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05 Jan
2015

Nastaran Heydari

Associate Consultant
 

This post originally appeared on Forbes

 

Chris Skinner has been blogging, about banking and technology, speaking at conferences, running the Financial Services Club,  in London and other cities, consulting with bankers and getting to know just about everybody innovating in banking in the US, Europe and a number of more remote spots in the world.

 

He has pulled it all together provocatively in his book Digital Bank — strategies to launch or become a digital bank.

 

Warning — becoming a digital bank won’t be easy.

Traditional banks are organized around money in branches, Skinner explains. Their thinking, their technology, their incentive systems, their knowledge about customers — are all structured around branches and product lines. Cell center systems were layered on top, with the result that customer service reps sometimes needed six open windows to see a customer’s business with the bank.

 

To become digital, banks have to focus on electronic platforms and data as their core and branches as secondary. To get to an integrated electronic platform, Skinner says early in the book, banks need to replace their old core systems. At another point, however, he writes that there are technology workarounds, like middleware, and that the problem is the bank organization, not the technology. Indeed IBM in the UK is working on a series of projects with a major bank to make its legacy systems meet modern demands and Zafin wraps core systems with modern functionality. (See my story links on the left)

 

Banks are shutting down branches — Europe closed 20,000 in the last four years, and thousands have been closed in the U.S.  Skinner predicts that banks will go from 1 branch per 20,000 customers now to 1 branch per 250,000 customers. Banks will move to electronic channels where a transaction is much cheaper than one performed by a teller. He also makes the point that the majority of today’s population now are digital natives — they grew up with computers and more to the point, smartphones. And with developed country users replacing mobile phones every 18 months, smartphones have become common in developing nations as well.

At times he seems a little too bank centric, suggesting that your bank will know you looked at LCD TVs on Google and will ping you with a discount offer as your walk past an electronics store the next day. More likely Google will make you the offer — or you’ll go to read a review on Amazon and make a purchase directly, perhaps using PayPal, not your bank.

 

Underlying Skinner’s writing, and a lot of advocacy of more comprehensive customer data for the 360-degree view of customers, is unexamined consumerism — banks and retailers want to know more about us so they can sell us more stuff. There are some bright exceptions — Simple, Moven and SmartyPig which help users save money. But if banks or other firms use geolocation and data from my searches to ping me with offers as I walk down a high street or through a mall, I will be hitting the App Store for a way to stop them, or I will just turn off my mobile. Assuming that I remember to take it with me.

 

Mobile money can be a force for good — it lets Kenyan sugar cutters handle their finances without taking off a day to travel to bank as I wrote a few years ago, and recent estimates are that 20 percent of the country’s GDP passes through M-Pesa. In Somalia, 34 percent of adults use mobile money. Anyone who has downloaded a song from iTunes and paid for it has used mobile money as well, perhaps without giving the experience a second thought.

 

Shades of Uber where the car service is paid for as part of the function of ordering a ride — a practice Skinner expects will grow.

 

“All they [users] want are the goods and services; the financial process within that is irrelevant to them.”

 

He sees a digital storm made up of mobile networking, social technologies, data analytics and unlimited networking, storage and modular computing. Banks can become component-based APIs, facilitated by standards organizations such as BIAN.

 

“…mobile social in a cloud of Big Data is fundamentally transforming banking, finance, government, and, on a larger scale, the world.” Skinner has been at this for a long time and he takes on the large picture, making this a book that can be useful to people outside banking as well. Indeed, this book isn’t just for bankers — it could be for anyone facing a digital future — which would include retailers, governments, NGOs and educators, for example.

 

Of course, there is also the possibility that nonbanks, like Currency Cloud and Lending Club will take over some of the banking business and individual customers will pick and choose the services they want, run it all from a mobile and reserve only a slice for their bank.

Whether banks and bankers will adapt in time to prosper in a digital world is a still unresolved issue; Skinner expects that many will partner with technology firms or telcos. He writes that bankers tell him the only time they use old technology is when they go to work, although he also says that many banks and bankers are not on Facebook or Twitter, so you have to wonder just how plugged into technology they are.

 

Some firms do get it — American Express has 3 million Facebook Likes and around 20,000 people engaging with it at any moment; its launch of Small Business Saturdays generated one million fans in three weeks. Banks that engage find the community welcoming. ICICI bank in India reports that 49 percent of its Facebook comments are positive and only 6 percent negative, and Wells Fargo has found people are polite when the bank responds.

 

On the other hand, JPMorgan got slammed by angry participants when it opened a live Twitter conversation at the #AskJPM hashtag; it canceled the chat.

 

Skinner expects that banking transactions will eventually be free and banks will have to make money through services, or perhaps Google AdWords on their transaction pages. Or they may be able to charge for advice like proactive personal financial management, although even that is being provided through technology at low or no cost.

 

The book includes some excellent profiles of banks that have made the move to digital and the people and thinking behind their success. While they include legacy-free newcomers like Simple and Fidor Bank in Germany, the profiles also include Barclays which launched Pingit, a free payment service open to anyone in the UK.

 

His advice for bankers planning to launch a digital bank is to ask a few questions:

Are we a technobank or a human bank?
Do we want to encourage human interactivity or remote interactivity?
How do we believe we are different and what ca we deliver to customers to show we are different?
Where are the weak points in the current bank offer, and how do we exploit these?

 

Well it’s a start. Examples in the book show how others have done; people working in traditional banks may find it daunting to see how far ahead the real digital bankers have gone. Digital Bank is a en excellent thorough look across the topic of making banks digital.

 

Source: http://goo.gl/J0km5T

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