Digital banking holds the promise to transform financial services and improve customer experience. But the successful digital banks will have to put culture and mindset even before technology in order to be successful, according to Darren Thayre, Head, Digital Transformation and Digital Ventures for Google across Asia-Pacific, Japan and China.
Whether in mature or emerging markets, this requires a willingness to understand consumer needs and behaviours. In addition to the technology, it requires a business model and a product experience that appeals sufficiently to the consumer, and provides a banking experience that is embedded in a consumer’s daily activities.
Unravel: How much of digital banking is technology and how much of it is about culture and mindset?
Darren Thayre: Personally, I put culture and mindset before technology. The firms that are being and will be successful are the ones that really invest time and energy into understanding current and emerging consumer needs and behaviours. Even beyond banking, digital banks need to become lifestyle partners for their customers.
Technology is of course a critical ingredient. We all know that consumers are becoming more tech savvy and more services are moving online. However, the technologies that power even the most sophisticated banks are available at your fingertips with cloud providers now democratising these capabilities.
You can start a firm now and tomorrow be cloud based, using machine learning and leverage partner APIs to provide a service.
So, the technology itself is available, but first you need a business model and a product experience that appeals sufficiently. This will ensure consumers will onboard or even switch across. Then you need a seamless and phenomenal technology journey.
I would also say you need a culture of innovation. The pertinent questions here could be – how can you continue to challenge the way you do things? Can you challenge how you will make money tomorrow? Are you prepared to throw away what you already have in the quest to remain relevant?
Unravel: In your view, what is the greatest benefit to consumers of digital banking?
Mr Thayre: I speak from my own perspective when I say I never wake up and say “gosh I wish I had a better relationship with my bank”. People just don’t say those things.
I want to go about my daily life, whether it’s travelling to a place or being able to purchase something, and I want my journey throughout the day to be frictionless – dare I say, even pleasurable.
So to me, digital banking is most beneficial when it’s embedded in my daily activities and where I don’t need to leap out of that journey and add additional tasks/ visits to somewhere, just to complete my original objective.
I would estimate 99% of my banking activities are pretty generic. Sure, I have 1% of activities that are mortgage or investment related. They might even be the big critical items but, by and large, most of my banking interactions shouldn’t need me to talk to somebody or visit someplace. To me, that’s the number one benefit.
I would also add that for a decade, I’ve been underwhelmed with internet banking. Yes, it is better than what we had before, but can we honestly say it’s moved on as a customer experience to where it should be today? I think not.
So when I compare most digital banking experiences with online banking, there is a big difference in what I can do and how easy or hard it is to do.
Digital banking is most beneficial when it’s embedded in my daily activities and where I don’t need to leap out of that journey and add additional tasks/ visits to somewhere, just to complete my original objective.
I want a provider (of any kind) to be the one that thinks about my needs, and tunes its products to suit what I need.
Unravel: Is better user experience sufficient to bring in the retail customer? And the SME?
Mr Thayre: I think data shows us that better experience alone isn’t sufficient. If you look at the digital banks in Europe, they’ve had phenomenal user experience for a long time now – like materially better an experience than you see in most incumbent banks. But, they were slow to acquire customers.
Now they’ve built momentum and the customer numbers are increasing, but I believe that’s because they’ve coupled world class digital experience with innovative banking products and great technology capabilities.
Acquiring SME customers, where you are their main bank, is challenging. They often rely on their cash flow history, credit facilities and existing supplier/ client frameworks to run their businesses. In contrast to consumers who will experiment with another bank account or even two, I don’t think it is as easy to convince an SME to do the same.
I think for an SME, you need to be very specific on where you are targeting, both in terms of sector and also what size of SME. For example, there is a big credit gap in most markets around micro SMEs. In my experience, however, they are not necessarily digitised sufficiently where their preferred interaction with you is via an app.
It is important you understand your target market and how they behave. Only then can you build solutions.
Unravel: We’ve heard a lot about how traditional banks are well-placed to offer everything digital banks promise to, by tying up with fintech firms that can layer the banking services provided with their own offerings? What is your view on this?
Mr Thayre: There is definitely a trend towards this. Some banks are trying to build their own solutions to compete with digital only banks. This is possible, but you only need to read the book Innovators Dilemma to understand why this will create innovative tensions in the organisation.
You can’t not innovate if you want to stay relevant, so partnering with other digital firms sounds like a great opportunity.
I always say not all partners are born equal. What I mean is, do you want a technology partner who brings some capability or a service that you don’t have? Do you want a product partner, who brings a product you don’t want to build but you want to be able to add to your portfolio of offers? Or do you want a channel partner, say a method to distribute your offers to their customers?
Each requires a different operating model in terms of how you will collaborate and how sticky the relationship will be.
It is important you understand your target market and how they behave. Only then can you build solutions.
I think the concept is great, I would recommend that CEOs think about how their side of the collaboration can be separated to some degree from what they are doing today. In this way, you are free from legacy processes and technology investments.
Unravel: Would it be fair to say that digital banking can have far greater impact in emerging markets than developed markets, given many incumbent banks in mature markets already offer an array of digital services?
Mr Thayre: I don’t think consumer desire to use digital services is limited to emerging markets. I believe a great digital banking service has the opportunity to have an impact anywhere.
In emerging markets, you will see either less competition or at least competition at varying stages of maturity. This makes it a little easier to spot the leaders and the firms that stand out.
In mature markets, the incumbents have raised their game in an effort to fight off disruptions. Then you have a large number of fintechs and neobanks. You even have non-banking organisations like e-commerce and telcos who are stepping into this space.
The digital banking space tends to be busier. Customers have a lot more options at hand and these options have been around for several years.
I think the underlying consumer demand is still there, but the urgency from consumers to identify new digital banking services is probably lower in mature markets. Therefore, the growth in this space will continue to be healthy but it will lag Asia in my humble opinion.
Unravel: Do you expect digital banking in emerging markets to assume a different trajectory?
Mr Thayre: I think digital banking in emerging markets is really just starting to some degree. Depending on the market you look at, we’ve got some early leaders who have made tremendous progress.
There are still so many markets though where digital banking is just coming up as a theme.
Done correctly, digital banking is more cost effective to run than a traditional brick and mortar bank.
We will see incumbents continuing to experiment with opportunities to transform experience and with a view to reducing operating costs.
Emerging markets tend to be so entrepreneurial because of the adoption and maturity opportunities. I do not believe we have seen a plateau of new entrants and new product development in this space.
I also see that COVID-19 has accelerated the need to have digital offers. This is as true in emerging markets as it is in mature locations.
Unravel: What is the biggest challenge digital banks will be faced with in mature markets such as Hong Kong and Singapore?
Mr Thayre: Each market is different and each bank should devise its own product/ target customer strategy. It is therefore difficult to give one answer across locations and different types of digital banks.
Customer acquisition is one constant. For instance, how will you capture customers quickly and cost effectively when starting from zero – at least in terms of banking customers today?
You can spend a lot on marketing, but then it will be hard to run a lean operation and your path to profitability will be challenging. Also, this is not a long-term sticky loyalty solution.
You can offer better deposit rates, but then this is not sustainable in the long run. In my opinion, this is because your cost of funds will hurt your profitability. If you offer good rates to attract customers and then reduce them later, you will fall into the trap of “hot money” where consumers chase the best rate and aren’t particularly loyal.
So I always ask – what is it you do that you are the best in the world at? Is anything you do that is patentable or a unique user experience? Are you laser focused on a market segment and how does your branding differentiate you?
Darren is a digital transformation subject matter expert. He has worked with large enterprises all over the world on their digital plans and change programmes. He heads up Digital Transformation and Digital Ventures for Google across Asia-Pacific, Japan and China. Darren can now call upon the vast Google and Alphabet resources to help customers with their transformation journey. Previously Darren led a consulting transformation team in Amazon Web Services, where he was responsible for some of their largest digital transformations globally.