Banks Must Evolve Digital Services Beyond Banking in the Next Chapter of Transformation

Prashant Jajodia, Managing Client Partner & Financial Services Sector Leader, IBM


I am a bit of a banking nerd. I use several banks and often find myself comparing their digital banking services. They are all very good. You can securely check your balance and make a payment on your mobile app with all of them. You can also do many everyday banking tasks like move money, check your statement, and order a new card on your mobile phone without having to call anyone or visit a branch.

This is great – but these services have traditionally been one-size-fits-all, while digital services in other sectors such as retail are offering customer experiences tailored to the individual. Is the banking industry about to catch up?

Digital offerings reaching maturity

Digital transformation in banking has gone through two big cycles. Following the launch of smart phones, banks raced to build a mobile banking app. This was chapter one of digital transformation and it marked a huge strategic shift for the industry. Technology teams in banks suddenly had to be even more creative and plugged in to digital consumer trends.

This chapter was characterised by a big focus on branding. It gave banks a shop front on their new mobile real estate, but customers could hardly do anything beyond check their balance or make a payment on their mobile app. Most banks remained analogue beyond these basic services; you had to call the bank’s contact centre or visit the branch for pretty much everything else.

Then came chapter two, which was about digitising customer journeys. In this phase, banks started to automate key customer journeys and make them available to customers on their mobile apps. Customers could now change their address without queuing at the branch or create a new savings account at the click of a button.

This phase greatly improved customer services, while driving huge efficiencies for financial institutions. Most banks accelerated into chapter two during the COVID 19 pandemic, when they had to rapidly roll out new digital services to support their house-bound customers. Virtual assistants powered by Artificial Intelligence (AI) on hybrid cloud platforms, like NatWest’s Cora or TSB’s Smart Agent, helped millions of customers to get help faster. Today, just over two and a half years after the first UK lockdown, most large UK banks have a mature digital offering.

Going beyond banking

So what does chapter three of digital transformation in banking look like?

I think we’re going to see financial institutions deepening personalisation of digital services, with a focus on looking after customers’ financial wellbeing in the broadest sense. In the post-COVID era of high inflation and a cost-of-living crisis, such services will be of real value to customers. The next phase of digitisation will also see banks using AI and automation to absorb rising operating costs, addressing the shortage of vital technology skills in the workforce and making progress towards environmental, sustainability and governance (ESG) goals.

How can financial institutions make this happen? The following three components are essential to any strategy for taking personalised services to a new level and genuinely adding value to customers’ financial wellbeing:

  1. Build an Ecosystem Beyond Banking: Financial institutions must build an ecosystem of partners and fintechs with diverse expertise so they can roll out new digital offerings for customers faster. Taking this approach, SBI, a large bank in India was able to launch a platform called YONO – You Only Need One – which offers a combination of banking and non-banking services for customers that support their financial wellbeing in different ways. Through a partner ecosystem, banks can also access AI and automation-powered tools that reduce energy use and emissions by leveraging real-time data, and that create intelligent, automated workflows to address skills shortages.
  2. Hyper Personalisation: Banks have a vast amount of financial data about their customers. With more data moving to the cloud, banks can apply AI to this data and generate insights which can help customers through the cost-of-living crisis. For example, the bank can remind customers of all the subscriptions they’re signed up to which they might not be using. Banks could also nudge customers into saving money based on estimated future cash flow (even taking into consideration the expected increase in energy payments).
  3. Instant fulfilment: Banks have achieved Straight Through Processing (STP) on most service requests, but when it comes to new product on-boarding (for existing or new customers) the service takes days, sometimes weeks. Instant fulfilment is about reimagining the customer experience and removing the friction and paperwork in the customer journey. For example, there are US-based fintech mortgage lenders that can now make it possible to get a mortgage offer in just eight minutes!

Leveraging the power of hybrid cloud and AI

Chapter three of digital transformation is also about harnessing the power of technologies like hybrid cloud and AI to deliver great customer experiences. In fact, over 70% of respondents to a recent global IBM study said that it would be difficult to realise the full potential of a digital transformation without adopting a hybrid cloud model.

I believe the essential ingredient of the next gen digital platform is an enterprise fabric that sits across a hybrid cloud environment, which is made up of the bank’s microservices (think of them as the superhighways into the bank’s core platforms) and data lakes. Cloud provides the marketplace to host the bank’s microservices and consume third party microservices required to provide the beyond banking ecosystem. Cloud also provides the AI required to analyse the rich datasets available with banks and create insights for the hyper-personalised customer service. Machine learning models will ingest the available internal and external data to provide insights on the appropriate next best actions and nudges for customers.

Adopting a hybrid cloud approach, including the use of industry-specific clouds with built in security and compliance controls, can provide a smooth path to modernising and upgrading existing implementations. When done appropriately, the benefits of application modernisation can lead to increased agility, security, on-demand scalability, and cost savings over time.

COVID has massively accelerated adoption of digital banking services. Two-thirds of adults globally use digital payments, according to a report by the World Bank, and banks now have far more customers using their mobile banking services than pre-pandemic times. The only way to retain them is to reimagine personalised digital service experiences – and take them beyond banking.


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