It will be the new digital banking business models that have to face the main challenges of the sector: The increase in non-performing loans, the low profitability of the business or a lower solvency are some of the warnings that are made to Spanish banks by organizations like the ECB, the IMF or the Bank of Spain. The banking industry does not have good prospects at present…Its necessary a new bank business model.

A new digital banking business model leveraging new ways of Operations, e-Commerce omni-presence with a customer-centric vision. Basically a digital bank with really a digital business model. Digital innovations gives traditional banks a second chance. A smart, enterprise-wide approach positions them to deepen customer satisfaction and loyalty, driving long-term relationships and profitability.

In this blog, we already talked about how the COVID-19 pandemic has brought technological innovations to the top of the commercial banks agendas in 2020, these being the main characteristics of the new digital banks: Digital Signature & Digital ID management, Paperless Payments and New banking ecosystem. But once we know what the main characteristics of this new type of bank are and what challenges they face in the short term. The question is…What strategies should they follow to generate business and thus safeguard global profitability?

 

1. Change the focus… towards a customer-centric vision

The key to the new banking business model is based on serve customers at the right time, with the right level of service and at the right correct cost. Now customers expect custom portfolio and pricing combinations. Digital banking allows personalization, providing data and analysis capabilities needed to examine the profitability of each customer and offer individualized or segmented products and pricing.

Customers choose banks based on convenience and quality of service rather than product and service features. To effect this change in the orientation of the digital banking business model, we cannot limit ourselves to implementing specific solutions as a patch, it is necessary to align the entire organization towards this philosophy.

2. Embrace a platform business model: Banking as a Platform (BaaP) 

Banking as a platform enables third-party fintech developers to build products and services for bank customers. Banks provide the tools, while third parties create the customer experience. Building a BaaP architecture without the constraints of legacy systems creates application “stacks” that act like building blocks; they are accessible to third parties though an API layer and can be mixed and matched to create new products and services

The banks can retain customer stickiness and reduce the risk of disintermediation while also diversifying their revenue with commissions or revenue-sharing paid by product partners. Third-party providers gain instant access to a large customer base at low cost, which is important since nearly all tend to struggle with the cost and scale of customer acquisition. 

3. Digital involves data and this is information:  Make the most of business intelligence

Successfully launching a new digital-banking business requires quickly acquiring a critical mass of customers. Two industries with large amounts of digital customers who can help the process are e-commerce marketplaces and telecommunications. E-commerce players can be useful partners because they present an opportunity for banks to create lending services for the site’s existing customers, both consumers and small and medium-size merchants.

There’s a clear benefit for the e-commerce player, too, since easy access to financing on an e-commerce site is an enticement for working-capital-constrained, rapidly growing small businesses to keep selling on that site. Likewise, if consumers know there is financing available, decisions to buy large-ticket items such as refrigerators or TVs become much easier.

4. Omnichannel is a ‘must’ for the digital bank and we cannot understand it as it is without the smartphone

AI-driven digital banking requires data and lots of it. Banks do, of course, generate oceans of data. And we think big data and the predictive analytics it drives brings increasingly large benefits for banks and their customers. Predictive analytics and other applications of big data also help banks guard against fraud. Organisations can identify malicious actors more quickly and act faster to stop fraud as it occurs. Data provides revenue-driving benefits, too, with greater insight into customer habits and preferences that drive both customer acquisition and customer retention.

Since digital-only banks don’t have the same customer-acquisition opportunities as legacy banks with branch networks, acquisition is a major cost, representing 25 to 35 percent of total operating expenses. This is true even for legacy banks that create digital start-ups, since the new entities must clearly differentiate their brand and value proposition from the parent operations’ if they want to be successful. Digital-only banks will likely be targeting a younger, more digitally savvy customer than incumbent banks.

5. Omnichannel is a ‘must’ for the digital bank and we cannot understand it as it is without the smartphone

As much as customers make extensive use of digital banking, there remains a role for a variety of banking channels, including the traditional branch. Customers demand an experience that is tuned into their individual preferences wherever they interact with banking services. To pull off a real omnichannel experience, a bank will need to rely extensively on big data and analytics.  With user experience at the forefront, financial institutions will focus on omnichannel banking model.

Technologies enabling personalisation, voice commerce and chatbots for customer support, as well as mobile technologies for billing and payment digitalisation, will be garnering the biggest investment. The capabilities of mobile banking are really extensive today. The must-have features that banks use to engage and retain clients, include: 24/7 access to account balances, history, and transactions, mobile account opening and mobile deposits, bill payments and person-to-person payments; loan payments, mobile fund transfers, security and fraud alerts, etc.

6. Banking a Service (BaaS) implica Banking as a Market

Traditional bricks-and-mortar banking and early digital banking operated in strict silos. Banks did not want to share customer information – and technology and regulatory hurdles prevented it anyway. Open banking initiatives, including the EU’s second payment services directive (PSD2) and the emergence of banking-as-a-service (BaaS) are rapidly breaking down traditional banking silos.

Regulations such as PSD2 now mean that banks should be building open APIs to give others access to their customers’ information, but they can also use competitors’ APIs—and innovative fintech solutions—to create alternatives. In this model, the marketplace owner facilitates transactions between the producer and the consumer, amplifying the network effect

If you are interested in knowing more about innovative digital solutions for the banking industry, request a demo or if you have any questions, we encourage you to contact us. We will be delighted to help you.

Finally, if you are on social networks, connect with us to be aware of our news and learn more about digital signatures and digital certificates. We are on Twitter and LinkedIn. Follow us! 

 

 

 

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