5 ways to build a successful digital bank
Addressing the underserved, Risk & Innovation, Financial Services, Technology, Media, and Telecommunications
The rise of digital-only banks is an excellent example of businesses responding to the demand for innovative products and a better overall customer experience for the digital age. In Asia, Hong Kong has eight functioning digital banks and Singapore recently granted four digital banking licenses
for two digital full banks (DFB) and two digital wholesale banks (DWB). Other countries in the region, such as Malaysia, are also in the process of evaluating applications for digital banking licenses.
These newcomers, with their ability to distil and learn from aggregate data, are perfectly poised to provide stiff competition to traditional banks. Digital banks also have other advantages working for them — such as lower operating costs compared to brick-and-mortar banks and no legacy banking infrastructure/systems or multi-layer organisational structures. This enables digital banks to be lean, innovative, and fast-moving.
However, they also face some unique challenges.
Digital banks not only have to compete with each other and traditional banks, they also have to compete with FinTech companies offering financial services.
To successfully carve out their spot in a crowded marketplace, digital banks need to grapple with some key questions, such as, how to:
- differentiate their offerings from competitors,
- stay compliant with regulations while being innovative,
- balance security and customer experience,
- acquire and motivate the right talent to build the bank, and
- generate profit quickly in a sustainable way.
Five strategies to drive success
Convenience, speed, agility, and intuitive customer experience that does not compromise security are the new standard requirements of a rapidly changing customer-bank relationship. Digital banks must meet the needs of younger, tech-savvy consumers and employees to compete and thrive. The goal is to provide a truly frictionless experience to both customers and employees with the same ease of use as any other popular, everyday app like Grab or Amazon.
This means careful considerations must be given to several key areas: talent, technology & innovation, regulatory, security and customer experience.
What can digital banks do to position themselves for success? At the core, it will be about being open to changing mindsets and adopting new customer focused, software-enabled approaches to drive their innovation agenda.
1. Hire for key roles and build the right team
As digital banks look for talent to build the right team, they might wonder whether to hire from the traditional banks, FinTech companies, or traditional technology giants.
A combination is ideal. Given that banking is a highly regulated industry, digital banks will need people who are agile but can function within a regulated environment. This means hiring talent from the Tech or Fintech industries who pay attention to regulations, and bankers that embrace technology, change and adapt to new ways of doing things.
2. Differentiate with innovative products made for the digital age
While offering the same old saving accounts with high interest rates will draw instant sign-ups, it is just not a sustainable business model over the long term. Digital banks should instead create interesting and unique products, leverage technology for a differentiated customer experience, and use data analytics for tailored offerings and for targeting new and untapped segments. As with any product development, a solid business case is essential for the path to profitability.
3. Push boundaries without sacrificing compliance
As digital banks strive to be innovative and do the unconventional, they will still be subject to the same scrutiny and will be required to comply with the same regulations as traditional banks. FinTech-turned-banks, in particular, will not be able to fly under the radar anymore. As banks, they will be scrutinised closely and be held to the same standards. Digital banks need to pay close attention to regulators and involve them early in the process of exploring new products/technology. Early engagement and cooperation will help to garner the most support with regulators.
4. Select the right technology and partner
Whether a digital bank chooses to build its own banking platform or go with a third-party provider, it is imperative to begin with a clear strategic vision so that the platform can be built/selected to enable the strategy. Either way, the platform should be scalable and flexible to adapt to the digital bank’s evolving needs. If a solution or service is outsourced, then digital banks must ensure that the provider can deliver the quality and user experience that meet their and their customers’ expectations.
5. Win trust and confidence through secure, reliable, seamless service
Nothing is more damaging to a digital bank than failing to safeguard the financial assets and data of the customer, especially when they are yet to earn the trust of the general public as a banking medium. Watching operating expenses is important to any business. However, cyber security will not be the place to cut costs. Digital banks must invest in strong cyber security measures and institute a well thought-out and fully tested business continuity plan (BCP). In addition, customer experience must not be sacrificed for security. Digital banks should aim to deliver a customer experience that is personalised and effortless, easily accessible, and provides consistently high-quality customer support from human + bot.