Staking a claim in digital-only banks

Big names in the financial services sector are moving beyond incorporating a few online and mobile banking features into their traditional products and services. They’re stepping into full-scale, digital-only banking: Chase has launched Finn, for example, and Citizens Financial Group has created Citizens Access. Reportedly waiting in the wings is a national digital-only bank from Citigroup, too.

These new brands stemming from established banks will be going up against competitors such as Ally and GoBank, who have made the digital-only bank space their home from their inception. By launching their digital brands, Chase, Citizens Financial Group, and the others that follow, are creating options for escaping the confines of their existing processes and technology environments.

Historic modes of business can limit a bank’s ability to do much more than supplement existing systems with a few web services and mobile apps. Confined by operating models that depend on independent teams handling different parts of technology operations, they are often slow to build and deliver new services. And cross-team collaboration is typically a challenge, when they do release - they can still fall flat simply because of a lack of consistency in the customer journey.

A move to digital-only banking gives organizations the opportunity to start fresh. From the get-go, they can architect integrated data, services, and processes that support what customers really want from digital banking, like highly personalized services. Highly personalized services are most often based on analysis of both internal and external data and could reveal, for example, that a client has just enrolled a child in college, so they could have a higher propensity to accept an offer for help with financing the student’s higher-education. Monitoring and understanding customers’ transactions as individual profiles will become critical to personalization efforts - down to the segment of one. Banks that have insight into their clients’ specific behavior can have greater opportunities to retain their loyalty and tailor offerings that appeal.

Executives at digital-only banks will also likely have more freedom to work with innovation labs where teams can rapidly build prototypes for cutting-edge services and test them out. Additionally, applying continuous delivery practices can enable developers, operations personnel, user interface designers, data scientists, and others to collaborate quickly to build products that meet unique demands. Working together from a common foundation can fuel internal banking teams to continuously deliver product updates to help customers benefit faster and more frequently.

They’ll also likely embrace cloud and Open Banking as key parts of their charters, putting APIs into marketplaces, and contribute to open communities to help expand upon and create new customer-oriented products. Working with partners and third parties, digital banks can create services that aren’t solely financial, but encompass everyday life and involve a financial transaction - like buying a house or booking a trip. Such everyday events could even be founded upon longer-term financial goals - with the help of such a bank - to provide customized options for real estate or vacation spots that are within the customer’s chosen tolerance thresholds for accruing debt load.

Now, digitalization is not exclusively a technology effort of replicating branch and call-center services for online and mobile platforms. Rather, digital-only banks marry technology - including management and automation that spans cloud, data, and APIs - with 21st century business models for success.

Managing the challenges of digital-only banks

Of course, there will be challenges for the digital-only banks spun out by traditional financial institutions. They’ll be treading on ground that their less established competitors have already walked, so they will likely have some catching up to do. But they tend to have the advantage of established customer bases that may more easily convert from a well-known, trusted brand to the new, digital affiliate.

Leadership will have to learn the ins and outs of appropriate, contextual, and preferred engagement and communication with customers as well. Tracking their digital footprint, digital-only banks will need to put to work the knowledge they’ve gained to keep clients from receiving email blasts about offerings that aren’t relevant to them. They’ll have to prepare for more complicated interactions with clients, even redefining internal processes to streamline the customer journey. Such as instances when clients want sophisticated wealth management advice in real-time, face-to-face conversations with experienced staff instead of using an online chat. They also will have to be increasingly conscious of the continual development of new forms of hacking that can be targeted at digital-only banks - positioning their organizations with tighter security controls such as biometric authentication.

All of this gets a boost when organizations have access to open source communities and to training that can help them take advantage of cloud native technology, which promotes agility and quicker time-to-market for digital services. Engaging technology partners to support them in building a community of developers to share the knowledge and tools they need for these endeavors extends the knowledge base upon which to build innovation, helping give banks the chance to be game-changers as well as market-shapers.  

It’s certainly no small effort to give birth to a digital-only bank, but it’s one that many of the big players in the financial industry are likely to consider in their strategy to remain a strong presence in in their market.

To learn more about how to keep pace with the changing market landscape, see our ebook, modernize financial services with open source.