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Creating a Digital Banking Strategy - 01.23.15

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Today, the new buzzword in business is “Digital Strategy”. The problem, however, is that if you ask a group of business professionals to define "Digital Strategy" to you, depending on the industry, who you ask, and the ages of the respondents (yes, the generational perspective makes a difference), you will likely get a wide variety of different responses to that simple question. To illustrate this point, in a December 2014, Digital Banking research study published by Celent, when banking executives were asked what “Digital” means for them, they responded with a diverse – and sometimes inconsistent – set of answers. But invariably, mobile devices and social media are usually included somewhere in the answer. So, let's begin the discussion by clearing up a common misconception: an organization's Digital Strategy is NOT enabling/allowing customers to use mobile devices to communicate and conduct business. They are certainly components of a Digital Strategy, but the true definition of a Digital Strategy is much broader than that.

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Creating a Digital Banking Strategy - 01.23.15

  1. 1. Creating a Digital Banking Strategy Page 1 of 11 Strategic Banking Insights Creating a Digital Banking Strategy Financial institutions and their customers have been engaging in Digital Banking for decades, which leads to the obvious question of why all of the interest now in digital banking? Calvin W. Turner Jr. Founder/Principal Strategic Banking Insights January 23, 2015
  2. 2. Creating a Digital Banking Strategy Page 2 of 11 Strategic Banking Insights What is a Digital Strategy? In the 1967 movie The Graduate starring Dustin Hoffman, a well-meaning businessman pulled young Benjamin (Dustin Hoffman’s character who had recently graduated from college) aside and shared one word of strategic insight to him regarding the future. That word was “plastics.” Fifteen years ago, the business community was scrambling to implement “CRM.” Today, the new buzzword in business is “Digital Strategy”. The problem, however, is that if you ask a group of business professionals to define "Digital Strategy" to you, depending on the industry, who you ask, and the ages of the respondents (yes, the generational perspective makes a difference), you will likely get a wide variety of different responses to that simple question. To illustrate this point, in a December 2014, Digital Banking research study published by Celent, when banking executives were asked what “Digital” means for them, they responded with a diverse – and sometimes inconsistent – set of answers. But invariably, mobile devices and social media are usually included somewhere in the answer. So, let's begin the discussion by clearing up a common misconception: an organization's Digital Strategy is NOT enabling/allowing customers to use mobile devices to communicate and conduct business. They are certainly components of a Digital Strategy, but the true definition of a Digital Strategy is much broader than that. We'll talk more about mobile devices and social media later, but in order to really understand the concept of a Digital Strategy, it would probably be useful to define what we mean by the term Digital. Definition of Digital A basic working definition of "digital" is information that is created and/or stored in a format that computers can "understand. Computers process data as discrete (i.e., separate and distinct) elements called binary code (a series of "0"s and "1"s). On the other hand, humans comprehend, store, and communicate information in "analog" format, which is information represented by a continuously variable physical quantity. This explains why humans can express and understand such complex concepts as emotion, anxiety, perspective, etc. For example, humans have the ability to have feelings not just of sadness, but extreme sadness. For the purposes of this white paper regarding Digital Strategy, "information" can be in any number of different forms, such as documents, images, music, or raw data. The process of creating or storing information in a digital format is called digitization, and there are two means by which information can become digital; it can be converted from analog to digital, or it can be captured and stored directly as digital. Many businesses and individuals have been "travelers" along the digital journey without even knowing they were on the digital "caravan." For example, one of the earliest experiences most consumers have had with digital technology is fax machines which convert paper (analog) information (documents) into digital data, and then transmit this data via the telephone line to another fax machine, where the information is then converted back to paper (analog) for the human user. Another example of digital technology is the computer modem, which provides the means to digitally connect one computer to another over a telephone line, cable modem, wireless network, or wireless router. Digital technology then, is the infrastructure by which information is captured or converted to Digital format, and then transmitted, stored, shared, analyzed, or processed. Digital Business Strategy then can be defined as: “An enterprise-wide strategic initiative whereby the organization does a comprehensive inventory of its core business functions (e.g., Business Development, Product Development, Pricing, Positioning, Branding, Positioning, Marketing, Recruitment, Fulfillment, Customer Service, Regulatory, Compliance, etc.) within the framework of the corporate strategy, to determine how and where Digital data and technology can be leveraged to achieve the organization’s goals. Of particular note is that the essential component of a successful Digital Strategy implementation is that it must encompass the entire organization.
  3. 3. Creating a Digital Banking Strategy Page 3 of 11 Strategic Banking Insights What's the Value of Digital Data? There are many reasons why Digital data is significant, but a few of the most important are: 1. Converting or capturing data Digitally allows us (humans) to let computers process the data much more efficiently and faster than humans can, unhindered by the nuance of emotion, distractions, noise, fatigue, perception, etc. (think of these things as "analog" information). 2. Digital data is highly portable in that it can be stored, transported, and shared with multiple users – regardless of geography – much more quickly and efficiently, and less costly than if the data is stored as documents, hard copies, pictures, albums, etc. 3. Any element(s) of the digital data can be accessed without having to go through the entire collection of data. This would be analogous to retrieving a few selected elements of data from a "pool" of data elements, rather than having to read through entire libraries of books to find a specific quote you need. Another way to think about this would be the ability to instantly select one song out of literally millions, rather than having to listen to an entire tape recording of music until you found the song you wanted to hear. 4. Digital data can be accessed from anywhere there is a way to connect a computer (or mobile computing device) to the data (broadband Internet, satellite, modem, Wi-Fi, cellular network). Digital Banking Is Not New Now with all of the talk these days about Digital Banking, it's important to note that banks have been using Digital technology since the early days of the commercial use of the computer. Consider that when someone opens a checking account, he/she is provided with an account number. This number, along with the customer's personal information, and the amount of money deposited into the account is stored on the bank’s computer. Every time a deposit or a withdrawal is made, either a deposit slip or check with MICR encoding (Magnetic Ink Character Recognition) is "read" by a computer to record the transaction and update the customer's account balance. Banks have long used high-speed Digital check processing equipment that can process tens of thousands of checks per hour to update customers' account balances. In checking account transactions where a check is deposited into a different bank than where the checking account is housed, the settlement of this item becomes a Digital transaction because no physical cash is actually moved from one bank to the other. Instead, the banks electronically exchange bulk Digital files of all transactions via ACH (automated clearinghouse) to reconcile banks’ customers' account balances. A similar process happens for loans, lines of credit, and credit cards. There is no physical cash that moves between a seller and a purchaser. Rather, loan balances are maintained on computers that record customers' use of the loan proceeds to make purchases and then reconcile the transactions against the customer's account balances. In the old days, when customers presented credit cards to make purchases, merchants used paper receipts to imprint the credit card number, and then they had to call the card issuer for approval of the transaction. The paper receipts were then sent to banks to be digitized so the transactions could be recorded against the cardholders’ account balances. Then when the credit card companies began to use Digital technology that allowed Digital credit card terminals to communicate with over telephone lines (remember the modem) directly with the card issuers’ computers, the payment transaction became even more efficient. ATM and Debit Card issuers also utilized this Digital communication technology to streamline the access to funds in customers’ checking accounts by allowing merchants to immediately verify whether sufficient funds are available for purchases and then place holds against the balances for the amount of the purchase.
  4. 4. Creating a Digital Banking Strategy Page 4 of 11 Strategic Banking Insights Why All of The Interest in Digital Now? Financial institutions and their customers have been engaging in Digital Banking for decades, which leads to the obvious question of why all of the interest now in digital banking? Well, for one thing, until recently, most banks’ attempts at “digital strategy” have often been reactive and inconsistent. In the past, banks’ IT departments have generally taken the lead for implementing digital technology to streamline processes, cut costs, gain efficiencies, etc. But these enhancements primarily benefitted the banks’ interests. And if, along the way, the customer experience was improved, that was considered lagniappe. But it was NOT the banks’ main goal. And up until the last decade, the only way customers could communicate directly with their bank was through the branch, by mail, through the call center, or the ATM. But recent advances in Digital technology have changed all of that. In particular, the personal computer, the Internet, high-speed broadband connections, wireless technology, and mobile devices have now enabled customers to dictate to businesses the manner in which they (customers) choose to interact with the businesses (Remember the Lending Tree commercials where banks compete for customers’ business?). As a result, some visionary entrepreneurs have launched hugely successful “virtual” businesses (no physical storefront or inventory) built on the operating concept of leveraging digital technology as their sole means of engaging in commerce with customers. This has turned the entire merchant/customer relationship on its head. So, in order to compete in a rapidly changing marketplace, traditional brick and mortar companies are now responding at breakneck speeds to catch up with their digital competitors. Consider the following examples: • Since money is now Digital, customers no longer have to carry cash to make purchases for goods and services. This can all be done electronically either with a credit/debit/prepaid card, through digital payments on the Internet, or with digital deposits customers maintain with non-banks to facilitate purchases (e.g., PayPal, Google wallet, Apple Pay, etc.). And the irony is that the underlying location of the Digital deposits is still with banks that must comply with numerous regulations to protect depositors' money. But these new payments players are under no such regulatory constraints. • The new alternative lenders (Prosper.com, Lending Club, Biz2Credit, Lendio, Fundera, Rapid Advance, etc.) use investors’ cash to fund their lending activities to customers via the Internet. And since the underlying cash behind the loan transaction and the means of communicating with customers is Digital, the lender does not have to incur the enormous expenses of maintaining branches, which positions them to provide products to customers more efficiently and at a lower cost. Further, since these alternative lenders are using investors’ cash rather than depositors’ money, they are not regulated in the same way that banks are. As a result, banks are now scrambling to develop strategies for how to effectively compete in this new digital marketplace to prevent further erosion of their customer base. • UPS was founded as a parcel delivery company. But as Digital technology gained traction, UPS began to see itself as more than just a parcel delivery company. Rather, company leadership understood that delivering packages was only a link in an entire transaction process beginning with the purchase of goods through the delivery of the product to the customer. As such, the company successfully transitioned itself from just a parcel delivery company to an end-to-end facilitator of supply chain management worldwide. This means UPS is involved with the sale and fulfillment of products and services at every phase of the transaction, from the time an online purchase is made, until the product is delivered to your door. • 20 years ago, most individuals paid their bills through the mail, and they sent personal letters to friends and family, sometimes with pictures. The U.S. Post Office failed to recognize that digital technology was dramatically changing the way individuals paid bills and communicated with each other, and that these two means of communication were major components of their business model. So, when the Internet came along, instead of seizing the opportunity to potentially become an Internet Service Provider and/or a Digital payments conduit, the Post Office ceded this territory to other, more visionary entities like AOL, BellSouth, and Microsoft. At the same time, other technology companies like Metavante and CheckFree became major players in the online Digital payments space. The rest is history. Today, most payments are made electronically, and personal communications via email, text messaging, Skype, FaceTime, Twitter, Instagram, Facebook, and LinkedIn have decimated the Post Office's business model.
  5. 5. Creating a Digital Banking Strategy Page 5 of 11 Strategic Banking Insights • 30 years ago, the major players in the photography industry were camera manufacturers like Nikon, Canon, Konica, Olympus, Minolta, Pentax, Polaroid, etc., and Kodak and Fuji dominated the film industry. An entire sub-industry of film developers and printers existed to process photographers' rolls of film. But photographers had to drop off the film and wait days for it to be developed before they could see the results of their efforts. Today we have digital cameras that allow photographers to instantly see the picture and determine whether a reshoot is necessary. And individuals with no photography background can crop, edit, re-size, and immediately send pictures to friends and family via Digital technology, or they can print their pictures from a chip or disk directly on a home printer. Almost overnight, an entire photo processing industry vanished from sight. And with the advent of digital photography, new entrants like Sony, Ricoh, and Samsung gained footholds in the Digital camera business. The Value of Customer Data Perhaps the most significant element of any business strategy – digital or otherwise – is understanding the ever changing needs and wants of customers. The landscape is littered with scores of businesses that have lost market share because they were not able to capitalize on changing customer behavior trends. So, having and being able to analyze data that provides insights into customers’ preferences is crucial to the survival of any business. Big data analytics is the process of collecting, organizing, and analyzing large data sets containing a variety of data types (hence the name big data) to uncover hidden patterns, unknown correlations, market trends, customer preferences, and other useful business information. This data is then used to determine the appropriate business strategies to meet the customers' current needs, and to anticipate their future needs. The successful players in the digital space not only understand their target customers’ needs, but they are actively engaged in influencing what customers want. Just think about the of customers who are willing to stand in long lines – sometimes for days – just to be the first to get the new Apple iPhones. Now to apply Digital business concepts to banking, it’s worth noting that Chris Skinner in his book Digital Banking, asserts that "As a digital business, all banking can be broken down into pure bits and bytes, but more than that, a bank can be seen as three digital businesses in one. It is a manufacturer of products, a processor of transactions, and a retailer of services." Based on this premise, banks must begin to understand the shifting expectations of their customers, and develop strategies to meet – and exceed those expectations in an increasingly Digital world. Another useful concept to consider, as it relates to developing a Digital Strategy, is “Buyology.” Buyology, as defined in Martin Lindstrom's 2008 bestselling book Buyology: The Truth and Lies About Why We Buy, is a term that describes the process of analyzing the factors that influence buyers' decisions in a world cluttered with messages such as advertisements, slogans, jingles, and celebrity endorsements. From a business perspective, this means understanding the core reasons why people buy, and creating opportunities to repeat that buying behavior again and again. Now we have already seen that banks have been collecting and utilizing digital customer information for decades, so the accumulation of customers’ big data is already occurring. The next step is analyze this customer data to determine which products are doing well, and which are failing, and why they are doing well or failing. Are there data points to indicate which customers prefer certain products, and which prefer other products? Keep in mind, one size does not fit all. Big data will also indicate which of the banks’ customers are initiating financial transactions by the banks competitors, which means your customers have purchased products and services from your competitors. Big data can provide other useful analytics such as: • Are your customers using the branches? ATMs? Internet? Mobile? If your customers are primarily using mobile devices to make deposits, then you should be communicating to them via their mobile devices to better understand their needs. If they use the Internet via a laptop or computer, then push email messages to them inviting their feedback on the service they receive from your bank.
  6. 6. Creating a Digital Banking Strategy Page 6 of 11 Strategic Banking Insights • Are your customers making loan payments to other lenders from their checking account with your institution? Then you should be offering them the option to convert the loan or consolidate it to your bank at a better rate, because you already know how much they pay each month, and for what type of loan. And since they are your customers, you already know whether they are credit worthy or not. • Are your customers making payments to other credit card accounts from their checking account with your institution? You should consider offering your customer a credit card with a balance transfer option. • Are your customers physically depositing payroll checks in the branches rather than using Direct Deposit? Then your tellers should be trained to recognize the opportunity to discuss the benefits of direct deposit with these individuals. • Are your customers coming into the branch to cash payroll checks that are drawn on your bank? Then someone should be discussing with them the benefits of opening a checking account or obtaining a prepaid payroll card from your bank so they can take advantage of direct deposit, Internet banking, online commerce, and shorter checkout lines at stores. • Are your customers using convenience checks from other credit card companies to pay down their credit card balances on your credit card? Why didn’t your bank offer these obviously credit-worthy customers the opportunity to pay down balances on your competitors’ credit cards? These are only a few examples of the types of analyses that can be made from the big data that banks already have about their customers. Digital Strategy Success Stories There are many examples of actual companies that have leveraged digital technology to compete in the Digital age. So, let’s look at two examples of actual organizations that have used Digital technology, Big Data, and Buyology to either launch new businesses, or grow existing businesses leveraging Digital technology. Amazon.com Jeff Bezos is the founder of Amazon, and he has played a key role in the growth of Digital commerce. He is a graduate of Princeton University with a Bachelor of Science degree in Electrical Engineering and Computer Science. After college, Bezos worked for different companies on various Internet- related business projects. He eventually left his job with a Wall Street firm in 1994 and moved to Seattle where he began working on a business plan for what would eventually become Amazon.com. After reading a report about the future of the Internet, which projected annual Web commerce growth at 2,300%, Bezos created a list of 20 products which could be marketed online. He narrowed the list to what he felt were the five most promising products which included: compact discs, computer hardware, computer software, videos, and books. Bezos finally decided that his new business would sell books online, due to the large world-wide demand for literature, the low price points for books, and the huge number of titles available in print. In July 1995, Amazon launched as an online (digital) bookseller and sold its first book without any bookstores, inventory, or other such overhead expenses. Instead, Amazon was launched as a “virtual” company that used Digital technology to interface directly with customers, booksellers, and shipping companies (such as UPS and FedEx) to provide customers with a seamless online purchasing experience from the convenience of their personal computers. Amazon then began to successfully use its customers’ browsing and purchasing information (Big Data) to predict what other products they might be interested in buying online, which led to partnerships with other vendors besides booksellers. The company could then begin to digitally push targeted recommendations of other products and services to customers to encourage additional purchases and customer loyalty. Amazon has expanded its product offerings and service model to become both an online department store as well as a reseller for other online merchants, selling everything from books, to music, movies, clothing, appliances, groceries and gourmet foods, sporting equipment, and thousands of other items – all without a brick and mortar infrastructure! Today, Amazon is the largest virtual (internet based) retailer in the United States.
  7. 7. Creating a Digital Banking Strategy Page 7 of 11 Strategic Banking Insights American Express The next example worth examining is American Express. Now, whereas Amazon was launched as a Digital company, American Express is an established brick and mortar company that began as an express mail business in Buffalo, New York in 1850. And through visionary leadership, and the effective use of digital technology, the company has become one of the largest digital payments companies in the world. But what makes American Express illustrative of an existing business leveraging Digital technology to grow its business – particularly for banks attempting to create their Digital strategies – is that the company has successfully accomplished this without a single branch! In 1882, American Express expanded into the area of financial services by launching a money order business to compete with the U.S. Post Office’s money orders. In 1891, the company began offering Traveler’s Cheques in denominations of $10, $20, $50, and $100. In late 1958, the company entered into the card business and issued 250,000 American Express cards with an annual fee of $6 – which was $1 higher than the Diners Club card – to be perceived as a premium card for upscale individuals. The first American Express cards were paper cards with the cardholders’ names typed onto the card. In 1959, American Express began issuing embossed plastic cards, which at that time, was in industry first. In 1966, the company introduced the Gold Card, and in 1984 the Platinum Card was offered, clearly defining different market segments within its own business. The Platinum Card had an annual fee of $250 (it is currently $450), and was offered by invitation only to American Express customers with at least 2 years of tenure, significant spending, and excellent payment history. Thus, with this level of marketing sophistication, customer segmentation, and credit exposure, it is clear that American Express had already begun utilizing concepts of Buyology and Big Data to determine customers’ creditworthiness and to drive purchase approval decisions. But it gets even better. At a time when banks were enjoying the benefits of banking deregulation, interstate banking, and expanding branch networks to interact with and understand customers’ buying and spending patterns (keep in mind, banks already had all of this Digital data on their customers), American Express was refining a Digital strategy that allowed it to effectively compete in the Digital payments space by attracting the most credit-worthy customers from all over the country to apply for their credit card through the mail, by telephone, and later online. And with the sophisticated Digital credit analytics the company developed, American Express was able to give customers’ instant notification of approval for credit, while banks were still requiring customers to come into branches and fill out applications, which then needed to go to the underwriting department before credit decisions could be made. So, customers would leave the branch and have to wait days for a credit decision, while American Express was providing customers with instant credit approvals. Today, American Express is the largest card issuer in the world based on purchase volume with card sales accounting for approximately 24% of the total dollar volume of credit card transactions in the U.S. And it is the 4th largest card issuer in the world based on the number of cards it has personally in circulation. American Express still doesn’t have a branch network for distribution. But in spite of this seeming disadvantage, the company has over 109.9 million cards running on its proprietary network that includes consumer, small business, and corporate cards. Sadly, there are many banks that still have not figured out that if they are not allowing customers to apply for credit cards online and receive instant notification of approval, they are behind the Digital curve and losing market traction.
  8. 8. Creating a Digital Banking Strategy Page 8 of 11 Strategic Banking Insights Understanding the Impact of Mobile Devices and Social Media on Digital Strategy Bill Gates was quoted as having had a vision of “a computer on every desk and in every home.” But Steve Jobs was the visionary who made it possible to put a computer in every briefcase, handbag and pocket. Digital technology has been around for more than 50 years, but the practical use of it was limited to the government and big businesses. This changed with the advent of the personal computer, laptop, mobile technology, and the Internet in particular, which have literally changed every aspect of how we humans live our lives, interact with each other, interface with the world, and transact business. The Internet has made the planet much smaller by connecting individuals from around the world into a single digital community. And mobile devices allow customers to use the power of digital technology anywhere and anytime. As a result, customers now have the ability to proactively participate in the digital revolution as equal players to the big businesses. In our new digital age, customer interactions range from walking into a storefront to transact business, to simply launching an app on a mobile device to make a purchase (think iTunes, eBay, Travelocity, Amazon, etc.). And as has already been pointed out, these new Digital companies’ entire business model is based on the capture of digital information to facilitate communications and business transactions with their customers. To further illustrate the impact of Digital business and the Internet, consider that according to a Comcast 2014 Internet usage study, 86.75% of individuals in the United States use the Internet. And of this amount, Pew Research, in its January 2014, Social Networking Fact Sheet, reported that 74% of online adults use social media. Mobile devices have significantly contributed to the penetration and usage of social media. Instead of having to log onto a computer at home to check email or to view social network content, users can access this information on their smart phones. Now, before we discard the brick and mortar infrastructure and push everything to mobile devices, the flip side of these statistics indicates that 26% of online adults do NOT use social media. And although 86.75% of individuals use the Internet, 13.25% do not. And we aren’t sure whether the 86.75% are using the Internet to transact business, conduct research, or simply to casually “surf” the web. So, this means that most banks will have to maintain a brick and mortar strategy, which puts them at a cost disadvantage to fully Digital banks. Banks will also have to maintain branch networks (although market analysis should be used to determine which branches can be downsized or closed altogether), while simultaneously implementing a Digital strategy. And although banks are already using Digital technology to conduct business, for the most part it has not yet been consistently wrapped around a cohesive, enterprise-wide framework that advances the organization’s strategic business objectives. In many cases, a piecemeal Digital strategy may actually be in competition with the brick and mortar strategy, when in fact, they are simply two complementary paths to the same goal for the bank. Considering that 74% of online adults use social media, this communication format has the potential to provide up-to-date and inexpensive access to customer opinions about your organization, the banking industry, which products and services customers want, what customers don’t like about their banking experiences, etc. But banks must be careful, because social media today is still largely unregulated. And many an individual or company has found himself/itself in damage control mode over a negative posting of a customer interaction that went viral, causing considerable harm to a company’s brand. For example, 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. On the other hand, on November 13, 2013, JP Morgan Bank opened a live Twitter conversation at the “#AskJPM” hashtag it designated for a planned question and answer session. Unfortunately, the company got slammed for 6 hours by angry participants when the session was hijacked by reporters, pundits, and the bank’s many critics. The bank had to cancel future Twitter sessions.
  9. 9. Creating a Digital Banking Strategy Page 9 of 11 Strategic Banking Insights Nevertheless, the majority of today’s population are now digital natives — they grew up with computers, and more to the point, Smartphones. In fact, most children can operate a tablet before they can tie their shoes. Issues, Considerations, and Challenges to Implementing a Digital Strategy Before developing and implementing a Digital strategy, there are some issues to consider in order to ensure organizational efforts, resources, time, and money are not wasted. Data Security One of the top priorities for any Digital strategy will be to ensure the security of the data. With so much customer information stored in a Digital format, all of the benefits of Digital data (portability, easily transported from place to place, easily shared with multiple individuals, etc.) can quickly become huge liabilities for the organization. Businesses must remember that just as they are making plans for how to use Digital technology to further the organizations’ interests, cyber criminals are planning for how they can exploit Digital security vulnerabilities. And it seems every few weeks or so, the public hears about another large data breach of customer information. When this happens, it not only erodes the confidence of consumers in general regarding Digital commerce, but it can also cause irreparable harm to the company from which the data was stolen. As a matter of fact, there are studies that indicate a growing number of bankable consumers are now using prepaid debit cards for routine retail purchases to protect themselves from cyber crimes. There have been some very good strides made to ensure the security of Digital information, such as the use of biometrics, Smart cards, multi-factor authentication, the rollout of EMV in the United States this year, etc., but there is still more that must be done. Digital Strategy is an Enterprise Initiative Keep in mind that a successful Digital Strategy is more than mobile devices, Internet Banking, mobile deposits, and social media. These are elements of a Digital Strategy, but they are by no means the only things that go into Digital Strategy development. Unfortunately, many organizations implement these tactics and believe they now have a Digital Strategy. If we remember the examples of successful companies like Amazon and American Express, it is clear that every aspect of their business models are focused on leveraging Digital technology to deliver a consistent product/service purchase experience to customers and prospects that fit within their overall corporate strategies. So, as you go forth to implement your bank’s Digital Strategy, remember that it must be an enterprise-wide strategic initiative whereby the organization does a comprehensive inventory of its core business functions (e.g., Business Development, Products, Pricing, Positioning, Marketing, Recruitment, Fulfillment, Customer Service, etc.) within the framework of the corporate strategy, to determine how and where Digital technology can be leveraged to achieve the organization’s goals. Who Owns The Digital Strategy? Since banks have been using Digital technology for decades now, there are usually multiple “owners” of the underlying data. For example, there is Digital information about the customer-facing operations (e.g., Retail, Small Business, Commercial, Treasury Management, Investments, Trust, Insurance, Marketing, Leasing, etc.), and then there is the Digital information about employees, regulatory and compliance, CRA, back-office operations and processes, IT functions, etc.). Most organizations will typically defer the Digital strategy to the IT department, since that would seem like the logical place for it to be. But this may not always be the right course of action. IT groups are very good at understanding all of the new Digital “toys” that are on the horizon, but the business lines know (or they should know) what products and services customers need and want, and what the competition is offering. So, there will need to be some agreement early on as to where the ownership lies for the development, execution, and management of the Digital strategy, otherwise the outcome will be disparate and piecemeal as each faction fights for control.
  10. 10. Creating a Digital Banking Strategy Page 10 of 11 Strategic Banking Insights Data Integration Although banks have been in the business of collecting huge amounts of Digital information on customers for years, the data is rarely in one place. There will be “stove-piped” collections of Digital information throughout the organization, each with different “owners.” In order to leverage the kind of 360° customer insight that Amazon and American Express are able to use so effectively, a concerted effort will need to be made to aggregate all of the customer data on hand – along with additional data that will need to be gathered from other sources – to provide the raw data on existing customers and prospects. Then this data will need to be analyzed to predict customers’ buying habits and preferences so the bank will know which products/services to sell, and the most effective means by which to interact with customers. Partnerships with Digital Data Merchants Banks already have troves of Digital information on their existing customers’ interactions with them, and to an extent they also have information on the customers’ interactions with other financial services providers by analyzing the Digital payments coming from the customers’ deposit accounts and/or by analyzing the source of payoffs of current loan and credit card obligations. But there is still more Digital information that must be obtained to predict customers’ future financial needs and to target prospects to become customers of the bank. To accomplish this, banks will need to partner with other Digital data gatherers (e.g., Google, Yelp, Bing, Lending Tree, Bankrate, Kelly Blue Book, True Car, Realtor.com, etc.) to add prospective customers’ information into the Big Data “bucket” to target these prospects with the appropriate products and services, at the appropriate time, and through the appropriate marketing channel. Not all data will come from Internet sources; some will come from other resources, such as the Secretary of State listings of new business incorporations. Don’t Get Rid of The Brick and Mortar Yet Keep in mind that, although almost everyone is, either willingly, reluctantly, or unknowingly, a traveler on the Digital Technology highway, not everyone has yet embraced all of the means by which Digital commerce is done. So, you will still need to maintain branches, tellers, and personal bankers to service these individuals. But every effort should be made to help these travelers transition to the Digital world. Next Steps Consideringthat86.75%ofadultsusetheInternet,andofthatgroup,accordingtoSmartInsights,80%ofInternetusersownaSmartphone,and 47%ownatablet,itisobviousthatcustomersarenowabletocontrolthetrajectoryofhowbusinessesinteractwiththem. Customershavethe abilitytosignificantlydamageanorganization’sreputationfromnegativecommentsthatgoviralonsocialmedia. Theyalsohavetheabilityto quicklyandeasilyusetheInternettoshoparoundforthebestdeals. Customersarenolongerwillingtowaithours,days,orweeksforbusiness transactionstocometofruition. Assuch,banksneedtodevelopDigitalStrategiestoenabletheircustomersandprospectstodoasmanycorebankingfunctionsaspossibleonline. If banksarestillrequiringindividualstocomeintothebranchtoopenaccounts,applyforcreditcardsandloans,enrollinonlinebanking,change customerinformationonaccounts,makedeposits,transferfundsbetweenaccounts,closeanaccount,etc.,thentheyarebehindtheDigitalcurve. Thetechnologytoautomatethesefunctionsalreadyexists,andhasbeenaroundforatleastadecade. Inclosing,IwillleaveyouwithsomeinsightsfromthefounderofAmazon,JeffBezos: “We innovate by starting with the customer and working backwards. That becomes the touchstone for how we invent." "When [competitors are] in the shower in the morning, they're thinking about how they're going to get ahead of one of their top competitors. Here in the shower, we're thinking about how we are going to invent something on behalf of a customer." Good luck building your Digital Banking Strategy!!!
  11. 11. Creating a Digital Banking Strategy Page 11 of 11 Strategic Banking Insights Next Steps For the latest banking insights and thought leadership, Click here to follow Strategic Banking Insights on LinkedIn We also invite you to visit our website at www.strategicbankinginsights.com for additional information.

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