Digital bank: The need of the hour
Being digital is the fad but being truly digital is critical for most of the banks, if not all. Unfortunately, for some, we have seen that even after being digitised, product interfaces are not seamless, let alone personalised
Today's world is about digital transformation, about having all the facilities at our fingertips, accommodated in one single app, within a single multipurpose device. In Bangladesh, while some supposed "digital-savvy banks" are providing their digital services to customers through different interfaces or apps for different offerings, this is far from the digital banking efficiency that is the need of the hour.
Understandably, legacy banks are suffering from their age-old systems, processes and platforms, which are not agile enough to meet the demand of today. Hence, by tweaking here and there within their old banking app interface, some are claiming accolades for becoming "digital".
As long as it is not all integrated and the backend is not fully digitised from end-to-end, it remains outdated as compared to what Neo Banks are supposed to be offering.
Being digital is the fad but being truly digital is critical for most of these banks today if not all. Unfortunately, for some, we have seen that even after being digitised, product interfaces are not seamless, let alone personalised.
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It is all because of the legacy these banks are handling. Moreover, the lack of understanding about digitisation, digitalisation and digital transformation, is an important factor. The lack of resources or leaders who understand the complete essence of all three of these on a standalone basis as well as collectively has made the digital banking scenario so murky.
In addition, in legacy banks, often the lack of support from board stakeholders—who most of the time do not fully realise the potential or importance of digital transformation—especially concerning budgetary and logistical backup, makes it more challenging for banks to fully embrace complete digital transformation.
To make the above happen, one requires to distinguish between the terms digitisation, digitalisation and digital transformation that are often used interchangeably in organisations in Bangladesh, and more specifically, within banks.
Many regard them as synonyms, but in practice, the difference is quite significant. For organisations, there is an urgency to close this knowledge gap as increasing digital transformation trends, the explosion of data, and the Covid-19 pandemic have amplified the need to be agile and stay competitive amid disruption.
In its most rudimentary sense, digitisation is the process of changing from analogue to digital form, also known as digital enablement such as converting music from CDs and vinyl records to MP3s or paper documents to digital files saved on a computer.
Many banks confuse that as being digital. The conversion or representation of physical or non-digital things into a digital format means that this information can now be used by a computer system.
Creating digital versions of these so-called "physical carriers of information" allows us to extract data that can be processed, transmitted, or used to optimise processes. In this respect, digitisation also includes the automation of existing manual and paper-based processes. Essentially, digitisation creates value by cutting costs and laying the foundation for business use cases that leverage data.
Now disentangling digitisation from digitalisation may seem like a nit-picky exercise, but they are very different concepts with very different implications. Defining digitalisation is – "the use of digital technologies and digitised data to impact how work gets done, transform how customers and companies engage and interact, and create new digital revenue streams."
In other words, digitalisation cannot occur without digitisation. To refer back to earlier examples, a digitalisation initiative could include uploading those converted files to the cloud to transform collaboration and reporting processes and using analytical tools to generate insights and actionable knowledge to mitigate risk and promote efficiency in future projects.
Digitalisation is an important step towards digital transformation and has a huge impact on the product, service delivery, and people. It marks a culture shift within an organisation, which has a significant role for change management to play within.
Digital transformation is broader than this; more than applying technology to an existing business, it is the capacity to rapidly adapt when required through the intelligent use of technologies and information.
To reiterate, digital transformation is a journey and while digitalisation focuses on technology, digital transformation focuses on adding value to the end-user. It is more about people and the strategic direction of the company than it is about technology.
Going back to the personalisation of banking offerings, it is the data of all the customers and usage of AI/ML to distinguish patterns and parameters towards customisation of each offering for each customer which aggregates to millions for each bank is still a far-fetched idea in our country.
Another big challenge for the existing Banks is the mindset of their existing employee base. Change management is a tall task to battle in for any such change to be brought in. It takes the mindset including that of sponsors, in the case of Bangladeshi private banks, who need to visualise the digital transformation journey as a rewarding one in the long run by compromising for short-term losses. One has to take into consideration the expense tags attached to it and the high rewards that may be fetched over some time and not in a blink.
Moreover, skilled resources to lead the journey and play with data are also scarce commodities in today's industry. Conventional bankers may not be the ideal resources for all the roles in that journey, as some migration from Telco, MFS, software companies, and fintech is a prerequisite to quickly fill in the gaps.
In addition, collaboration with fintech is critically important at this juncture which for most is taboo. Not many bank CEOs today think like SCB's Group CEO and say that banks are to be run today as Fintech CEOs as well.
I add to that and say that banks today need to be run by an FMCG CEO too. One needs to follow and decipher the trend of customers' changing tastes and preferences. Gone are the days of the 'one size fits all' solutions.
Plain vanilla deposit products are ancient for today's generation. One has to think and know of each customer's next plan of buying a new iPhone or vacation to Thailand or buying a new condo and offer each one of them a customised savings plan based on each of their financial means. Now that would be possible only when one has a data scientist who is churning all that data of each customer and playing with that.
A total paradigm shift is the call of the time now—Neo Bank, Challenge Bank or Digital Bank (whichever name we call it) is the 'Netflix of Banking'. That is what we ought to have now. Think of an app that brings you a full financial solution covering your deposit/loan/payments and so forth requirements with a click as well as keeps pushing you unique notification of offerings that are made to order based on your means only.
It is happening today in many of the geographies and our vicinity as well. An equal responsibility today lies with the regulatory body which needs to have a fresh look at the system and allow fintech or similar ones to kick in the solution.
Regulators will have to understand the contemporary trend and allow that to come in here as well. A new start with a coordinated approach from incumbent/interested players along with the regulatory bodies can pave the way for Digital Banks to start operation as soon as possible.
There is a universal belief amongst most of the banks in the country that do have a bank one needs to cater to the needs of corporates, whereas in a rapidly expanding middle-class country like ours, one can lower risk concentration by focussing more on the retail/MSME verticals.
In today's era, only a Digi Bank knows its customers thoroughly and can scale to millions in a jiffy. It can offer services and propositions for each at their convenience only and according to their full taste and preference.
Like Netflix - it can showcase different genres of products from which the customer can choose and pick. Banks then can also keep churning the data further to offer each end-user solutions even before he/she thinks of the need.
Mitigation of risk, cost minimisation vis-a-vis scaling up significantly within a short time, understanding and knowing each customer end to end, and being embedded at every step of each customer's daily lifestyle are what collectively a DigiBank may offer.
Digital Bangladesh is the vision of the government and its facilitation over the past decade is commendable. MFS has made its space, start-ups are consolidating further. G2P has become an acceptable norm and that is also through digital means only. At this point to bear the full fruit of Digital Bangladesh, we must have Digital Banks in play without further delay and that also not only from within the existing Banks but in collaboration with a fintech or related player.
The author is the Chief Executive Officer at Nagad and an economic and financial analyst.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
