The banking sector has caught “digital transformation fever,” marked by increasing Chief Digital Officer appointments, the launch of high-profile innovation projects and investments, and the establishment of startup incubator spaces and funds. Despite all of the activity however, actual market execution suggests banks’ digital strategies run neither as broad nor as deep as they should.
To understand, let’s step back for a moment and survey the software revolutions that have been transforming businesses writ large—and that many banks have struggled to keep pace with. There has been A LOT of technology change over the last decade, but we’ll focus on three particularly tectonic shifts:
First, Marc Andreessen asserted in 2011 that software will eat the world, and he was right. Today, nearly everything is becoming software. Looking around my house, I see that my television is now software, able to be consumed via an app on my tablet as easily as from a big flat screen on a media stand.
Likewise, my remote control has become software—not even a physical object but an application on my phone. My camera is now software, my radios and alarm clocks are now software... and on and on.
In financial services, this shift has manifested in consumers eschewing physical bank branches for mobile apps, wealth advisors being replaced by robo advisors, and plastic cards being replaced by tokens on mobile phones, to be waved at a software cash register running on a tablet.
Second, the shift to the tiny screens of mobile has driven software design and usability in new directions. Fantastic consumer digital experiences have created increased user expectations that have improved experiences for business software as well; just as the bring-your-own-device, or BYOD, movement represented enterprise employees rebelling against the heavy, aging devices that many IT departments deployed, corporate workers have grown tired of inefficient, clunky software experiences that get in the way of their jobs.
Time-pressed users of software, whether consumer or enterprise, are increasingly intolerant of any friction in their journeys, to the point that ease of consumption itself is a competitive weapon in the market.
Finally, platform-based businesses such as Uber, Amazon, or AirBnB are coordinating suppliers of services and consumers of services at unprecedented scale, enabling them to significantly disrupt and even dominate their respective sectors of the economy by building huge ecosystems. These ecosystems generate so much “gravity” that their attraction is often difficult to avoid; while a given business may not need to participate in any specific platform ecosystem in order to compete, it may have to embrace some platform ecosystem in order to effectively attract and satisfy demand.
Generally, users spend more and more time on these platforms and within these ecosystems once they gain momentum, which can make it more challenging for someone outside an ecosystem to attract customers. Imagine how difficult it would be, for example, to simply set up a website for a condo rental listing and to rely on this website for business, rather than listing the condo on a platform that partly takes care of funneling interested parties toward the opportunity.
Given the shift to software and the resulting customer demand for simple, instant consumption, if you’re a banking executive, it would be easy for you to conclude that your bank needs to accelerate its branch closures and hasten its move to mobile banking. But your vision would be incomplete.
It’s Not All About Mobile
Mobile banking is gaining in popularity, and a solid mobile strategy is important. However, if your bank positions mobile as the centerpiece of its digital strategy, it is akin to what military strategists describe as “fighting the last war,” i.e., using old tactics to wage present-day battles. Mobile is still an important experience to excel in, but crucial competitions are being fought elsewhere.
You may observe this by watching how the most successful technology companies are competing today; the battlelines are defined not only by smartphone applications but also voice assistants, smart home objects, connected industrial infrastructure, automotive applications, and even virtual and augmented reality.
No one channel is a centerpiece. Rather, the companies strive to use technology to surface their businesses in new channels and ecosystems as it becomes appropriate. A smart speaker or a mobile app is just another way for consumers to access the business—not a strategic end state in and of itself.
The interesting thing is that banks already have a long history executing a strategy to make the business more accessible and convenient for the consumer—those banks just weren’t doing it digitally.
In the analog world, banks already have a successful strategy to acquire new customers and service customer segments—it’s called the branch network. Bank branches have long made, and continue to make, banking services accessible in target markets, and they enable a bank to get relatively close to its prospects and customers almost wherever they are.
Banks that specialize in agriculture finance have traditionally opened branches in farm towns, banks that specialize in oil and gas in oil boom towns, trade finance banks near ports, and so on. An ATM brings banking right into the convenience store or pub a customer is visiting! In the analog world, banks embraced this kind of “be where the customers are” thinking—so rather than dismissing branches as an outdated strategy, bank executives should ask themselves, what is the digital equivalent of bank branches?
A Digital Branch Strategy
Branches represented banks’ recognition that they couldn’t position city centers as the only way to interact with customers—they had to be accessible in the communities and economic areas where they were needed and could be conveniently visited. Similarly, a digital “branch” powered by modern software enables customers to interact with a bank and consume its financial services, all within the context in which customers are already operating.
So if you’re a bank executive this means your bank should go to the customer, not try to force the customer to use your bank’s mobile app, let alone to travel to visit an ATM or brick-and-mortar branch. Yes, mobile apps and physical points of presence are important—but to confine customers to these channels, rather than meeting customers on their own terms, is a mistake. The lack of confinement is precisely what makes digital branches an evolution over their analog predecessors.
Your bank’s mobile app may be on the smartphone in the customer’s pocket—but the crucial distinction here is that a customer who needs to manage finances shouldn’t be forced to visit any specific app so much as access financial services within the context of what they’re already doing. An accountant might manage a small or medium business (SMB) client’s books within an accounting application, a corporate controller or CFO might manage cash within their ERP or finance system, and consumers might need to get financing for large purchases during e-commerce checkout or transfer money while chatting on social media.
Regardless of the device or channel, your bank should be able to interface with this complete ecosystem—to be available where the customer needs it, rather than forcing the customer to jump through additional hoops to complete a financial task. A digital branch doesn’t make customers come to it; it brings banking to the customer’s digital context.
This shift should unleash a deluge of execution questions within most banks. Does your C-suite even see the ecosystem eventuality? Or are they forming strategies according to 1999 or 2008 technology landscapes—to the “last battles”? Do you have a “digital branch team”? Do you know the makeup of such a team? How many and what kind of branch teams should there be? How should you fund these teams? What are the core metrics and KPIs you should use to measure progress and align and incentivize the workforce around the new digital vision? Does your bank even possess the technology infrastructure to execute a digital branch strategy?
There are thorny, strategic questions that the C-suite should come to grips with and resolve for the entire organization to have a framework within which to execute a digital branch strategy. For example, if you’re the CMO, you should lay out what it means for the bank’s brand to be operating in some other brand’s software experience. If you’re the CRO, you should guide teams on how to safely provision financial services in an experience that may be outside the control of your bank.
But regardless of your title or the specific challenge, if your job is to help build a healthy digital strategy for your bank, you must remember that financial services themselves are not what customers want—they are enablers of what customers want. Consequently, your bank’s website or mobile application is not a “destination” that customers care about in the first place; it’s a means to an end.
People don’t want a mortgage—they want a home. People don't want a statement—they want to manage their money. They don’t want a credit card—they want an easy way to pay for things over time. Corporate treasurers don’t want to log into a bank website—they want to manage their company’s cash positions and manage exposure to foreign exchange.
Customers get value from a financial service in the context of whatever it is they are trying to accomplish. If a CFO discovers his payables will exceed cash and receivables for the month, she wants to resolve this problem now within her accounting system—not later after triaging actions across multiple applications or going to a branch to talk to someone in person.
If a customer is considering a large purchase, they want financing options presented in the same space, not through some separate, siloed process. Presenting services when they’re meaningful, rather than trying to force customers into specific channels or experiences, produces the least amount of customer friction.
This is the logical trajectory for a digital bank—to be cohesively embedded into the software experiences its customers use, enabling a friction-free consumption experience. The digital bank isn’t an app or a destination—it’s a financial services platform, with an ecosystem of partners extending its reach via a digital branch network.