Digital Vision: Digital Banking

Smarter Banking

How traditional banks can thrive in a digital world

Kuldip Chiheru, Digital Banking Platforms Expert, Atos

In recent years we have seen a seismic shift in banking, as traditional banks and new entrants use digital technology to transform consumers banking experience. Banks today are rapidly innovating, not only by using digital to reduce costs, but also to provide consumers with the frictionless and rewarding experiences that they increasingly expect.

Over the past few decades, we have seen an extraordinary digital shift in the banking industry. According to recent research by Citibank,1 the strengths of new digital banks are part of the reason the traditional banking industry faces a projected $2trillion revenue loss by 2025.

Technology has ushered in an era of both neo – digital only – and challenger banks, more recently created banking institutions with a largely digital footprint. Together they have gained over 39 million customers worldwide in the last 10 years.2

Closing the gap

Research suggests that customers are attracted to the high-quality user experience of challenger banks. A 2021 survey found that for 81% of consumers3 the prospect of easy access and flexible banking would convince them to switch to a new-age financial provider. Neo banks are also performing well; their keen cost-income ratios present a significant threat to established institutions. Additionally, they are less likely to be the target of cyber-attacks – a threat that companies in the financial sector are 300 times more likely to face than others.4

Of course, traditional banks have always been aware of the need to keep abreast of technological changes: as early as 1994, the first US bank5 offered internet banking to all its customers. But the pace of change is only increasing; a hybrid of digital and traditional will lack sufficient agility, scalability as well as operational fluidity, leading to the risk of dissatisfied customers when compared to fully digital and more nimble competitors.

To retain their competitive edge, no operational aspect of traditional banking should therefore be exempt from a digital audit to ascertain how and what can be improved to at least keep pace, if not stay ahead of the fleet-footed competition.

A best of breed banking model

As part of this transformation, it is imperative that banks move to an open source software and Application Programming Interface (API) model, which enables fast adoption of new partners and services into the bank, using very lean operating practices and costs. For example, Atos use a ‘hyper-agile, software defined’ business model for banking – in other words, putting the emphasis on investing in agile development of software applications (not fixing on hardware or IT infrastructure) to drive change and accelerate innovation.

One component of this type of model is ‘best of breed’ banking, which means working with partners who are leaders in their fields to operate each area of the bank, resulting in a bank that is created by true specialists. Using multiple partners creates a ‘digital ecosystem’ enabled by the simple and secure exchange of information, so that every operational aspect of a bank is connected to the whole and underpinned by data analytics, enabling an agile approach. This is where the use of open source software code and open APIs comes to the fore.

APIs are the interfaces that facilitate the exchange of data between partners. They enable the hundreds of applications in a single open bank to communicate seamlessly. Open source software used for collaboration has additional benefits. Developers can quickly build applications and services around the bank, enhancing its offer. For example, banks will increasingly be able to build new services using data across partners and institutions. Open collaboration also lets customers share their banking data more easily and securely.

Total transformation in practice

Banque Misr, one of the largest banks in Egypt, is set to become the country’s first fully digital bank and a prime example of a transformative banking business model in practice. Partnering with Atos and embracing a software-defined infrastructure, the bank will build a new front to back digital bank called ‘MDI Digital Bank’.

Using an open banking ecosystem, partners and external services can then deliver products to customers as they are developed. Bank customers should receive a personalized and frictionless digital experience across all channels. For example, MDI will harness advanced AI using big data management to give customers practical insights tailored to their financial needs and lifestyle.

Other digital services will support MDI in its marketing and outreach. Solutions such as social customer relationship management will foster a richer engagement with customers and prospects. This will support Banque Misr’s ambition to appeal to a new demographic, with a unique set of digital products and services.

This is just one example of total transformation alongside a mindset of constant evolution to safeguard excellent customer experience, exemplary business operations and long-term growth. Banks that embrace this philosophy are set for a bright future.

2 World Retail Banking Report 2021, Capgemini and Efma
3 World Retail Banking Report 2021, Capgemini and Efma
4 Global Wealth 2019: Reigniting Radical Growth, Boston Consulting Group
5 Stanford Federal Credit Union

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Carlos von Prabucki, Head of Financial Services and Insurance, Southern Europe, Atos