Digital Banking – Lessons from channel integration

Digital banking offers unprecedented opportunities both for banks as well as customers. It has provided banks breadth and ease in delivering their products and services to customers. As for customers, it has pushed service options and expectations to a new high. Given the opportunity spectrum, it is no surprise that banks have invested heavily in upgrading their digital preparedness. 2015 promises more investments in digital banking.

A definition of digital banking will be of help here. Obviously many definitions exist. Banking transactions and experience through the internet and electronic devices - desktops, laptops, tablets and mobile phones – structure our digital banking experience. This is a simple and easy definition.

Digital banking is also the prime force that has helped in proliferation of banking services to remote areas and brought huge unbanked segments into the ambit of mainstream banking. Arguably, it has the deepest transformational impact on any industry. Most important, it has provided customers with the information they need at a time, place, format and device of their choice. This has been a true empowerment.

Consulting companies and IT majors, as would be expected, are deeply invested in the digital transformation initiatives at banks. They have proffered channel integration/optimization as the central pillar in enabling this transformation. Banks’ response, however, have been mixed.

Channel integration/optimization, in short, seeks to fine tune different digital channel touch points so that the customer has a unified experience at the bank. Consequently, this synchronization or optimization can help banks elevate customer experience by calibrating the delivery of best in class products and services.

But the problem with this approach is that every organization has to level up and offer top customer experience. That is the minimum and ‘must have’ expectation today. Anything less will jeopardize business and could potentially result in loss of customers. The result is that all major banks have geared up and offer par or exceed expectations in customer experience.

Further, channel integration/optimization is, by no stretch of imagination, a disruptive innovation by itself. It is an evolving standard or touchstone that every organization must meet to remain competitive, albeit an attractive revenue generating opportunity via the integration business. By definition it is glued to the physical architecture and seeks to achieve operating efficiency or synchronization as its end result. To that extent it may be handicapped and only obliquely impact profits.

There is, for instance, no room to incorporate analytical insights and the consequent learning as the motive force in reinvigorating banks business drivers. Hence it is no surprise that this channel optimization has not greatly enthused banks.

A recent study by McKinsey, in this context, is an eye opener. The study identified areas of bank digitization that made financial sense and those that did not. It concluded that while back office digitization / automation – like document digitization (e.g. mortgage financing) , automation of credit decision and sales side analytics - impacted bottom line, investments in multi­channel integration do not appear to have been as effective. Interestingly, huge investments in select areas of digitization and analytics distinguished highly profitable banks.

Analytics Business in 2014 - A review

It is the time of the year when businesses take stock of their performance in the year that went by and also see what the New Year may bring in.  How did the Analytics & Insights business fare in 2014 and what are the learning that can help us forecast performance in 2015?  In review I think 2014, in spite of some hiccups, has been a great year for the business. Definitely the industry experienced greater acceptance of analytics across verticals for helping organizations make sharper and well informed business decisions. In fact its sway over the market is so intense that even the term ‘dashboards’ is now being replaced by ‘Analytical Flows’.

Three key drivers - revenue, innovations / new trends as well as the enterprise preparedness to convert the opportunities - provide insightful assessment of the industry’s performance.

In 2014, specifically in the banking and financial services sector, IT honchos dug into their deep pocket books to invest in new gizmos – from analytical decision platforms to cool analytical BI tools integrated with underlying data to provide fast predictive insights. Many companies focused on this sector - mid-tier and boutique players in particular - have benefited from this largess.

The year 2014 has also seen several innovations in this space.  Several cloud based solutions have hit the market. Cloud based analytics service in itself was kosher with industry majors announcing their own products. Watson Analytics, Salesforce Wave, Oracle Cloud offering are key highlights in the market that I have discussed in more detail in another piece.   ApplePay, CurrentC are other key innovations that come to mind that impact analytics in a big way by broadening the marketplace. As companies seek to offer personalized customer experience, these innovations will increase the thirst for deeper insights. 2014 also saw high profile acquisitions where the IT industry majors acquired analytics companies to broaden their reach and capabilities.

In 2014 many banks had initiated a comprehensive internal review of their analytics capabilities – human assets, extant platforms and have authored all the findings into a roadmap for the future. It is interesting to note that the emphasis of many Fortune 100 banks appears to be on revamping analytical technology platforms. Road maps include using big data technologies, incorporating social data in customer acquisition/ collections and integrating real-time predictive analytics capabilities that can instantly provide personalized offers that will be the new norm in customer management. Further, freshly inked digital strategy roadmaps seek to go far beyond channel optimization and emphasize revenue generation. All this, together with a rebounding economy, portends to a busy 2015 for Analytics in the banking and financial services vertical.

But how are the IT majors prepared to meet the opportunity? As already mentioned mid-tier and boutique consultancies continue to have the advantage and are better poised to exploit the opportunities. But they have their share of problems in scaling and retaining top talent.  It would be logical to expect swift growth and acquisitions in this space. 

It is an entirely different story for the IT majors who continue to be plagued by several problems. High profile executive turn over, revenue slide, multiple flopped product/solution launches and a leadership that is completely at woods with analytics are key issues that continue to bedevil the majors. To add to their troubles, a series of strategic initiatives launched to push analytics revenue have been non-starters. While these are known devils, their resolution does not appear to be near. Further, there are also reports of huge layoffs, albeit in offshore centers, that point to acute revenue pressures that do not augur well for 2015 performance. 

While there seem to be no dearth of market opportunities, the major players as well as mid-tiers have their own laundry list of fires to put out. Unless they get their acts right, 2015 revenue will be in jeopardy.  Stay tuned as the industry rides through the turbulence in 2015.

Enhancing Compliance & Oprisk Management through Analytics

Post the financial crisis, banks in the US have faced increased regulatory scrutiny that has resulted in broader and tougher regulations. Bankers are fully aware of the investments and efforts they have to put in to comply with these regulations. Consequently, compliance function in banks is evolving towards a broader risk canvas that is now seeking tighter coordination between the first and second lines of defense. This poses new challenges to banks – from being compliant to getting the optimal returns from their investments.  The million dollar question on everybody’s minds is  - How are banks rising up to this challenge?

Recent studies have highlighted the enormity of the challenge this has created for banks. For example one study by Accenture shows that 92% of banks will be compelled to increase their compliance spend in 2014. In another report by Continuity Control, the new regulations have imposed an additional financial burden for just the last quarter (Q4) of 2014 is $241 million.

Enhanced regulatory scrutiny may be a necessary evil to watch over the much-maligned banking sector, but has spawned its own unintended consequences.  The huge anxiety of banks to be compliant and avoid penalties and the resulting hike in compliance spend has and will continue to impact ROE and profitability of US banks for years to come.

How are banks responding? A whole ecosystem of changes is taking place in this area.  Banks are deploying analytics to help them meet the challenge and enable them to make the right data driven decisions. Three important changes are on their way.

 First, bulk of the new spend has gone towards upgrading technology platforms. Banks are integrating extant analytical and compliance platforms so they can deploy data mining and analytics to get the right insights.  For example, analytical models are being deployed to proactively identify and monitor UDAAP compliance in customer engagements / acquisition.

Second, Banks are bringing new structural alignment between first and second lines of defense.  Compliance is now a broad based enterprise activity that will report to the Board or CEO and will include operational and business risk professionals. This is a significant change because in my view, it facilitates wider & deeper use of analytics to help banks stay compliant and out of regulatory trouble.

Third, data silos – the usual suspects - are posing roadblocks for banks in their new quest to be compliant. Incorporating structured and unstructured data for analytics is also an urgent initiative at banks. Banks are aware of these challenges - these are known devils anyway for some time now; but a renewed urgency backed by fat budget approvals is evident.

Banks need to keep a watchful eye on the expanding compliance management function. Technology upgrade and structural changes, while necessary, are only part of the solution and not a panacea by themselves. Banks need to look at compliance as an enterprise wide culture that every associate lives by 24/7. In an era where changes are swift, where disruptive innovations are continuous and almost a way of life, the best insurance for the banks is an open mind to change and adapt to win the customers’ heart. In a way, it is the same old wine, but in a new fancy carboy.