be in the digital workflow of the activity. Here is an example:  If users demand of their phones, “Siri, send money to Susan,” the phone starts a digital workflow, asking how the user wants the money sent. When bank services are tightly integrated with the mobile device, the bank can move to the top of user choices.


Make it smart

Artificial intelligence (AI) is everywhere. The computer games our kids play tell them how to play the game better. AI is built into the video and photo apps we use. We get assistance when typing search terms, text messages, or email.

Similarly, mobile banking applications are moving away from relatively dumb applications to smarter assistance. The use of insights is increasing, for example, providing soft-prompts to help customers invest, increase savings or switch to higher yield strategies.


New business models

We have already seen the rise of e-commerce payment platforms. Banks were very successful in selling point-of-sale equipment to brick and mortar retailers for payments. But as traditional retail declined and e-commerce increased, banks missed the opportunity to create an e-commerce payment hub. Instead, tech-savvy companies such as PayPal, Adyen, Stripe, and AliPay led the way.

Currently, we see the rise of mobile payments platforms. In China, for example, WeChat is a chat app that is pre-loaded with basically every functionality you need in your life, including payments. This little chat app is now dominating mobile payments. People are moving from a cash to a cashless society through this app. And people in China prefer this app over their plastic cards.

WeChat is generating over a trillion dollars in payments. How does one compete in that market? To be clear . . . the bank is still there, but is completely invisible. Which means the bank’s brand is becoming invisible too. With no card, there is no brand intimacy.

Some banks are getting serious about fighting back and are changing their business model in order to compete. Take Revolut, for example. Revolut now has $500 million in funding, and investors have enough data points to believe Revolut is on the same growth trajectory as the Ubers and the Netflixes were years ago.

Looking at Revolut’s business model, we see that it is surprisingly similar to Netflix and Spotify. Start free for basic services then upgrade for premium services and capabilities at a low price point (say $8 per month). Their break-even structure lies probably around 350-400K premium users.

Revolut launched with a simple debit card product—with low regulation. But that picture is radically changing. They are expanding by creating FinTech partnerships. With the app, Revolut owns the customer experience, giving them distribution and negotiation power. Beyond subscription fees, the underlying platform allows them to also generate fees from those partnerships.


The reality is that many banks act as big boats. Economies of scale were the competitive edge when scale and standardization meant more profit. In this digital era, scale makes us slow. From a cultural, organizational and behavioral point of view, we are all optimized for economies of scale. We are not optimized for agility.

Culturally, we need to change—away from economies of scale to a start-up state of mind. There are a few simple rules:

  • Create smaller, faster, dedicated teams.
  • Give these teams a clear mission aligned to business goals.
  • Create a prototype, bring it to market and the customer will give guidance for the next iteration.

The whole purpose of these teams is of course to succeed, or to fail fast. Most plans are based on assumptions. So first and foremost, it is fundamentally important to validate the assumptions. Not with a spreadsheet, but with real users. That is the essence of the lean start-up principle.

Ultimately, banks can get a lot of advice from analysts but if we don’t change the culture we are stuck. To stay ahead of a digital future, we must move to a start-up state of mind.


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