There are phenomenal companies that have achieved outstanding results in the banking and Fintech industry. Some of them are very well known, but most are not. What makes a digital banking superstar?
Working with hundreds of financial professionals in Vietnam and worldwide, we have extracted some recent trends in banking that characterize the approach of really successful financial businesses. All of them are closely connected to the ability to integrate user-centricity at all levels of the company. This opens up many possibilities that could create a truly decentralized and people-centric digital banking system.
Anyway, there are still significant challenges to overcome in the development of such systems. But 2020 could be the year that we begin to realize the first glimpses of a technology-based global financial and social operating system that will form the foundations for future financial services.
We talked with Bryan Carroll, the Chief Digital Officer at Vietnam Maritime Bank (MSB) – one of Vietnam’s leading commercial banks – about this. Bryan, who has 27 years of experience working in the field of modern digital technology and has held many important senior positions in prestigious organizations around the world, such as AlfaBank Russia, National Bank of Abu Dhabi, Bank of Ireland, Rabobank International, Royal Bank of Scotland Group and Ernst & Young.
Your views about digital banking trends in 2020 and the next few years?
Two major trends I see emerging over the next few years are, Big-Tech companies e.g. Facebook, Amazon, Apple and Grab, will emerge strongly in Financial Services (FS) and that Ecosystem & Marketplace banking capabilities will become key differentiators. Here is why:
2019 provided us with a crystal ball for what is to come from the Big-Tech companies in 2020 and onwards. We saw Apple partnering with Goldman Sachs to launch its Apple Card, Facebook delivering Facebook Pay and attempting to launch Libra, a digital currency sitting on blockchain. More recently we have seen Google announce that they will offer a consumer checking account backed by Citigroup and Grab launching GrabPay Card.
The moves by Big-Tech in FS are definitely not new but they are noticeably accelerating. For example, Amazon Lending has currently $863m of outstanding loans on its books, PayPal has provided more than $10 billion in working capital and small business loans since 2013 and the Square Cash debit card is used by 3.5 million people.
So how are Big-Tech moving into FS?
Many FS organizations put the “how” down to Big-Tech’s superior technology. Granted digitally native technology is a significant advantage but not the main enabler. In fact, right now most banks could arguably, if only incrementally, migrate to the same superior digital native technology used by the tech companies.
For me it’s clear the keys to Big-Tech’s success have been superior digital culture and leadership. Big-Tech’s culture and leadership demand that customer convenience and value be put to the forefront of everything they do, that innovation is part of the day job, that the “best ideas must win” and that without agility and speed in delivery you will fail. By putting customer first, you have to know what your customer has done in the past, what they are doing right now and predict what they want next (next best action). To truly know your customer you must leverage Data Science.
FS organizations have lots of data, in reality most banks across the world are literally drowning in data but are unable to drive the science that delivers customer insights. FS, unlike Big-Tech, are also burdened by a legacy of product first IT Systems, lack of innovation, mountains of evolved bank first processes, siloed change resistance working practices and non-digital mindsets & talent; all of these need to be addressed not just to combat Big-Tech but to digitally transform any organization.
However, it’s not all black for FS, they have something Bi-Tech wants. Big-Tech is hungry for Financial Data. Big-Tech have access to substantive customer lifestyle data but need financial data to further complete the customer picture. Many Big-Techs only know part of the customer, as all the data they typically leverage is related to sales on one marketplace e.g. PayPal, Amazon, Lazada.
In summary to successfully respond to Big-Techs disruption and disintermediation, banks most start incrementally transforming to laser focus on knowing their customer better. As I discuss below many Banks are adopting “beyond banking” models such as Marketplace and Ecosystem Banking to do exactly that; to go beyond the traditional 360-degree customer financial data view to a 360-degree customer lifestyle view.
Ecosystem & Marketplace capabilities will be key to Banking in 2021
Ecosystem and trusted Marketplace banking are fast re-emerging as important transformative business models for banks. The promise being, providing new ways to acquire customers, to develop alternate revenue streams and to ultimately improve customer convenience, retention and lifetime value.
Banking business models have traditionally designed, manufactured and distributed generic products and services to serve a broad range of customer types and needs. Some banks have fine-tuned this model and have begun to bundle/aggregate products and services by segment and persona.
Others have begun integrating with third parties and Fintechs to offer and aggregate additional services. However, these approaches are usually not data powered and often lead to a very de-personalized customer experience, an experience into an audience of which 85% name personalization as an important prerequisite for deepening their relationships with a bank. Marketplace and ecosystem banking build on this requirement for personalization.
What is a Marketplaces and what is an Ecosystem?
Marketplaces have been with us for many centuries and are still very prevalent in many developing nations. Marketplaces are secure physical locations that merchants gather to sell their products and local people visit to trade with the merchants.
Digital marketplaces platforms do exactly the same thing, with merchants offering their wares and customers searching and buying these wares. They bring together demand and supply in a single digital place. Examples of typical digital marketplaces are eBay, Amazon or Alibaba.
In digital banking it is a model that brings together in a secure, convenient digital shop window the best products financial services on offer, irrespective of who supplies them. Examples of marketplace banking are Monzo (UK) Starling Bank (UK) and VTB (Russia).
In biology an Ecosystem provides a species with everything it needs to survive. If we apply this to the banking and try to understand what makes an ecosystem we realize that our customers need much more than just financial services. An ecosystem, approach takes a bank’s value proposition beyond banking, with ambitions to stretch its reach into every corner of a customer’s life e.g. health, education, transport, entertainment, social interaction.
Ecosystems and Marketplaces will be culturally difficult for many banks to implement as they mean banks will have to give up some control of their up to now closed supply chains in exchange for providing a platform for third party collaboration. Banks will also have to embrace that in a marketplace and an ecosystem the customer is more in control.
Without doubt, building an ecosystem is far more complex and more difficult than building a marketplace but the value proposition is more compelling; the ultimate goal being once a customer is part of your ecosystem he/she does not have the need to ever leave it again. Examples of digital ecosystems are very few at this stage with perhaps Tinkoff Bank (Russia) the best example right now.
It’s said, digital technology drives three major banking industry trends: digital transformation, brand specialization and partnerships. Do you agree with this and why?
I agree to a point. In my experience banks are using digital technology to drive two major banking trends/approaches – Digital Optimization and Digital Transformation. Both approaches can lead to brand specialization and both can be accelerated through partnership with external tech companies and Fintechs.
However, what I see time after time across Europe, Asia and the US is a confusion between Transformation and Optimization. This confusion normally surfaces too late and normally when the Bank post project reviews the resultant ROI. Optimization mostly results in increased profit through cost savings whereas transformation focuses on increasing profit through developing new business models.
Digital Optimization focuses on improving the bottom line through streamlining infrastructure, optimizing internal processes, driving automation, better usage of data and adding new digital features to existing products and services. Typical projects driving optimization include Robotic Process Automation, Biometrics (RPA), Electronic Know Your Customer (EKYC), Enterprise Data Warehouses, Business Process Management (BPM) and Master Data Management (MDM). igital Transformation is different, it brings together a new vision and value. Transformative Vision is focused on building the bank of the future. It foresees fundamental changes and new value propositions driven by new technology, changing supply chains and ecosystems, new rules of competition, and disruptors setting new rules.
Not just in Vietnam, traditional banks are focused on their culture of protecting their legacy and maintaining the corporate image. That’s why any new changes come slowly and painfully. What’s your thought about this?
I agree that many banks are focused on protecting their legacy as evidenced by banks running portfolios of digital optimization projects focused on improving existing digital distribution in the front office and rationalizing existing operating models in the mid and back offices.
As mentioned already and recently called out by Accenture’s study into Bank’s IT investment – banks who had invested most heavily in digital services had generated greater profit, however, this was largely due to cost optimization rather than an increase in revenue i.e. they did not transform.
On a global scale despite investing more than $1trn globally in new technology over the last three plus years very few banks have been successful in moving beyond “projects” to the organization-wide transformation initiatives, involving identifying new lines of revenue, championing innovation, product development, business models and culture change.
With most industry commentators estimating that between 75% and 80% of bank transformation programs have failed to deliver banks are understandably very nervous about tackling fundamental transformation.
So why have so many banks failed in transformation?
From my experience the key reasons have been firstly, the absence of a credible digital culture & digital leadership team and secondly the existence of legacy systems & technical debt.
An old quote but eternally valid – “Culture eats strategy for breakfast”- Peter Drucker. Moving from a “legacy” to a digital culture is step 0 for all successful digital transformations.
Most traditional banks still rely on legacy systems, systems built to support a branch led model, over time new modules were bolted on to support digital interactions but in most cases this has resulted in spaghetti like and slow and expensive to change architectures. These legacy systems are in essence carrying major Technical Debt. This debt has to be successfully addressed if a bank wants to digitally optimize or transform.
For many banks, the main focus is on the product and the benefits it will provide the bank itself in terms of increasing the profit. How do you think about this?
I agree for the moment that this is the case in many legacy banks. It is not really a surprise as legacy banks were purposely built on a product first approach to be supported by branch distribution. It is my view however that the majority of banks have already recognized they have big challenges ahead and their focus is changing or will change.
Banks know that they will need to find ways to build business models that will generate new revenue as traditional fee and interest income come under continued stress. Like many commentators on the banking industry I believe that to sustain future profitability and achieve stronger returns banks will need to invest in digital at scale, change their culture, simplify operations, increase market-share while reducing costs, strengthen security and continually innovate to add convenient products & services customers will be willing to pay for.
As digital banking becomes mainstream we will see new success metrics being discussed at bank board tables. The new metrics will be quite ecommerce-like and will concentrate on measuring Digital Traction, Cost of Acquisition and Customer Lifetime Value. Traditional metrics like Cost Income Ration (CIR) will also need to be re-baselined as happy digital customers typically generate twice the income and are 30% to 60% cheaper to serve.
In summary, I believe the key to any successful digital business model is not just about quick profit, it’s about developing the correct balance between what is best for customer with what is best for the business.
Everyone is aware that digital transformation is a must to survive and thrive in the digital age though not everybody knows that digitalization itself does not guarantee solid success in the future. There are so many cases in which attempts to transform lead to failure.
In March, MSB has announced it will adopt Mambu’s cloud-native banking platform as its key technology solution to help the business undergo a radical digital transformation. Can you share with us some information about your plan for MSB and what’s your strategy and expectation for the future of the digital bank?
Yes, in March 2020 we selected Mambu as our digital core banking platform provider. This partnership is helping MSB deliver on its goal of launching a digital only banking experience in October 2020.
Since March 2020 the team has been working very hard to ideate, design and deliver ”TNEX”. TNEX is MSB’s end to end digital only banking experience. An experience which primarily focuses on young people. TNEX is really different, it has been built using Data Science, Customer First, First Principles Design, digitally native technology, agility and innovation at its core. We started not just by asking or guessing what banking products customers want, we identified the actual services and products our target customers need to live their lives better and then built TNEX.
But we knew that digital transformation would not work just by adopting new technology. That’s why we created a digital unit within the bank to start aggressively changing the culture and the ways of working. Rather than blindly adopting agile out of the box we built our own version of a Spotify model, creating different Tribes to develop different services, to adopt agile at scale.
Every single TNEX touchpoint has been designed to help each and every customer to live their life without the need to use multiple apps. Enabled by our investment in a Customer Data Platform, Artificial Intelligence, Machine Learning and design thinking, we can delight every customer with a personalized lifestyle experience ; one that is real-time sensitized to our customers’ actual behaviors, real needs and future dreams .
We are very excited about our launch in October, it is our belief, a belief strongly supported by our pilot customers, that TNEX will help revolutionize the way people bank in Vietnam forever.