Many banks have been around for years or even hundreds of years. Some have invested heavily in technology. Most banks invested in technology in the last century and some were locked into vendors with old technologies. To break those chains is a massive challenge, and the rise of digital banking has been the solution. What does this mean?
During the last century, banks set their processes in concrete by buying expensive mainframe systems and infrastructure that was set in stone. As new opportunities arose – the call centre, the internet, the mobile phone – banks added these to their old systems and called them channels. The bank was locked into a physical structure, based on branches with buildings and humans, and digital was the cream on the cake.
Then a radical thing happened. The internet arrived. More than this, the mobile telephone developed. Afterwards, with the arrival of cloud computing and the smartphone, the world changed. Cloud computing made internal infrastructure and mainframes irrelevant. Cloud offered a mainframe on demand and a platform to open up the world through APIs (Application Program Interfaces); the smartphone placed access in the pocket and purse of near everyone in the world, with apps that were so simple that anyone could use them.
The combination created the digital world we live in today, and it’s a killer combination.
Obviously, banks have embraced this. By way of example, we talk about Open Banking where financial institutions can connect via cloud platforms using APIs to deliver enhanced services to smartphone apps. However, this is not really working because banks are still adding digital to physical, rather than being digital at the core.
It is the difference between a digital immigrant and a digital native. A digital immigrant tries to understand how the online world works and takes their old physical, analogue structures and tries to make them look digital; a digital native is born on the network and does not understand the old physical structures as they’ve never seen them.
This is the difference between last century banks and this century challengers. If you’re born on the network, you understand it; if you were born in the last century, you don’t.
The challenges this creates for older banks are immense. Their leadership generally are not digital people, and yet they want to be a digital bank; their organisation is built to be physical, and yet they want to be a digital bank; their systems and operations are cemented in physical distribution, and yet they want to be a digital bank.
This means that, to be a digital bank, a traditional bank has to reinvent itself like a Phoenix rising from the ashes. The bank has to shake off its physical structures and place digital at the core.
A good example of what this means was highlighted during the recent pandemic. As lockdown came, most traditional banks were forced to move their operations to be cloud-based in order to allow remote access for their customers and employees. However, becoming cloud-based meant moving existing processes, structures and operations to the cloud. There was no re-invention or re-thinking of structure to be truly cloud native.
This may seem irrelevant from the inside but, from the outside, is obvious to a customer.
As a customer of a traditional bank, we are forced to open their apps to see our balances and whether a payment has been made or received. As a customer of a digital acaabank, we never need to open the app, as the bank automatically alerts us every time a payment is made or received.
As a customer of a traditional bank, they are proud of our digital engagement and the fact that we use their app every day, to see if a payment has been made or received. As a customer of a digital bank, they are proud that you don’t need to use the app.
The traditional bank claims to be truly digital because we use their app; the digital bank knows that they are truly digital because we don’t need to use the app.
These are just some of the differences between digital-native banks and digital-immigrant banks. The list goes on and, over the next decade, we will see a market divide between digital-native customers and those who don’t care. The issue for traditional banks is that those who don’t care generally are the existing customers and not the next generation customers they truly need. Give it a century and it will be fascinating to see which banks win.
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