Digital Transformation of a Retail Bank – A Case Study
The ongoing revolution the Fintechs are waging in unbundling the banking services and the encroachment of tech giants into the banking world is making the digital transformation of a retail bank a strategic imperative.
Most bank customers are willing to try a financial product from a non-banking provider, particularly the Fintechs and the tech giants (like Amazon, Google, et al.). The percentages increase among the younger citizenry that grew up as digital natives.
The digital transformation of retail banking is not a quick fix or putting on a band-aid. Typically, an outside-in and inside-out transformation requires a multipronged approach and starts with the commitment of the C-Suite and involves changes at culture, strategy, operating model, business models, talent, processes, and execution.
Also, there are structural imbalances. A new generation of Fintechs does not have legacy landscape, and many are circumventing the complex licensing and regulatory protocols by partnering.
Hence, a digital transformation of a retail bank is a fundamental remaking or a reincarnation, if you will. Let’s examine by taking a fictitious case study of a bank to showcase how a retail bank can rethink, re-imagine, re-engineer, re-platform and renew themselves for the digital age.
The fictitious bank is BankMe, a sizeable multiline bank with operations across the United States, but a significant portion of the branch footprint on both coasts. BankMe serves over 20 million customers. It offers general banking products and services – deposits, loans, mortgages, commercial lending, life insurance, and essential brokerage services.
BankMe’s chairman, and CEO is Ryan Paul, and he is a veteran of banking with experience across the banking value chain and has built BankMe over the years through both organic growth and acquisitions.
As with most legacy banks, BankMe is a retail banking operation replete with convoluted processes, arcane governance norms, antiquated systems landscape, and employees from different eras. Change is slow, the culture is rooted in resistance to change, and everything takes an enormously long time.
The perfect storm of a new wave of startups, the eroding trust and value among the customer base, and the potential emergence of giant technology companies into the banking realm was the impetus for embarking on a digital transformation of the bank.
Transformation Vision for Retail Banking:
In conjunction with the board and a strategic transformation team, Paul and company have come up with an overarching theme for a multi-year and comprehensive transformation of the bank. The transformation program – MADE, which stands for Mobile and Digital Everywhere – has been a catalyst for an invasive and intensive change across the spectrum of the bank. The company’s tagline “Desirable bank for the Digerati” has galvanized the team.
Retail Banking Digital Strategy Pillars:
Paul and team have come up with six vital strategic pillars to drive the transformation program and built a roadmap anchored to these guiding principles.
- Digital First, Mobile First, and Cloud First approach
- Rapid innovation matters – Do it and iterate
- Buy where you can, Partner when you must, Build only as a last resort
- Sacrifice short-term profits for long-term customer centric gains
- Provide APIs based access and build an open banking platform
- Make or Break things; the status quo is not acceptable
The board approved a special transformation budget of $5 billion over 2-years, which is over and above the business as usual spend. The governance of the transformation budget was simple – funding will only be given to projects that have 90% digital quotient. The digital quotient is a measure of meeting specific criteria – cloud-based, API-enabled, open architecture, experience-driven and unlocking the value from data. These five guiding principles funded projects big and small across the bank’s value chain and in a multitude of capability areas.
BankMe leadership also has instituted a key value driver – that the digital transformation projects will have the right of way and will be prioritized over business as usual programs.
As the saying goes, culture eats strategy for breakfast. So, a shift in culture, psyche, and mindset is an essential ingredient for success. Furthermore, in most transformation programs, change management is often an afterthought and typically under-funded and launched too late in the cycle to make any material difference.
BankMe leadership realized the importance of culture and change management to compete effectively against the digital natives. The banking transformation team has prioritized both the cultural aspects and the change management aspects into a holistic change program.
In addition to the business side, the technology teams had embraced the concept of creating an IT Strategy for the digital age.
The change management framework and the change management plan went a long way in fostering a new ethos and approach to doing, thinking, and being.
BankMe digital transformation team has come up with a roadmap that is across the board and involved capabilities, people, process, technology, and experience.
The transformation team has created the following key deliverables:
- A digital capabilities model to understand the depth, variety, and nuance of digital capabilities
- A banking capabilities model that spans the critical areas of the value chain
- Customer Journey Maps to capture the current state of stakeholder workflows
- A data model that will serve as a lynchpin in unlocking the value from data
- A Target State Conceptual Architecture
- Rationalized Requirements Anchored to Business Capabilities
- Effort Estimation
- Digital Transformation Roadmap
- Implementation Sequencing and Incremental Delivery of Capabilities
- A Rollout Plan
BankMe’s hiring strategy was simple on paper but incredibly difficult to execute. The bank’s digital team has come with three simple guiding principles and guardrails.
- For every bank or non-technologist, hire two technologists
- Focus on hiring technologists who know banking or bankers who understood technology
- Acqui-hires are not an asset acquisition play or an M&A strategy per se but a talent building strategy.
With this strategy, BankMe has been able to recruit data scientists, technical architects, and software programmers and increase the technology workforce by 20%.
Core Banking Transformation:
Account opening is the gateway experience for a new client or existing client opening a new account. BankMe revamped the account opening process and created customer journey maps to understand the nuances of how a customer feels. Account opening transformation was a key enabler.
Deposits are the lifeline of any bank and BankMe is no exception. BankMe digital transformation efforts focused on the following in this core banking area.
BankMe introduced an app to help clients ladder savings in different vehicles to balance liquidity and yield. For example, emergency funds in checking, short-term liquidity needs by term deposits and savings accounts, and rainy-day funds into various brokerage accounts, and nest egg into IRAs and other retirement accounts. By doing so, BankMe has expanded the footprint of clients into seldom used short-term instruments and gain the loyalty of the clientele a simple but essential piece of advice.
BankMe partnered with a Fintech to help customers round off purchases and save the dollars.
Also, the mobile check capture, online payroll deposit sign up, and access to a low-cost pay advance startup are some of the steps that BankMe has taken to advance the digital agenda.
Personal Loans, mortgages, car loans are critical to the success of BankMe and other retail banks. Innovations in the loans space have been few and far between. Now, as a part of its transformation of core banking services, BankMe has introduced a slew of changes and modified loan offerings thanks to improved user experience and more holistic underwriting.
Non-traditional Underwriting: With the advent of big data and machine learning, lenders are no longer limited to using traditional credit bureau scoring. Instead, a more holistic profile of the clients – using their social, demographic, financial and employment data to make instant credit decisions has allowed BankMe to speed up the underwriting process and make lending decisions on the fly. Also, scouring through the client data has permitted BankMe to prepopulate the loan amount and the terms to many clients upon login and through outreach.
Also, BankMe has changed the way it collects information online and channels the workflow. Many fields are pre-filled, particularly for existing customers, and others through data aggregation technologies.
BankMe also partnered with a microloans platform to underwrite loans based on a predetermined set of rules to fund the “unbanked” customers.
The commercial banking team has introduced several changes to make the entire loan process smooth and easy. Leveraging machine learning and text analytics, BankMe has introduced the spreading of financial statements automatically. Similarly, using credit card data, business receipts, and expense data, BankMe has been able to determine the viability and amount of working capital a particular business needs and offer the terms online for immediate action by the client.
Also, BankMe partnered with an ML-based lending platform and has joined a few marketplaces to be a part of an emerging ecosystem.
Payments and Transfers:
For a CFO of a company who transferred money on a tool like Venmo or Zelle to her daughter in a college a couple of time zones away with ease, it has become unfathomable as to why her bank does not allow an easy way to make transfers. To meet the expectations of the digitally savvy customers, BankMe has introduced mobile apps for instant transfers, splitting of bills, pooling by friends and family, and transfers with just a mobile phone or an email. This may seem table stakes in the brave new world of payments, but for a legacy bank such as BankMe, it is a stupendous achievement.
This is the journey of BankMe, a legacy bank with friction, inertia, complexity, and cost built into every part of the business. However, with the right leadership and appropriate changes to the culture and ethos, BankMe has been able to cross a chasm and digitally transform the core banking services.
How does your job compare to the experience of BankMe? Has your bank went through digitalization and transformation using digital and cognitive technologies? Please share your banking digital transformation journey with us.