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Banks Spend Billions on Digital Initiatives. Why Aren’t They Winning?

Most banks have high priority digital initiatives. But they are still falling further behind in customer satisfaction. In this blog, I will explain and propose steps pathfinder banks can take.

Banks understand the need to offer attractive and differentiated products to their consumer and business customers. Banks know that they must standardize across their channels. They know that customers expect the simplicity and power of an online experience similar to Google and Apple.

Customers, especially Millennials, expect more. Why aren’t banks able to keep up? How can banks begin reversing their downward trend?


So much data, so little insight

Banks have a huge advantage over any other financial services provider. Banks have vast amounts of customer data. Know Your Customer regulations require them to collect personal data. Banks conduct risk checks when enrolling customers on a new product, using a deep set of customer financials. Transactional data reflects customer behavior. Customer service interactions reveal customer intentions and areas of chronic problems—opportunities for new or improved products.

Banks can also access public data from third-party databases and social media. Compared to other industries, banks should have an absolute lock on knowing and meeting customer expectations. Using the data that they already have, banks should be paragons of digital marketing, interactive customer service, continuous product development, and the application of customer analytics in driving innovation and “fair and earned” profitability. Yet most established banks fail to use their data fully in any of these ways.

Why is that? As a 30-year veteran in product innovation and IT services for Banks, I suggest that the following factors hinder banks from leveraging their data:

  • Fragmented: Data spans  many systems, technologies and business units
  • Duplicative and inconsistent: Local data representations arising from different business purposes and use cases
  • Stale: Many banks still operate core data systems in batch mode, resulting in delayed transaction data. This puts Community banks especially are at the mercy of their SaaS vendors.
  • Unreliable: Chronically underfunded data quality management. Few if any Banks know with certainty that a dataset is current, complete and accurate
  • Inaccessible: Huge swaths of data remain buried in outdated and inflexible database structures

As a part of a bank’s digital initiatives, a significant investment must be made in its data: Master Data Management, data quality, Big Data management, data governance, business intelligence and data analytics and visualization.


A Legacy Isn’t Always Valuable

“Legacy” has been a dirty word for years around banking technology. It conjures visions of aged IBM mainframes and green screens, piles of COBOL program printouts, and entire floors of disk drives. In practice, most of that is long since gone. But the factors that led up to it still impact Banks.

Mergers: larger banks’ technology infrastructures have rarely been purpose-built. Rather, they have been assembled in Heath Robinson fashion from the remnants of different banks acquired or merged with over the years. Architects have been asked to use middleware to make it all work together. In fact it does remarkably well, considering. But what if you asked your child to make a complex model, using partial Lego sets from older siblings? And then what if you compared your child’s model with the rich kid next door who got every kit they’d ever wanted? Banks operate in an equally unlevel technology playing field.

Product Silos: Typically, banks have developed technology for divisional or departmental needs. Architects often had an enterprise view in mind. But massive complexity in meeting the diverse needs of different customer segments prevented it. Short- to mid-term investment priorities prevailed. So too did differences in organizational and technology vision; regulatory demands; and differences in market expectations.

Channel-Centric: Even when there was enterprise development, it suffered from differences across channels (branch, ATM, web, phone, mobile). More than a decade ago architects were pushing for channel-independence in the way applications were built. But products were defined within the context of a channel, and technology had to follow. More recently, customer expectations have driven a complete rethink of channel strategies and now banks have to play catch up.

Banks need to prioritize spending on infrastructure to release customer functionality from silos and channel-dependency in order to create Omnichannel capabilities.


It Is Hard to be a Bank

Well, surely not! After all banks have the customers, the capitalization, the capabilities, the expertise, the experience, the trust and the markets. Don’t write them off yet. However, aren’t they seeing profitability eroded by non-traditional competition? There is some paranoia particularly in the UK and Europe about challenger banks. But the US has dealt with them for decades - there are still well over 6,000 Federal or State chartered banks, many of them “new kids on the block” established for a particular niche, and yet the biggest banks are doing just fine thank you very much.

It is true, though, that other players are starting to eat into customer bases in commodity areas such as payments, low cost investing, personal financial management, and consumer lending. The impact on bank profits may not be that high yet, but it is growing. If banks don’t act to reverse the trend, the profit impacts will become more and more significant.

Banks must actively explore partnerships with Fintech and other non-bank players. This must be done in ways that will not erode their relationship with their customers.


Banking is a Messy Business

Wherever you turn in a large commercial bank, you come across exception processes. When I was building wire transfer systems in the 1980s and 1990s, I reckoned that 90-95% of the developed code was to deal with exceptions – little more than 10% for the “normal” processing paths.

This is why so many bank processes are still not fully automated, especially in the middle and back office. Even in the front office some processes are still very manual (such as loan documentation, or onboarding of new commercial customers).

Manual processes increase operating expenses. They cause delays, possibilities for error, and duplicative processing. Audit trails are also often incomplete as a result, and customer service after the fact becomes problematic.

Banks tend to see investment in operational process improvement as a low priority. They should take a strategic view of enterprise process. They must consider the impact of process on responsiveness, customer sensitivity, and regulatory compliance, in addition to the standard concern about cost.


Customer Service is not an Oxymoron

Customers want self-service. But they also want the option to use a branch or other customer service channel for more complex issues. Customers want lots of features, consistent online experience, and so on. But most important of all is the human interaction.  Banks have tremendous work to do to catch up with the best organizations. There are several issues.

Customer service reps don't have what they need. CSRs should have access to all transaction and interaction history. They need tools that allow easy analysis of what may have gone wrong. When the call comes in, the CSR should be able to see exactly what the customer has just been doing. The data is there, but the systems to use it are not.

Inadequate staffing: Customer Service inefficiencies lead to high costs, which are band-aided with reduced or less knowledgeable staffing. This means that customer wait times and abandonment rates are far too high.

Support channels are confusing. Getting answers online can be frustrating, but navigating telephone menus is sometimes maddening. The technology exists but most banks haven't integrated it.

Customers want more self-service. Banks must allow customers to manage their accounts and transactions. They need to offer intuitive ways to do so. Many still do not, particularly in mobile channels. This increases dependence on human interactions, and diminishes customer experience for relatively simple activities.

Customer service does not directly increase revenue. Yet banks must see a correlation between servicing deficiencies and lost customers.


Regulation: Asset or Liability?

Some customer frustrations result from banks’ obligations to their regulators.

AML/Know Your Customer: A recent study suggests that due to KYC requirements, average customer setup time is nearly a month. Setting up a new multi-national business can take months of research, hundreds of pages of forms, and many levels of approval. But banks could do better, given better use of data and technology, and streamlined business processes.

Data regulations can get in the way. They impose constraints on what data can be kept, what can be shared, how it must be protected, and how it can cross geographic borders.

APIs: Particularly in Europe and the UK, banks are expected to open up their data about customers. Europe’s second Payment Services Directive provides for development of a common standard API. The XS2A provision aims at giving access to basic customer data throughout the Euro zone. This will be good for customers. But for the banks it will be yet another distraction from improving customer experience. The US banks especially have barely started on this journey.

Investment: Worst of all, new regulations eat up bank investments in technology and process. This takes attention away from customers, unless regulatory efforts can be leveraged to improve customer capabilities.  

Banks must aim to meet regulatory demands in ways that also improve customer experience. For example many banks have initiated Master Data Management projects to improve regulatory reporting. Customer data MDM should also yield better customer service, marketing and analytics.


Protect My Data!

Banks are experts at data security and privacy. They have had to be. Some of the finest experts in data protection work for banks. But all of this comes at a cost and it all delays delivery of customer functionality. And it still isn’t perfect, and never will be.

Security concerns also constrain large banks’ willingness to use cloud-based computing services. They also make outsourcing, white labeling and other partnering models more risky and difficult.

Banks should insist upon partner compliance with industry security and privacy standards. These include international standards such as ISO 27002 and  PCI DSS as well as country standards like HIPAA.

Fintech vendors seeking to partner with banks should ensure they are compliant with all standards that a bank must meet. They should also welcome collaborative testing (e.g. black box and white box penetration tests) from their bank customers.


How Will Banks Adapt?

There is no magic bullet, and no easy path, no matter how much investment is thrown at a bank’s IT infrastructure. For one thing the challenges are by no means restricted to technology – changes in the whole banking culture will be necessary.

The successful banks will be those who make strategic investments in enterprise-wide incremental change. They will identify partners who can help them to

  • manage and utilize their data
  • deliver customer-facing functionality
  • streamline their regulatory reporting burden
  • outsource non-core activities

Banks will particularly look for partners who understand the banking industry, and banking product domains. Banks do not have the time or resources to educate or re-position their partners.

Banks must manage their partnerships while considering several factors. Partnerships introduce third-party risk (including information security, privacy and regulatory compliance). Third parties can compromise ownership of the customer relationship. They also have implications for operations and servicing. And they dilute already tight product profitability.

But banks that do not partner well will ultimately not thrive.

Gone are the days when banks set customer expectations. But banks are capable of being customer-aware and sensitive to customer needs and expectations. They can still predict and respond in creative ways. They have the resources – they just need help from Fintech and other partners to use their resources to best effect.

Future blogs will explore ways in which Fintech firms can play a significant role in banks’ journey to become what customers of all types want them to be.

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Comments: (5)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 23 March, 2016, 17:46Be the first to give this comment the thumbs up 0 likes


According to GonzoBanker article


  • Yet while the demos and screen shots at events like Finovate have provided fascinating fodder regarding the future of digital banking, the FACTS show that these buzzworthy players (such as Simple, Moven, GoBank and BankMobile.) have had INFINITESIMAL IMPACT ON MARKET SHARE.


You call that not winning? I don't.

Graham Seel
Graham Seel - BankTech Consulting - Concord 23 March, 2016, 17:58Be the first to give this comment the thumbs up 0 likes

interesting article, Ketharaman. Of course deposits grew massively between 2009 (the absolute banking low point in recent years) and 2015, and yes for sure the biggest banks did best at recouping deposits. Deposits aren't such money-makers in a very low interest margin environment however. Banks will survive the current competition. However, for millennials and high net worth individuals - the two most sought after consumer segments - banks are struggling to keep up with today's expectations. Digital banks are doing very well in these segments, not least because of their ability to integrate good Fintech apps, products and services. If the established banks don't act to partner with Fintech, and transform their technology infrastructure and responsiveness, they will continually see revenues and profits nibbled away at. It will take years, yes. But without action it will come.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 23 March, 2016, 18:56Be the first to give this comment the thumbs up 0 likes

No, but the point of the GonzoBanker article is digital banks are NOT at all doing well. If they were doing well, they should be raking in the deposits, right? Why aren't they doing that? How many other types of fintechs are money-makers, anyway?

Talking about Millennials, there's a prevalent school of thought that Millennials are so badly weighed down by student loan debt that they're not a great market for financial products. To quote Forrester Research analyst Sucharita Mulpuru in this Bloomberg article, “There’s this obsession with millennials. The truth is millennials aren’t spending any money with anybody because they don’t have any.”

Going by partnership announcements in the recent past and the present, fintechs need banks more than banks need fintech. e.g. TransferWise ( I've come across so many predictions about cash, branch and mobile wallets failing so miserably that I now consider any years-ahead predictions to be no better than idle speculation.

Dharmesh Mistry
Dharmesh Mistry - AskHomey - Reading 24 March, 2016, 09:161 like 1 like

I also disagree. This has nothing to do with established banks versus startups, big banks versus small banks.

Take Lloyds and BBVA for example, they are over 100years old, huge and LEADERS in digital based on fundementals AND INNOVATION. Their mastery of data is beyond startups.

Kethermaran has a solid point. Name a real startup bank with over 1m customers thats making money (i.e. will survive). While we're at it name a Internet ONLY bank launched in the last bubble that has survived and wasn't part of a larger bank?

Building socities and small banks may well disappear, as will 90% of todays FinTechs, unless they have a solid business plan backed by a sustainabe strong customer proposition.





Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 24 March, 2016, 11:161 like 1 like

@DharmeshMistry may have been in a hurry but he was not in the wrong. According to this recent McKinsey article:

"The last period of significant technological disruption, which was driven by the advent of commercial Internet and the dot-com boom, provided further evidence of the resilience of incumbent banks. In the eight-year period between the Netscape IPO and the acquisition of PayPal by eBay, more than 450 attackers—new digital currencies, wallets, networks, and so on—attempted to challenge incumbents. Fewer than 5 of these challengers survive as stand-alone entities today."

Graham Seel

Graham Seel

Principal Consultant

BankTech Consulting

Member since

17 Apr 2015



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