Building a truly digital banking model remains a challenge for most domestic banks. While it’s true that there is no such thing as a sure recipe for success, some key ingredients are essential to a successful digitized bank. They are the SIX imperatives of digital banking that we will discuss in this whitepaper.

1. 6 IMPERATIVES FOR
DIGITAL BANKING
June 2021
The pillars and foundations for a true digital bank
DIGITAL BANKING

2. INTRODUCTION
Building a truly digital banking model remains a challenge for
most domestic banks. While it’s true that there is no such thing
as a sure recipe for success, some key ingredients are essential
to a successful digitized bank. They are the SIX imperatives of
digital banking that we will discuss in this whitepaper.
Customer Centricity
Operating Model and Ecosystem
Tech principles and strategic choice
Big Data and Analytics
Digital Start-up Culture and Talent
Compliance with Regulators
DIGITAL BANKING | 7 Imperatives of Digital Banking
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3. Customer-centricity is the first pillar of the digital
banking model. To engage today's digital-savvy
customers, banking leaders must invest in effortless
convenience. The goal is to design new products and
services in ways that satisfy unmet customer needs,
reduce friction in the process, and encourage digital
interactions. Thus customers can be empowered to use
banking services as effortlessly as possible.
Electronic Know-your-Customer (eKYC) is an excellent
example of customer-centricity, where banks let
customers create new accounts with only a few facial
scans, sparing them the inconvenience of having to visit
physical branches.
Moreover, excellent user experience (UX) and user
interface (UI) are no longer differentiating factors. They
are now the prerequisites for banking solutions such as
mobile apps or web apps. The need for these customer-
centered solutions is the reason why more banks are
applying modern methods such as Human-centric
design, Lean Startup Approach, Agile, and DevOps.
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.
Value-added services. Complimentary services such
as Personal Finance Management (PFM) and digital
marketplace can offer a richer and personalized user
experience. Once these services are integrated into
the banking app, customers can save time and effort
searching for other providers. Also, with these
integrated services, the mobile application can be
seen as a financial lifestyle platform.
When it comes to customer-centricity, banking
businesses need to pay attention to these factors:
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CUSTOMER CENTRICITY
DIGITAL BANKING | 7 Imperatives of Digital Banking
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4. A truly digital bank would build proprietary digital operations and ecosystems to create its own way of working. Banks that lack these
proprietary assets run a major risk: their model will be copied and their business will be replaced by digital challengers such as neo-
banks and fintech startups.
To build a digital operating model, banks should think of it as an end-to-end digital system that brings a fully digitized experience for
both external customers and internal employees. It is 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.
Credit card risk assessment
fully automated and enabled by AI
Straight through processing
The end-to-end transaction process is automated
Transactions Reconciliation
Instant across financial accounts
Product manufacturing
Product development is digitized
Product Integration
APIs are integrated across products
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OPERATING MODEL AND ECOSYSTEM
Self-service onboarding
Focused 100% on user
Customer data & personalization
Customer experience is personalized
Pricing
Pricing models are optimized
Offers
Product offerings are tailored to customer needs
Channel
All services can be accessed via a mobile application
FOR CUSTOMERS FOR EMPLOYEES
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5. They use open software, libraries, and framework. The open
architecture allows for seamless integration without many
bottlenecks.
Microservices and containerization are applied to make the
components reliable, portable, scalable, and maintainable.
Unlike digital banks where agile is embedded in their DNA, traditional
banks usually find it challenging to change. To build a digital banking
model, banks must adopt an agile delivery approach. This includes
making strategic choices to build the right technology as their digital
foundation. Banks must effectively manage their IT stacks to facilitate
rapid change, thus providing responsive and scalable solutions. With
that goal in mind, it requires agile digital applications and platforms
across the business. The ownership and control of these technologies
must also be well-defined.
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 innovation, providing modules
such as machine learning (ML) and artificial intelligence (AI) that can
be plugged into their current system easily, without much effort.
Regarding tech principles, digital banks share some things in common.
Cloud is an integral part, either it’s public or private cloud.
Agile development and deployment are the key enablers.
The bank owns and fully controls the architecture.
Open source is designed in ways that are safe to use and govern.
Banks should use open source to optimize costs and access a
larger developer pool; they can outsource the support and
expertise of open source to external vendors.
To enable developers to self-provision infrastructure, the
infrastructure should be virtualized and automated.
Build vs. Buy needs to be carefully considered. Most banks are
preferring building or using open source products over buying.
New banking and financial technology should be actively learned
and experimented with while legacy technology is modernized.
Banks must make their software development lifecycle (SDLC)
agile and automated
Integration must follow industry standards.
Moreover, banks need to standardize their technology stacks across
the systems. Some of the best practices are:
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TECH PRINCIPLES AND STRATEGIC CHOICE
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6. 4
Level 1 - Personalize Intelligence: apply advanced data &
analytics to transactions, customer, and other data types to
establish a deep understanding of customers and their needs
For banking leaders, 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 analytical tools and approaches, digital banks can
gain a thorough understanding of customer’s desires and
expectations. Based on these customer insights, they 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:
Level 2 - Personalize Services: provide
services and content that are hyper-relevant
Level 3 - Personalize Interactions: build
intuitive interface and engaging experience
across all touchpoints
Banks can build their data & analytics capabilities
in-house or partner with third-party providers.
While the in-house approach is costly due to the
high capital expenditure on data experts and data
infrastructure, partnership for data & analytics is
more flexible and cost-effective thanks to cloud
technology and the pay-as-you-go pricing model.
DATA
&
ANALYTICS
Personalized Interactions
establish a deep understanding of customers
Customer data & personalization
provide services and content that are hyper-relevant
Pricing
build engaging experience across all touch points
PLATFORM
FEATURES
DATA
Hyper-personalized customer
experience
>
DIGITAL BANKING | 7 Imperatives of Digital Banking
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7. 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 processes.
The 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, the 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.
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DIGITAL START-UP
CULTURE AND TALENTS
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8. 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:
Profitability: Banks with a compelling
case for profitability will convince
regulators as suitable candidates for
digital banks.
Key differentiations: Since regulators
prioritize the unbanked and
underbanked segments, they would
want to know how banks can
differentiate themselves in terms of
their proposition and their innovation.
Adherence to regulation: Although the
ability to capture the digital banking
opportunity depends on the freedom to
innovate and scale, banks must also
remain compliant with the regulatory
framework.
Consumer protection: Banks must
constantly look for new ways to ensure
consumer protection, mitigate
cybersecurity risk, and implement
robust data protection measures.
6COMPLIANCE
WITH
REGULATORS
DIGITAL BANKING | 7 Imperatives of Digital Banking
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9. CONCLUSION
The era of digital transformation is maturing and domestic banks
are facing digital-first competitors on all fronts. In this era,
customers see hype-personalized experiences as a bare minimum.
They are turning away from traditional operations towards a new
generation of digital banks. These digital challengers have a laser
focus on superior customer experience, branchless operation, and
digital technology.

10. KMS Solutions works closely with leading software companies across the globe to bring the
most advanced and innovative technologies to Asia Pacific. The focus is to help organizations
achieve their business goals through world-class fit-for-purpose solutions and proven industry
best practices. KMS Solutions’ success is ultimately measured by the positive impact that it
makes to the client’s business. To learn more about us, visit: https://kms-solutions.asia/
© 2021. For more information, contact KMS Solutions.