In this article we provide insight into how financial institutions can execute their digital transformation and navigate the COVID-19 crisis as a digitally enabled banker. Our expectation is that the move to digital will be accelerated for financial institutions due to the recent crisis. In a recent BCG COVID-19 Consumer Sentiment Snapshot, we see online shopping being almost unaffected by the crisis, and some press articles are indicating that e-commerce is currently booming.
At this stage it is difficult to predict what impact COVID-19 will have on financial institutions, but they are certain to face challenging times. A concrete example is that they will have to cope with specific customer demands and take action as a result of the COVID-19 financial measures (‘betaalpauze’) recently announced by the Belgian government. As highlighted in the following EY article, we can expect different types of customer behaviours to arise: the back-to-usual clients for whom the crisis was just a small break; the adopters of new practices for whom it was a period to rethink their mode of consumption; and the hedonists who will seek to make up for lost time. New digital players might be better positioned than incumbents to gain market share in these situations.
In order to cope with all this, we want to highlight our Bank using a Page methodology that focuses on putting the technology foundations for a digital transformation in place. This will allow you to choose the right pathway for implementing this structural change. It provides an overview of the long-term actions you need to take and accelerate to allow your workforce to become fully digitally enabled bankers.
Increasing mobility demand will definitely be required to do business remotely and ‘on the go’ during these times, and be able to perform digital sales and servicing smoothly and in a transparent way through different channels. We are also seeing a trend towards a single digital office where teams operate autonomously across front-, middle- and back-office functions to promote broader processes with real-time data flows that support rapid decision-making. This is where front-, middle- and back-offices will cease to exist, as they will simply be a single office.
Below is a summary of the business capabilities where we show the different channels through which customers can connect to the front-office and gain access to financial advisory services. We indicate the main capabilities offered by front-office employees and highlight their role in the various core financial services’ end-to-end processes. In order to reach this end state, it is important to close the experience gap between the customer and the banker. But there is also an equal need to close the gap between the customer experience in the channels and the experience when the customer meets their advisor in the branch, remotely or on the go. In general we notice that user experience for B2B applications lags behind B2C applications. A reason that is often given for this is lower visibility and lower mobility of the users. People tend to accept lower usability and inefficiency of professional B2B applications more easily than B2C applications.
Customers have more and more ways to engage with financial services, ranging from the traditional visit to the branch, contacting the financial services through the phone, and using online digital channels. However, we are seeing trends towards contacting financial services remotely and via chat, more financial institutions putting financial planning and advisory tools in place, chatbots, and more services being offered via online digital channels. This gives an increasing expectation that financial advisors should be aware of this, and have data and insights available at the tips of their fingers across the different channels. The customer expects this information to be shared across the different channels and that the financial advisor is aware of this. Financial services that are able to make the switch to digital and use data as a way to improve the relationship between the customer and the financial advisor will lead the way.
Most financial services need to overcome significant constraints in their current IT landscape, however. This article provides a framework for their efforts based on two questions:
We first introduce our Bank on a Page model. This model defines the application map to support the business trends. We use it here to identify the main building blocks to become a fully digitally enabled banker. It is used to support decision-making and setting priorities. At level one, we identify the different platforms that each provide their own functionalities. We have a Digital Platform which is composed of omni-channel interfaces and a party-centric core. The omni-channel interfaces are the bank’s entrance. They offer a secure channel experience for all parties supporting omni-channel switching and hopping, serving customers and the banks’ extended ecosystem. The digital selling and servicing backbone for customers and employees is there to offer the right content to the right customer at the right time via the right channel. The omni-channel characteristics are managed here, not directly in the channels.
The Digital Data Platform supports the bank to better understand and personalise customer experience. Customers and employees expect data and insights at the tips of their finger. The Digital Backbone integrates the different platforms through a plethora of integration patterns, and allows reusable interfaces to be shielded and created across the different platforms.
The Core Banking Platform contains the factories and corporate and support systems. The factories are product engines supporting the fulfilment of the product agreements during the life cycle, organised per transactional service product group. Support systems, being common and product-independent, support multiple processes and/or multiple (product) engines. Corporate services that support the bank’s support domains, such as Finance & Risk, HR, Procurement.
These platforms are detailed at level 2 and level 3 to indicate the lower level building blocks they are composed of. As you can see, becoming a digitally enabled banker is a long journey that requires setting priorities and choosing the right approach according to the ambitions, budget implications and associated risks.
Given the complexity of the challenge, it is no surprise that financial institutions are using different approaches to building their digital platforms. The two main decision axes we show here are to use a best-of-breed approach or adopt a suite approach, and whether to focus on the digital front-end platform or have an end-to-end platform encompassing both the front-end digital platform and the core banking platform. The trade-offs create four pathways with different investment and risk profiles. Each pathway also has a different impact on the business.
A digital front-end banking suite approach is the best option for bankers who are looking for mature mainstream digital functionality and for the outside world to offer them a digital competitive edge. These packages, which employ standard software, work well with stable legacy systems that allow for easy integration with the front-end. The packages also require little upfront investment owing to their pay-per-use models, but they can constrain rapid experimentation or radical innovation. Their biggest implementation risk is in data consistency, particularly maintaining a full customer view across legacy systems.
Quite a lot of Belgian banks have chosen the digital front-end banking suite approach by implementing suites such as Mainsys FronteO and Backbase Omni-Channel Banking Platform. A digital front-end platform approach is the best option for bankers facing competitive pressures and needing quick differential digital solutions. They are using platforms that are custom built or based on best-of-breed to drive digital innovation in customer engagement. Like the digital front-end banking suite approach, they require stable legacy systems and the ability to integrate with new platforms. Speed of change depends primarily on how fast the banker can build internal engineering capability. These platforms can be significantly less expensive than digital front-end banking suites. They offer full control of the front-end, but implementation of end-to-end digital customer journeys is constrained by the legacy IT back-end systems.
A Belgian bank recently opted for a SaaS-based contact centre solution to accelerate their interacting with customers through video conferencing and chat. The solution allows a light integration with the existing banking apps with limited upfront investment cost. The plan is to also offer this solution to their back-office employees to enable direct interaction with the customer. Based on standardised data feeds, they can stream all the customer interactions which will allow them to perform analytics in a later phase to better personalise the next customer interactions, but equally to take this knowledge into account to make better next-best offers and take next-best actions in the online channels.
An integrated banking suite is typically the best option for bankers facing a fragmented legacy landscape at the end of its useful life. This approach, however, which involves upgrading back-end systems to enable digitisation of end-to-end processes, requires top-down commitment to endure the large-scale transformation that encompasses significant re-engineering of business processes as well as major data migration. It also involves a large upfront investment (which can be 100% to 150% of the annual IT budget). Transformations take time – typically two or more years (often even longer in some segments), although this can be shortened to about six months to one year in the case of a greenfield project that starts with a clean slate.
A lot of Belgian banks still have their core banking platform on the mainframe. Some already switched to package solutions such as Sopra Banking software years ago. Others are on the verge of this journey, with solutions such as Infosys Finacle and Temenos Transact. A digital best-in-class platforms approach is the best option for bankers that strategically prioritise technology-led innovation. This approach requires a very mature engineering capability that helps bankers compete with actual digital natives. The level of investment largely depends on the complexity of the business model, but it is not necessarily prohibitive or even large. Greenfield implementation can also be fast (as little as 12 months); regulatory approvals are often the bigger constraint. The main risk factor can be the difficulty of maintaining custom-built software owing to the competition for, and attrition of, key engineers.
Neobanks such as Monzo, Revolut and Starling, which have built brand-new digital banking platforms often based on cloud technology, are often quoted. But neobanks like N26 are also using new core banking platforms such as Mambu to make their implementation cost efficient.
Bankers should focus on four main considerations. Firstly, digital affects the entire IT landscape. Many successful companies take an integrated front-to-back approach that goes beyond mere digital channel functionality. For those that choose a narrower focus, at least initially, the party-centric core is key to offering customer-centric tailored services.
Secondly, digital architectural strategy should extend beyond the solutions offered by mainstream software. Most digital functionality is currently available through ready-to-go SaaS platforms or open source software. By applying a SaaS & Cloud-first approach, we can have a solution up and running quickly and accommodate changing demands by both upscaling and downscaling. Belgian bank Belfius recently chose to move all of its banking services to the cloud.
Thirdly, implementation pathways (such as best-of-breed or suite) should be carefully designed because they pose radically different investment and risk profiles. Bankers that aspire to radical innovation typically invest in building an internal engineering capability, while those with less extensive goals can rely on mainstream commercial software. Bankers with major legacy IT constraints should take an end-to-end transformation approach. Others have the option of a front-end focus.
A significant fourth consideration is to choose a greenfield approach rather than a brownfield one. The additional costs of integration and migration in a brownfield approach are often underestimated, leading to overrun budgets and initiatives put on hold. A greenfield approach is not always an option, but should certainly be considered.
The complexity can be confounding, but companies should not be put off. The range of solutions available today – both tailored and off-the-shelf – vary widely, but they make it possible for every company to determine how best to address its particular circumstances.