Banking professionals and digital transformation
ABRIS’ Banking Operation Excellence International Forum in May brought an inspiring panel discussion between high-level banking professionals from 4 continents. It focused on digital transformation practices and other technology trends. This article will provide a short summary of what our respected guests answered to our questions.
(This article will be expanded over time with the rest of the questions and answers.)
Question 1 – The lesson the pandemic taught about digital initiatives
Viktor Weininger: According to Gartner, 69% of boards of directors say the pandemic and the economic crisis are accelerating their digital initiatives. Do you agree? What does it look like at your bank?
No person-to-person contact at the time of COVID meant skyrocketing transaction numbers. As Meezan bank’s Ali Imran Khan explained, the ratio of over-the-counter and digital transactions switched from the pre-pandemic 60% vs. 40% to 8% vs .92% in Pakistan. Notably, even people who had not been tech-savvy have started asking for digital services.
Financial institutions faced different challenges based on their digital preparedness – and they answered successfully under the stress of the pandemic. Larrainvial’s Ignacio Osorio explained how they expanded capabilities to keep providing high-quality services to their customers. NCBA’s Julius Kamau brought up the example of a Kenyan bank, where the digitalization of loan processing that had been dragging on for about 10 years. Surprisingly, they completed the project in just 3 month once COVID hit. Mr. Kamau also confirmed that customers flocking to the banks that were already digital:
“For the banks that were [digitally] ready, COVID was a time to reap the benefits of being prepared for the future.”
But the pandemic inflicted a mindshift even on banks with a robust, future-proof infrastructure. As Schröders’ Marc Wohlgensinger underlined, digital initiatives were also focal in the back office, crystallizing the most efficient channels of remote (and even on-site) communication and cooperation.
Question 2 – Creating hyper-personalised offers
Viktor Weininger: People like to visit bank branches for the personalised offers. How does this work in digital? How can you hyper-personalize your offers?
Mr. Kamau underlined that for providing hyper-personalized digital services, it is crucial for banks to create an organized data structure. They need to re-architect their data system in a way that allows them to recognise individual customers across all their channels.
“You have to make sure that your data is well organized, then build technology on it, (…) so you can offer value-added services on your channels.”
Mr. Khan also shared this point of view. In his answer, he discussed the increasing role data plays in customer experience. He explained that focus has shifted from technological fantasies to using said technological novelties to perfect the customer experience. To this end, banks need to put proper data practices in place, such as building a 360-view of the customer (from their background to their behaviour), as well as effective data analytics processes to identify needs. As a result, these enable them to provide the services that customers desire.
In addition to this, Mr. Khan highlighted that
80% of the work required for great customer experience takes place on the IT backend.
After all, processes have to run smoothly from end to end, while the right data needs to be parsed and delivered swiftly to where it’s needed.
The panel’s investment banking experts also confirmed the importance of the efficient use of data. Mr. Wohlgensinger explained that investment banking as such is highly personalized and highly organized in terms of data. The industry relies heavily on data mining everything from customer behaviour to CRM channels, since it gives them a solid basis to be able to give the right advice to each client. In his contribution to the discussion, Mr. Osorio explained that data models also help investment banks deliver not only advice, but actionable applications to clients. These are designed to enable investors to make informed decisions about their portfolios.
Question 3 – Data use within the organisation
Viktor Weininger: In the digital era, it can be difficult to know the customer. How can you collect data to know customer behaviours? How are you using the collected data?
Mr. Osorio explained that Larrainvial uses customer behaviour data in algorithms in multiple fields. These algorithms help making buy and sales decisions regarding financial products and equities. Furthermore, some fraud detection alerts are also developed based on behavioral information. Mr. Osorio underlined that customer insight is integral to offering customization, be it products or decisions. Summing up, he said,
“Data today is critical, it is the foundation for everything.”
Mr. Kamau explained that NCBA first perfected the art of using data for credit scoring. As a result, he explained, “You can get a car loan approved in approximately 15 seconds.”
As the bank’s data science approaches have matured, they have realised that lending is just one aspect of banking where data can be put to good use. But for making the most of it, the bank has to identify customers through all divisions, from investment banking through insurance to their branches in other countries. Therefore, NCBA set up a data office 2 years ago to be able to offer data support to every aspect of the bank. For instance, they are optimizing data usage in smart marketing, customer experience, and relationship management. Mr. Kamau stated that this is an evolutionary process. He added
“The bank [NCBA] is beginning to become a data driven organization for the entire range of banking interactions with the customer.”
In his response, Mr. Khan talked about Meezan Bank’s data democratization practice. They address both angles of data analytics: technology and the humans using said technology. On one hand, the bank is working on automating decision-making processes, while making data available to the individuals within the organisation. On the other hand, Meezan firmly believes and actively invests in the intellectual upbringing of its people. As to the why, Mr Khan quoted Maya Angelou,
“When you know more, you do more.”
Under this sign, Meezan Bank trains its people in data analytics and data tools, and provides them with the necessary data and tools. Almost all staff has access to self-service BI tools. As a result, Mr. Khan reported that bank employees are producing tremendous results, which is reflected Meezan’s growth.
“At Meezan Bank, data is everywhere. IT is enabling our people with the right tools.”
As the last one to get the microphone, Mr. Wohlgensinger added that Schroeders invests strongly in data quality and data efficiency. He brought up the example of the onboarding process, which, he said, used to be highly manual and inefficient.
“It literally took weeks to open up accounts, and to have all the signatures and the due diligence done for the clients. And this is now a matter of days.”
He explained that Schroeders has digitalized everything in its CRM process since. He underlined that implementing better data sharing processes within the organisation has also been key.
Question 4 – The technology changes of the coming years and the cloud
Viktor Weininger: At TCF, everyone was asking about IT infrastructure changes and going to the cloud, how core banking and tools are supporting the cloud. How are you planning your next 5-year journey in technology change? Are you planning to go to the cloud?
Mr. Osorio confirmed that LarrainVial is indeed going to enjoy the benefits of cloud technology. While this might be true for the wealth and asset management departments, he noted, however, that cloud systems are not yet fully capable of managing the algorithms of electronic trading.
“We are moving to the cloud. But there’s one piece of our business, the electronic trading system, that the cloud is not yet capable to process completely.”
Mr. Kamau explained that for NCBA Group, the biggest challenge of going to the cloud is regulatory compliance. The Group operates in 5 countries and as such working closely together with regulators is crucial. But it’s not only that data residency and data movement rules differ by country. Progress is also hampered by the fact that regulators consider cloud risky. The Group has, however, successfully taken strides towards the technology. Thanks to a platform-as-a-service agreement with Oracle, NCBA has moved over a dozen test environments to the cloud. Production environments, alas, are completely different cup of tea. Since in Kenya it is prohibited to move customer data outside the country, cloud is not currently an option in this regard.
In the meantime, NCBA Group is building a cloud-native omni-channel platform from the ground up. Their new internet and mobile banking services will be launched on this platform soon.
Honing in on the practicalities, Mr Kamau also had a warning.
“In my personal experience, cloud is a two-edged sword. You must build the capability on capacity. (..) Even our own movement to cloud has been challenged as we don’t have enough certified cloud engineers in the country.”
He explained that even Microsoft is challenged to build relevant HR capacity and as such, the capacity to simply operate cloud might not be readily available.
In conclusion, Mr. Kamau confirmed that for NCBA Saas is the way to go. As such it would help reduce dependency on on-prem infrastructure and engineers. Depending on providers’ hyperskillers would mean, he underlined, that NCBA can freely focus on banking.
Mr. Wohlgensinger related to Mr. Kamau’s experiences, since Switzerland also has strict regulations regarding the movement of customer data. He explained that Schroders as a company is also moving towards the cloud, underlining that it was indeed a skill shift.
He also referred back to a previous answer by Mr. Khan regarding the importance of enabling people within one’s company. He underlined that the journey to the cloud is not only difficult to do efficiently and in a cost-saving manner, but in the meantime, the staff must also build relevant skills. Moving straight to the cloud, he warned is not a good idea.
“Just to shift the lift to the cloud is not the best idea. You have to carefully think about what benefits you want to get out of it.”
Mr. Khan noted that cloud migration differs for each country and organization. There is a huge difference between moving to the cloud for a greenfield bank and an institution with a legacy platform. Moreover, he added, a bank might be using 50 to 100 applications, so it must have a very detailed, well-thought strategy in place on how to move to the cloud. In particular, moving a core banking system to the cloud requires you to think about what will happen to all the integrations with the rest of this intricate system.
Cloud makes a lot of sense when it comes to scalability, agility, and security, Mr. Khan stated.
“On the long run, cloud is bound to happen. But it will take its own time and it requires a very careful strategy.”
He also reminded that
“Whenever a new technology comes, it takes 3-5 years time to get mature, to familiarize with the technology, and then it starts paying divident.”
Question 5 – The future of banking
Viktor Weininger: How will banking look like a decade from now?
Larrainvial’s Mr. Osorio explained that although wealth management has an increasing number of tools at its disposal, it continues and will continue to rely on the person-to-person facet of the business. For asset management and investement banking, quantum computing has been indispensable. In this direction, AI will be focal, he forecast.
“Electronic trading will be fully AI in a few years.”
In his answer, NCBA’s Mr. Kamau focused on the changing consumer base the future will bring. He explained that for the new generation, bank branches will lose relevance with online channels gaining ground. He forewarned that banks must start to engage with the future consumer in time.
“We’ll have to think about upcoming costumers – in Africa, 70% of the population is below 24 years and in 10 years those will be the new executives in the industry, so our strategy is to begin to capture those minds now, show our brand as relevant.”
Meezan Bank’s Mr. Khan painted a similar picture of the future, saying
“In the foreseeable future, banks will be there, but invisible.”
He explained that, for instance, if you need financing for a car, banks are at the car dealership already, you need not go to the branch. Hence, banks will become invisible, same as with e-commerce sites.
Last, but not least, Schröders’ Mr. Wohlgensinger talked about qualitative improvements.
“Offerings will be more optimized and interconnected. It will be important that they would work all the time from everywhere.”
He also added that in wealth management, personal advise, the act of creating trust will continue to be important.