Step 2: What does it mean for banks to activate a digital offering in 2020 and beyond?
Where do you start the transformation?
I would now like to direct your attention to one of the main areas that COVID 19 has made relevant in your business offering in the most recent days. Your online banking offering is or has been witnessing substantial growth in the lines of Internet Banking, Mobile Banking, eWallet or Banking application.
Necessity is the mother of all inventions. That necessity is the global pandemic in this case. Others and yourself in the banking industry are now scrambling to put more resources behind whatever digital services available in your arsenal. Almost everyone these days have Alternative Delivery Channel (ADC) offering Cards (Debit/Credit, ATM and PoS Terminals). That has, to a large extent, has been your customers' primary mode of accessing banking services in these dire times. You are now witnessing rapid growth in the demand for digital, the need for ubiquitous banking.
The answer should be evident by now about where to start. Your consumer demand curve is spiking in that direction. You are at an advantage as you have to to spend next to no effort convincing your Board and the other critical stakeholders in your team and Central Bank to move forward and lead the way into Digital Transformation. The catalyst of change has emerged out of perhaps the worst pandemic that humanity has witnessed.
I have spent a whole paragraph dramatising the move to digital, now let us move into actually taking steps towards it. Before we proceed, I would like you to look at the obvious and also think about the change factor at a businesswide stage. Your first response to contactless banking is ADC under Retail Banking.
Globally the phenomenon of Digital Transformation or Digital Banking has favoured this discipline or department of executives to culture the new line of interactive nodes for Banks. National Westminster Bank (NatWest) from the UK has introduced its own digital banking services offering, Bó. Chase Bank from the US has pledged $2 Billion to drive their digital transformation. Standard Chartered Bank (StanChart) has already launched a $1.5 Billion strategy and released MOX, their first Digital Bank offering in Hong Kong. Finally, perhaps one of the earliest game-changers, DBS Bank from Singapore, have already made their move and their realignment of internal departments. They are now successfully offering Digital Banking at some of the highest levels possible too. Most of them reimagined their Retail banking experience. It is the most obvious to change, and perhaps as the fastest moving segment, thus demanding a lot of updates.
The realignment will start with Retail Banking but should have a lasting momentum to transform all your verticals.
This point is a crucial takeaway from STEP2. The most robust enabler for this to happen is your IT department. The first change will have to happen here. You need to consider if your Head of IT is up for the job. Bare with me for a moment. Retail Banking is a business unit, and to enable this unit, your 'Swiss Army Knife' is your IT. You will need an unbiassed assessment for the state of your existing IT infrastructure. Once that is done, you will find that the Core Banking System (CBS) that drives your banking operations, in most cases does not openly support the kind of change that is required. Here is a choke point that will feel very frustrating, but I promise you that this you can overcome.
Your 3rd Party procurements have always been added to or run parallel to your CBS via 'Application Program Interface' called API. Albeit delicate, this is a plausible solution to your problem here too. You see it is imperative to accept that your CBS has to have open secure access API points with 3rd Party systems. This kind of distributed service structure is quite common these days and have also proven themselves on point with security measures. However, the critical assessment of your system platform will be around your capability to scale securely and efficiently. Once you successfully start offering digital services, you will witness the propensity to scale rapidly, so you have to make sure you cover that area.
Finally, the more you go digital, the more you open up your systems to collaborate with other services, Security becomes a critical issue. Make sure your security policy internally and externally suffice the need to go digital. One functional area to look at while assessing yourself is whether you are ISO/IEC 27001:2013 Certified or not. This certification means that you comply with the latest Information Security Management Standards (ISMS). Make sure the systems that you procure or 3rd Party Systems you connect to provide services also comply with it. VERY IMPORTANT to consider.
Unfortunately, like most banks in Bangladesh, you probably have not achieved this certification. It is one of the biggest failures that your Head of IT, past and present which will be single-handedly responsible for the downfall of service credibility in the move to digital if you do not fix it. Bangladesh Bank has recently sent out SRO to your respective departments to get this done ASAP, and you should be doing it right away. This provision not only manages protocols around the management of data electronically but also in physical workflows. Therefore, a beneficial certification to have under your belt.
There are two possible ways that you can go about your transformations. The first, allocate a substantial amount of budget behind the move and significant time and the second, allocate a moderate budget with the option to spend as you grow. I prefer the latter. An anecdote, your Head of IT is probably going to want to go for the first one. Depending on how deep your pockets are, you can make either choice. The first option will allow you to have more closed-loop control. Whereas, the second will let you have power by applying strong Service Layer Agreement (SLA) with you service providers and keeping your systems more capable of collaborating with other solutions much faster. It is thus making you more agile and nimble. It will allow you to deploy newer services rapidly. Frankly speaking, its a no-brainer, the second option is better, you spend less, and it will enable you to have the agility of a hummingbird.
Retail Banking on the driving seat to actuate the shift
Convergence is the name of the game here. Rather than taking the whole Bank by the leash, the aim to take hold of the most compliant parts and then expand to the hard parts. Consumer behaviour has shifted; people now prefer the smartphone to that of the desktop browser. Therefore, a mobile-first approach is needed. The function of banking is more critical than the Bank. Ubiquitous is the key. Customers do not want to go to your service branch and wait in a queue for thirty minutes to an hour to get service. They want it now. Transfer? Has to happen in the blink of an eye. Payment? Has to be convenient. Savings products? They do not want to fill up countless forms. A study by Deloitte found that 34% of potential bank customers walk away from opening a bank account. When asked, they say that banks ask too many repetitive and personal questions. Most importantly, it is way too long. Customers want quick assessments of Lending products.
What does all this tell you? You need to streamline your service portfolio to deploy these efficiencies. You need to look at it as a convergence of two things. The first is the connectivity or availability of the right tools and services. Second is the delivery platform.
Collection of data has to be simplified while being bonafide. Usage of that data has to be sharable within the internal workflow. For example, a registered customer in your CRM should not have to refill that information for applying for an FDR, Credit Card or others. Customer should have visual access to the credit assessments criteria that you perform under and the stage their request is at that time. Point being, enable your customer. Let them track their progress of the applications they make to your Bank. It increases transparency that leads to customer loyalty and clean audit tracking for your report cards. The money that you are doing business with belongs to them, so let them be in control.
Banks worldwide are the most significant facilitators of business and manage very specialised segments. International banks facilitating FinTech have seen a sharp increase in their profits. In contrast, Banks in Bangladesh try to do everything all together. I hope that banks specialise now more than ever. However, one bank in Bangladesh who has been experiencing a good dividend offering from supporting another FinTech. This Bank now is making the smarter move to accommodate even more FinTechs and are most certainly making a move in the right direction. Banks in India have been doing the same and have seen around 92 wallets operating in the market. The high concentration of e-wallets means that the customer gets more options as new entrants enter.
All in all, banks have a lot of business. You as a bank can also profit from this. To do so, you need to invest in making your own CBS more accommodating and also make an excellent pitch to facilitate these FinTechs. Afterall, bKash is not the only healthy player in the market. With Robi Axiata getting NOC to operate as MFS in conjunction with Trust Bank; it is only the beginning. Soon all the Telcos will be in the market. We already have Nagad putting up a good competition. eWallets will need your support more than ever. You can also benefit a lot from an alliance with them (e-wallets of all kinds).
I hope this two-step document has helped you reshape your some of your strategies around initiating Digital Banking Transformation. I have received quite a few queries already from Step 1. A lot of you have reached out for more one-to-one. I am happy to have conversations with you if it means that we can transform the Banking Industry of Bangladesh for the better in the coming days, and we start making moves in the right direction.