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The Imperatives for Building a Digital Bank

Building a truly digital operating model remains a challenge for most domestic banks. While it’s true that there is no such thing as a sure recipe for success, there are key ingredients that are essential to a successful digital bank. They are the 7 imperatives of digital banking that we will discuss in this article. Hope they represent a reference framework for banks to take as an example.

Customer-centricity is the first pillar of the digital banking model. To engage today’s digital-savvy customers, banking leaders have become invested in effortless convenience. They design new products and services in ways that satisfy unmet customer needs, reduce friction in the process, and encourage digital interactions. The goal is to enable customers to use banking services as effortlessly as possible.

When it comes to customer-centricity, banking businesses need to pay attention to these factors:

Low friction app downloads and rapid onboarding. Having an internet connection, customers should be able to verify their identity and thus create a new bank account in a matter of a few minutes. It has become an industry standard that opening a digital banking account must not take more than five minutes.

Engaging user experience. With well-designed mobile banking applications, customers can effortlessly use banking services and keep track of their spending behavior anywhere and at any time.

In this model, employees are provided with automated processes to carry out their tasks:

One best practice is that banks should build their operating system as an ecosystem, where data from all functionalities are gathered and analyzed to build personalized product and service offerings. Some essential types of data are mobile behavior, transaction history, demographics, KYC insights, etc.

Moreover, Cloud has become a key enabler for digital banks. It brings opportunities for banks to experiment with new technologies with limited investment, while at the same time offering reliability and scalability. Cloud offers a high level of innovations, providing modules such as machine learning and artificial intelligence that can be plugged into their current system easily, without much effort.

Regarding tech principles, digital banks share some things in common.

Moreover, banks need to standardize their technology stacks across the systems. Some of the best practices to do so are:

Data & analytics is the framework for informed decision-making, supporting everything from product design to customer service. Applying data & analytics is the first step to creating a personalized and customer-centric experience. With advanced data analytic, digital banks can gain a thorough understanding of customers’ desires and expectations. Based on these customer insights, banks can accordingly adapt their banking services and banking applications to meet customers’ needs. The result is a personalization strategy backed by advanced data & analytic, which has 3 levels:

Building a start-up culture that revolves around growth and innovation is the foundation for successful digital banking. But it remains a challenge to do so, particularly due to the fixed mindset and the legacy banking culture.

This model of digital start-up thinking and digital talent requires banks to be agile and responsive so as to build, upgrade, and enhance their products and services. It is therefore essential to have a horizontal culture that can react proactively and flexibly to change.

However, this start-up thinking is likely to create conflicts and frictions, especially for traditional incumbent banks. Therefore, it is imperative to have suitable management executives to direct this journey. Leaders must be comfortable with, if not enthusiastic about customer-centricity and innovation.

It should also be noted that bureaucracy, which seems to be a reality for lots of traditional banks, is not only resistant to this start-up approach but also is detrimental to the digital banking model.

To enable an agile culture, banks need to build a horizontal organization, where the IT team and the operational team are working together in the spirit of high synergy. Recruiting the necessary talents in this competitive marketplace is extremely challenging. Since digital banking is now pervasive, the demand for digital skills has risen. This is why instead of hiring new recruits, some banks choose to outsource some important roles to third-party vendors.

Banks cannot move fast if they are restrained by regulatory frameworks. Therefore, they must communicate and work effectively with relevant regulators to ensure that they can transform and innovate without too many limitations and bottlenecks in terms of regulation.

The good news is that regulators and the government are encouraging digital banking. They are willing to assist banks to adopt new technologies to compete and serve better. This is reflected by two actions. The first is that they are cultivating a competitive environment where advantages are offered to banks with innovative products and services. The second is that regulators are urging banks to bring their banking products to the unbanked and underbanked segments.

To effectively unlock the potential that the current regulatory framework offers, banks should consider these factors:

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