As demand for digital rises, incumbent banks must act fast
By Manuel Jose Romero Rodriguez, Head of NTT DATA’s Open Banking Practice
The COVID-19 crisis has underlined, and perhaps even conclusively proved, that the future of banking is digital. Right across the sector, banks are encouraging their customers to access banking services only via digital channels. Customers, accordingly, are becoming increasingly comfortable with technologies and inversely, are decreasing their reliance on physical branches.
In the long term, consumers are unlikely to shake these habits. Digital banking makes life easier, with less hassle and paperwork, and a significant proportion of consumers may never return to an exclusively face-to-face banking experience if their online banking experience is a positive one.
For incumbent banks, transforming to meet this burgeoning desire for digital products and services is crucial. The pandemic has revealed who was better prepared to provide high-quality digital service to customers. It has also revealed, at least for many incumbent banks, that there’s still a lot of work to be done on digital transformation
In such a competitive market, failing to transform, or even failing to transform fast enough, spells a loss of relevance to your customer base and of market share. It also, potentially, spells poor performance within the organisation itself. Having your workforce working from home has been and continues to present a huge challenge for all banks and is another factor – together with regulation, technology, new players – that will require a transformed approach. Banks will need to be able to operate much more effectively as remote working institutions, and eventually become autonomous enterprises.
Combined with the influence of Open Banking – which is making strides in different geographies driven by regulation (e.g Mexico, Brazil) or in unregulated nations as a natural development to stay relevant in a digital world – incumbents have a lot to consider and to work towards when it comes to digital transformation.
The two transformation strategies
With all of these objectives in mind, retail banks have the option of two very different digital transformation responses:
1. Focus on transforming the core of their business and leading it into the digital age
Nowadays, customers expect a digital front-end experience to their long-terms bank: contactless payments, online lending, a secure and easy to use banking app, alerts and notifications, card and data monitoring tools, digitalised investment products, and other new digital products and services.
Most traditional banks are already on this journey, offering their customers high-quality web and mobile sites and apps. Building out these products within the current brand allows banks to defend and grow their existing value proposition and sets the scene for improved customer experience and new distribution models.
2. Create new digital business or separate digital units
While it’s important for banks to digitise their existing businesses, creating a new banking business in which customers use their smartphones to do everything without ever setting foot in a physical branch is a powerful proposition and one that many traditional banks are likely to take up.
Whilst creating new digital units decreases reliance on physical branches, this isn’t typically the main objective. Rather, the central idea and aim of creating new businesses is to drive customer growth, create innovate business models, and incumbents enabling them to compete on a level with the digital disruptors.
Significantly, new digital businesses also enable banks to meet different kinds of customer needs and demographics. In emerging markets, where customers’ desires often go unmet by current offerings, digital-first can present a compelling alternative. Even in established markets, particularly post-COVID where consumers have become accustomed to an exclusively online experience, many customers will be more than happy to turn to a strong digital-first proposition.
For the most ambitious banks, both approaches will be pursued simultaneously to expand the value proposition rapidly and to cater to even more customers. To all appearances, however, that doesn’t seem easy.
From a regulatory perspective, the banking industry has always had tremendous internal complexities that need to be addressed, and these have only been exacerbated in the open banking era which has brought with it a whole new set of regulations. From a strategic standpoint, too, there are plenty of issues to consider, including the risk of cannibalising the existing brand. Banks will need to carefully review and analyse the market opportunities, expected competitors, business models, market entrant strategies, customer experience flow, economic assessments, operative processes, functional requirements, and governance and change management – all before a single line of code is written.
In normal circumstances, all of this would result in an arduously long time-to-market, which traditional banks, particularly in today’s accelerated digital market, can’t tolerate. Extended planning and development time means handing over a potential competitive advantage.
NTT DATA’s Open Banking Practice
At NTT DATA, we knew this challenge had to be solved, and we got to work building a solution.
We wanted a way for banks to execute on both sides of their digital transformation simultaneously – accelerating digitalisation of the existing brand and also launching new digital propositions that help them compete with digital disruptors. More than this, as a matter of priority, we also wanted to address time-to-market. Banks can and should create new digital businesses where the proposition stands up to scrutiny, but they shouldn’t and needn’t be burdened with long delivery times which are costly and risky.
The solution we arrived at is NTT DATA’s newly developed, Open Banking Practice. Offering an end-to-end solution for the launch of new digital banks and banking services taking our clients from the consultation stage to operation.
With time-to-market a major consideration, NTT DATA’s Open Banking Practice boasts an accelerator system through which we can now validate concepts in weeks and launch MVPs in months. Banks can forget about multi-year, multi-million approaches with unwanted outcomes. In contrast to traditional providers – enabled by our organisation, our product quality and our automatic DevOps pipelines – we deliver value fast and incorporate both new functionality and adjustments into customers’ digital banking solutions.
Risks are minimised through a future-proof model, with future-proof architecture relying on the principles of flexibility, scalability and security. If things don’t go as expected, customers can pivot, and when things work, we help our customers grow and scale by supporting both the extension of functionality and the number of customers thanks to the scalability of the platform.
With an ecosystem of pre-integrated partner solutions, we’re also ready to quickly cover key functional and technical areas, and customers can combine and change solutions whenever they need.
Building the digital banks of the future
Already, NTT DATA’s Open Banking Practice is global and can service clients both globally, regionally and locally. And being part of NTT DATA, we’ll continue to develop over the coming years.
When digital banks want to deliver on their dual transformation strategies, NTT DATA wants to be there to deliver and accelerate the journey. Why wait until tomorrow if the future begins today?