Digital Banking

Framework
Why digital banking?
 Customers are becoming increasingly comfortable with transactions on
digital channels – whether for product purchases or services
 FinTech platforms and services have responded to e-commerce and
mobility with disruptions across the board – resulting in loss of
opportunities and value for the traditional banks
 The cost of meeting tough regulations, has eaten into the allocations for
investment in business and IT, which then makes banks less competitive,
eventually affecting their bottom line even more.
Is it necessary for banks to digitalise?
1. Remaining relevant in view of everchanging consumer behaviour and
changing business model for several industries
2. Exploiting the ability to tap into increasing digital awareness, and huge
amounts of digital information about the customer via social networks
3. Reengineering extant business processes and building technology
platform in order to manage customer expectations like personalized
services and integration of information across channels for a seamless
experience
4. Facing challenge of competition from less regulated and more agile
FinTechs
5. Coping with increasing cost and complexity of regulations and reporting.
Customer/Sales/Services
 Concentrates on providing a seamless, pleasurable customer
experience.
 A digital bank is expected to implement holistic CRM (subsuming
operational, analytical and collaborative CRM).
 Customer Centric Business Models are based on a holistic understanding
of the customer, and are used to achieve a strong digital engagement,
eventually leading to highly personalized, co-created products and
services using data and analytics (along the Digital Maturity Continuum
with respect to product/ service offering).
 Such a model requires strategic focus on:
1. Developing an Omni-Channel Integrated Platform – to enable
consistent user experience across all the channels (online,
mobile and social)
2. Developing the capability to acquire, integrate and analyse
multiple sources of internal and external data – to understand
the customer and her context better.
3. Understanding and defining relevance and timeliness for the
customer – to tailor processes from the point of view of the
customer.
Regulatory/Other Banks
 Comprises seamless communication of several business-level, fraud-
related reports to the regulator.
 This process should be made as automatic as possible in order to
become fully digital.
 This dimension also involves seamless communication between various
commercial banks in order to have smooth banking operations.
 Ability to proactively manage risk (financial, operational, reputational)
and regulation in a demanding business environment, with exposure to
constantly evolving technology platforms, is the most important benefit
to be achieved from digitization.
 Integration of risk and compliance within the digital channel
must improve, from being based on customer or regulatory
complaints, to becoming embedded in the lifecycle/digital
strategy for products and services.
 This requires the capability to allow underlying business processes
to seamlessly exchange information – access changing sets of
risk and regulatory requirements, rules and constraints as context
for (or an aspect of) the business process itself, and at the same
time proactively provide necessary data for managing business
risks (which may require collation across business processes and
verticals).
 Fundamental to this capability, is the handling of huge volumes
of data at scale, sometimes generated as a by-product of the
core function itself.
Internal
 Comprises applications of sophisticated analytics for measurement,
modelling and management of various kinds of risks a bank faces,
when it is in operation.
 They include credit risk, market risk, operational risk at the highest
level and many other risks at a lower level.
 This dimension also calls for successful implementation of human
resource analytics to optimize various operations in that department;
successful FOREX rate prediction has a direct bearing on the
efficiency of the treasury department.
Technology
 Involves core banking, implementation of sophisticated delivery and payment
systems such as:
 internet and mobile banking,
1. e-wallets,
2. m-wallets,
3. omni-channel,
4. data warehouse,
5. service-oriented architecture,
6. offering non-critical applications on a cloud,
7. implementation of sound and best practices of information/cyber/network
security protocols, security operations centre, etc.
 The paradigm of SMAC stack plays a quintessential role in a digital bank.
 SMAC (social, mobile, analytics and cloud) is the concept that
the convergence of four technologies is currently driving business
innovation. ... The four technologies improve business operations
and help companies get closer to the customer with minimal
overhead and maximum reach.
 SMAC stack is the concept that makes use of social interactions,
mobility, analytics driven by big data and cloud technology to
simplify the customer experience while boosting productivity. For
example, Netflix is a company that makes effective use of this
strategy.
 Big Data: extremely large data sets that may be analysed
computationally to reveal patterns, trends, and associations,
especially relating to human behaviour and interactions.
 Social perspective aims at growing business by getting
connected to customers via social media, listening to and
redressing their grievances, monitoring customers' sentiments
about products and services, redesigning and rectifying
products and services based on customer feedback, detecting
fraudulent transactions, providing instant and personalized
financial advices, etc.
 Mobile perspective talks about offering entire banking services
on a mobile device by providing anywhere-anytime banking;
analytics dimension acts like the brain of the bank and analyses
customers' transactional, demographic and psychographic data
and brings out the insights into the customer purchasing and
saving patterns, target marketing, segmentation, cross sell/
upsell, credit scoring, default modelling, churn detection, fraud
detection, etc.
 Finally, cloud perspective talks about bringing down the cost
of ownership of infrastructure that is required for running the
CBS, CRM, risk management systems, etc., thereby reducing
the cost to the bank significantly. The cloud dimension is
different – in that a bank can become a fully functional
digital bank without its services, data, platform, etc. being on
cloud.
 While cloud aspect can reduce the capital expenditure to a
great extent, it is a business call a bank has to take
considering security, sensitivity and criticality of customer
data.
Data
 Consists of implementation of best practices of data governance that
will ensure high data quality and master data management solutions.
 Success of digital banking heavily hinges on the data quality available
in a bank. This dimension is described in more detail later on.
Business Process Reengineering BPR
 Advocates redesigning and reengineering of extant business
processes in order to achieve the elusive customer centricity.
 Success of digital banking depends on the easy, uncomplicated and
less time-consuming business processes. Unless this dimension is taken
care of, a bank cannot claim to become digital, no matter how
much investment is made in other dimensions such as data, people
and technology.
 Business processes have to be continually monitored to ensure that
they provide a pleasurable customer experience.
 Analytics
 Once reasonable customer data quality is ensured, analytics paves
way for a pleasurable customer experience, successful resolution of
several business problems such as:
1. customer segmentation,
2. credit scoring,
3. target marketing,
4. market basket analysis (cross-sell and upsell),
5. default Non-Performing Asset (NPA) prediction,
6. fraud detection,
7. churn modelling, [Customer churn refers to when a customer
(player, subscriber, user, etc.) ceases his or her relationship with a
company. Online businesses typically treat a customer as churned
once a particular amount of time has elapsed since the
customer's last interaction with the site or service]
8. sentiment analysis,
9. campaign design and measuring its success, customer lifetime
value modelling and prediction, etc.
 Types of Analytics
 Descriptive involves answering complex, high dimensional queries in a
graphical form including bar charts, histograms, pie charts, stacked
bar charts, hear maps, box plots, etc. They primarily convey the
information content available in raw data, which could be historical
or current.
 Predictive looks for patterns/correlations and exploits them to predict
future customer behaviour in order to solve the aforementioned
business problems. It comprises advanced applied statistical
algorithms and machine learning techniques
 Prescriptive consists of applying optimization techniques to
recommend future course of action based on the predictions made
in predictive analytics stage.
People
 Calls for recruitment of well qualified and suitably trained specialist
manpower in a bank.
 The positions include data scientist, data warehouse specialist, data
steward, information architect, segmentation manager, channel
manager, business analyst/business intelligence specialist,
Hadoop/Spark specialist etc.
 People dimension should be accorded topmost priority because
digital banking requires specialists to look after its various
dimensions.