The traditional days of banking business are running out and a new digital era of banking is dawning.
With the emergence of new digital technologies such as Blockchain, which are accelerating payments and improving accuracy in transaction ledgers, banks are stepping into a new era. The CIO of Danske Bank, Fredrik Vilhelm Lindström, believes that digitalisation is in an exponential development phase that encourages fast-followers to adapt to new opportunities. He argues that being a first mover in an environment where the full capabilities of the new technologies and their potential pitfalls are unclear is not especially attractive when looking at the comparable return on investment. But the pace of development remains extraordinarily high, and being a fast follower is critical. The industry needs to be ready for development by monitoring trends and adjusting their activities accordingly. Adapt or die.
As such, an added emphasis is put on flexibility to follow the industry and thereby become more agile. According to Mr Lindström, the traditional waterfall development model will become obsolete within the financial sector in order to allow for what may be revolutionary trends.
Fredrik Lindström, CIO Corporates and Institutions IT, Danske Bank
With a plethora of mobile applications and services that demand attention from customers, banks should ensure that their services are the golden standard. Fredrik Vilhelm Lindström claims:
“We need to earn the right to own the customer interface.”
In an Agile environment, the trial and error approach gives immediate feedback that can speed up the ability to follow the latest trends in the industry. As customers quickly adopt new services, added pressure is put on service providers to stay relevant. Following this notion, how customers are approached and catered for is a key element and will continue to be so in the future. A constant stream of information based on customer touch points can help tailor the service to fit the customer’s needs and preferences.
In the digital world, the overall playing field is clearly changing. Having a full set of services will be borderline impossible due to the high probability of niche players disrupting the market. Banks, such as Danske Bank, would be challenged to develop with the abundance of services available “out there”. Instead, the goal is to focus on the right things and become excellent within targeted areas. An example is payment systems wherein decisions must be made on how the general stance should be towards the development of e.g. contactless payment systems, and which actions should be taken to stay relevant in the market.
These types of digital disruption are becoming more common across various industries, the Danske Bank CIO comments. As an example, the hospitality industry has experienced a revolution in the past decade with entrants such as Booking.com, Hotels.com and Airbnb. The hotels themselves must constantly compete with aggregators to “own” the customer experience and best guide customers towards their own services. He explains that the personal banks are under a similar threat in the globalised world, which calls for them to transcend their traditional role in the market. According to Mr Lindström, the focus should be redirected towards user interfaces (UI) and experiences (UX):
“Do you want to be a hotel or do you want to be Hotels.com?”
The difference between being the provider of a service and being the provider of the service network is vast. A point of difference is the connection to the customer and the ability to understand what customers demand from the service catalogue. Owning the interface allows for the full comprehension of which services create value, as the interface owner will get the key customer insights across all services. The trending customer preferences can prepare the banks for the future, and should thus be prioritised. Meanwhile, the interface has a pull effect due to the dependency that the individual services cannot compete with, empowering the owner of the interface even further. The attractiveness of getting these insights without having to fight a constant inflow of disruptors is evident.
Now more than ever, the banks rely on big data to empower their businesses. The compilation of big data requires interfaces that can generate the big data from customer usage. Positioning the bank as the interface owner creates this base of big data content and improves the relevance of the bank by effectively being able to develop services to fit what customers are requesting.
The conversation is shifting from “who has the best content” to “who has the best ecosystem”, which in turn will generate the best content. With the emergence of blockchain technology that decentralises ownership and power, owning the interface becomes increasingly important. Customers gain added freedom and are more empowered in their choice of services. The attraction of customers through optimised customer experiences in the interface has thus become a high priority in Danske Bank.
The shift from single services to a service interface is not the only significant element in the financial world. Other digital trends are shaping the direction of the industry. Robotics Process Automation (RPA) is one trend that has gained traction in the past years, with the opportunity for cost-cutting and decreased processing time across the organisation. As human labour is replaced by robotics in process work, duration is minimised and human errors are avoided. Fredrik Vilhelm Lindström affirms that there are a lot of opportunities associated with RPA. However, he argues that it should be approached with caution due to the potential danger blending processes and systems:
“You forget how things work.”
Consequently, RPA should be applied consciously to distinguish between what is relevant for the technology and what is not. Not all processes should be automated as the human element is required to manage most non-standardised processes, where a softer, cost-benefit analysis applies. This approach is managed by Danske Bank to counteract the potential of losing control of the organisation’s processes and systems.
Another buzzword in digitalisation is the Internet of Things (IoT), which enables new input from objects that have not traditionally been viewed as digital. Ingenuity is exposing itself in striking new ways. With unique innovations in physical data collection, the speed and quality of market analysis is greatly enhanced. New technology significantly enhances market research, which can amongst other applications provide banks with better data for risk assessments. The construction of and general access to new types of data will continue to expose the strong links between the Internet of Things and more robust decision making.
Digitalisation and risk assessments run both ways however, particularly when managing an IT organisation. IT security is high on the agenda for many organisations, and growing in importance. With the emergence of so many digital trends and the increased dependence on technology, the need for securely managing digital activities is high. In the financial industry, regulations force banks to own their own data instead of hosting it in the cloud for fear of security breaches. The Danske Bank CIO argues it is difficult to be 100% safe from external threats and will be even more difficult going ahead. This results in pressure from regulatory bodies, as evident in the General Data Protection Regulation (GDPR) implementation in 2018. He projects that security surrounding the IoT concept will become a problem as well. The concern is that it only takes one hacker to breach the system, and cause a significant escalation of events that hurt the bank and its clients. The damage done by a single hack can lead investors to start to question the safekeeping of their investments as the system cannot be considered secure due to the external intrusion. This insecurity in turn could influence and affect the value of the bank in the stock market.
Additionally, banks operate on shared networks like SWIFT, which can create a collective risk to hacking. Hence, relying exclusively on internal systems to secure data is no longer sufficient, as banks need reassurance from each other on the respective network that they are also protected against cyber attacks.
With the opportunities in IT, and the high perceived return on investment balanced against the perceived increased risks, the requirements for the IT organisation is shifting, according to Fredrik Vilhelm Lindström. Two years ago, Danske Bank Commercial IT was characterised by a relatively high number of business analysts and a lower number of developers. The IT organisation then shifted towards relying more on technology specialists, rather than generalists in the organisation, to make technology relevant to the company. The key is to be able to manage the scope of the development and retain focus on internal priorities:
“It’s about having technologists who understand what we do as a bank and what our ambition is.”
However, with the shift away from business analysts in the IT organisation, the interdependence between internal organisations and departments also arises. The need for cross-functional and agile teams to succeed with the transformation is stronger than ever. Ongoing, clinical assessments of where and how resources are deployed is fundamental to Danske Bank in the future.
The traditional days of banking business are running out and a new digital era of banking is dawning. The risks and rewards are high, and the journey banks are on is going to be exciting.
- You need constant customer touch points within you IT offering to better understand customer trends.
- Make the necessary organisational changes to respond better and quicker to both customer and technology trends.
- Don’t fall behind in key areas such as security and market data analysis.
The author is Jason Walsh.