Defining A Digital Financial Institution - Show Me The Money


Editor’s Note: The following is the  third and final installment in a series of blogs excerpted from a report published by Celent entitled Defining A Digital Financial Institution by Daniel Latimore and Zilvinas Bareisis . D3 Banking has licensed the content for general distribution. For the full report contact Celent. The previous installment in this series dealt with legacy systems and organizational culture as the two biggest impediments to banks improving their digital sophistication. 

Digital banking is not about novel ways to satisfy every client demand. Digital transform-ation must result in a demonstrable and sustainable economic value for the bank. Too often financial institutions embark on digital transformation programs without a clear view how their efforts will translate into economic value. Relatively vague statements, such as “We aim to improve customer relationships through digital engagement” or “We have to do it to keep up with the competition” are frequently given as arguments for investing into digital.

Stated Rationale for Investing in Digital

Indicate your agreement with the following statements about your investments in mobile/digital. Percentage of those that “Strongly Agree.”


 Source: Celent NA Retail & Business Banking Technology Survey 2014, n=154

We argue that while customer engagement and retention are important, digital efforts need to address all three value levers to justify scale and frequency of investment:

  1. Revenue uplift, driven by customer retention and penetration, increased usage, new products, and optimized
  2. Risk cost mitigation, leading to lower credit losses, reduced fraud, and optimized liquidity, operational, and conduct risk
  3. Operational cost reduction, driven by redesign of the branch network, lower transaction and servicing costs, and streamlined regulatory

 Three Levers Driving Demonstrable and Sustainable Economic Value

 Presentation2_1.jpgSource: Oliver Wyman and Celent

For financial institutions embarking on a digital transformation journey, Celent recommends the following:

  1. Focus on the customer’s experience of your brand.
    • Go where your customers are: deeply understand how and in what contexts customers engage with you.
    • Understand what drives customer value.
    • Organize around the customer — engage the organization, manage cultural change.
  2. Build flexibility into your operating model, both business and technology.
    • Prioritise investments which enable flexibility and provide options.
  3. Keep an eye on the market.
    • Learn lessons from other successful players (not just banks).
    • Watch for opportunities to acquire new products, skills, and capabilities.
    • Be open to partnership opportunities.
  4. Be clear how economic value will be derived:
    • Consider all levers — revenue, risk cost mitigation, and operational cost optimization.
  5. Establish a portfolio of plays and create a roadmap.
    • “Must haves” — typically defensive or high positive value impact under most scenarios.
    • “Watch points” — lower value with the option to delay action or change course.
    • “Big Bets” — uncertain direction and high investment/impact.

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