In last year’s EFMA Infosys Innovation in Retail Banking survey of more than 1,000 bankers, 14 per cent said that they had deployed digital transformation at scale in their organisations and it was delivering to expectations. While this figure has jumped 100 per cent from previous year, it is still small, likely prompting observers to comment that incumbents are not digitising (fast) enough. While there may be some truth to this, the fact is that most banks have sincerely worked on transformation for the past 5 to 10 years. They know that it is an ongoing journey, with milestones that move frequently; that it is in the nature of digital transformation to take time.
At the beginning of this millennium, banking was in the early stages of digital transformation, or Digital 1.0, if you will. Banks looked to digitise existing ways of working, without making any significant changes to the processes themselves. So, paper account opening forms were replicated digitally, as were in-branch interactions by porting them to mobile phones. Customer segmentation took hesitant steps towards personalisation, but did not do much more. These efforts delivered limited results.
During Digital 2.0, banks took a fresh look at their customer journeys; while they leveraged the new technology tools at their disposal, they continued to approach from a product and service perspective. This was the age when entire customer journeys – for opening a savings, term deposit or loan account, for instance – were digitised and delivered on new digital channels featuring chatbots, smart watches and WhatsApp, among others. A few years later, regulations in various countries pushed transactions towards open banking channels.
While this was progress, it was really just a step towards real banking digitisation, or Digital 3.0, which is unfolding now. This is where banking starts to become invisible as services merge with customers’ primary journeys – their quest for a house, car, vacation and so forth. It is in this space – embedded finance – where all the action is taking place by way of Buy Now Pay Later, open payments, etc., the hallmarks of Digital 3.0.
The transition from Digital 1.0 through 3.0 is visible in every aspect of banking. Take data analytics, for example. Stage 1.0 was the stage of descriptive analytics, which explained why a certain event had occurred within or outside a bank; stage 2.0 ushered in predictive analytics, enabling enterprises to make forecasts – of cash flow, for example. But it is in stage 3.0 that data analytics will showcase its powers by not just recommending best actions to customers but also automating those actions on their behalf.
Similarly, banks’ cloud journey has gone from private cloud to hybrid to public cloud, and that of APIs from private to partner to public.
Prepare for the long haul
Whichever way one looks at it – from the perspective of customer engagement, or operations, or technology, or risk management – the journey is progressing along a continuum, as banks gradually build digital muscle. One bank that exemplifies this is DBS.
DBS Bank is today counted among the world’s finest digital banks. But its digital transformation journey began way back in 2009. In the first five years of transformation to Digital 2.0, DBS invested heavily in building enterprise capabilities for digital innovation. This included laying the foundation for revamping technology and data architecture, reimagining funding and governance processes and, most importantly, driving cultural change and upskilling and reskilling the employee base. Since then, the bank has pushed hard with its Digital 3.0 agenda captured in its GANDALF rallying call – To be among the global tech giants that are reshaping our world – Google, Amazon, Netflix, DBS, Apple, LinkedIn, and Facebook.
Today, the bank is reaping the benefits of Digital 3.0: digital customers – whom the bank defines as someone who has purchased at least one product, or made more than 50 per cent of transactions, through a digital channel – are associated with cost-to-income ratios that are 30 per cent lower than those of non-digital customers. Also, helped by Covid-driven digital adoption, in 2020, 73 per cent of mortgages, 67 per cent of deposits, and 79 per cent of cards were acquired through digital channels. In India, the bank opened 96 per cent of new SME accounts digitally.
Banks must be prepared to commit the required number of years and effort demanded by digital transformation in order to succeed. For it is an ongoing quest for new ways to create value for customers and deliver it in a seamless manner by embedding banking services in customers’ primary consumption journeys, and also for new revenues by monetising data, and curating ecosystems of customer services.
The lesson here is that like DBS, banks must be prepared to commit the required number of years and effort demanded by digital transformation in order to succeed. For it is an ongoing quest for new ways to create value for customers and deliver it in a seamless manner by embedding banking services in customers’ primary consumption journeys, and also for new revenues by monetising data, and curating ecosystems of customer services. Also, the transformation is not by technology alone; in our experience, banks need to do the following five things to scale digital:
• Maximise customer engagements to drive growth
• Digitise and automate ubiquitously to cut costs
• Innovate continuously to create new value and to stay competitive
• Leverage the power of new technologies such as cloud, API, and AI to unlock new possibilities
• Leverage talented teams and purpose-driven culture to unlock true potential
Once a bank puts this foundation in place, taking digital transformation to the next level takes progressively less time, effort and expense. Digital transformation is an intense and ongoing journey. It is a continuum of change across several dimensions. It is a virtuous cycle. As the banks navigate their 2.0 and 3.0 journeys, Digital 4.0 is slowly unfolding with DeFi, or decentralised finance, digital currencies, AI at scale, and ubiquitous IoT powered by 5G. In this era of ever-accelerating change, the only sustainable strategy is to evolve across the five dimensions continuously.
The writer is Head of Platform Strategy and Marketing, Infosys Finacle