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Don’t Just Digitalize, Componentize!

“The limits of my language mean the limits of my world,” said noted philosopher Ludwig Wittgenstein. He understood that any language contains walls, and that speaking a language restricts your thought and mind to a specific format. In this blog we consider whether banking is limited by its own lexicon.

The Inuits are said to have 50 words for snow, while Americans have 13 words for one type of sandwich. Language always reflects culture, and banking is no exception. In decades past, when bank personnel talked about networks, they usually meant a physical branch network where customers came to transact, receive advice and choose from a range of branded products. Speak of networks today and we’re generally referring to a function of technologies that deliver many banking services at scale in real time from multiple providers.

Time Travel: From Branches to Channels to Omnichannel to ...

Technology continuously drives change throughout banking. In the beginning the focus was branches, then new devices and options were added reflecting the technology of the day: ATM, call center, online and mobile. Banking aligned itself with other industries in calling these vehicles “channels,” describing the way products were transferred from the point of manufacture to the point of consumption. Over time, bank channels were revered as a shorthand for a bank’s brand and business strategy.

The relentless progress of technology has empowered customers to interact with their bank on whichever channel they wish, using their technology of choice – phone, mobile, text, email and so on. Banks have invested heavily to standardize the customer experience: hence the birth of omnichannel banking – a term in the banking lexicon that has been the subject of much debate. Huge investments have been made to reengineer bank platforms to offer a consistent customer experience across all channels. Just Google “omnichannel banking” and you’ll get millions of hits. But while the investments and achievements are commendable, they may not be enough to insulate the bank from the journeys that lie ahead.

Bye Bye Omnichannel, Hello Experience

A trouble with omnichannel banking is that it assumes customers will continue to behave in the ways they always have. When they want financial products, they would make the effort to find them using banking channels that are owned, managed and branded by banks. Although some will do so, the days of this type of omnichannel banking are numbered.

In the banking lexicon, we now recognize “experience” becoming paramount. Customers are starting to expect banking services to become “embedded in their world” and products to be offered in context of their situations. For example, when someone wants to purchase a house, the cost of finance – and financing options – should be offered in the context of the house search and not require a separate hunt for financing.

One of the aims of open banking is to encourage financial providers to align financial services with the way people think and act. The future of banking must revolve around the customer experience rather than an arcane omnichannel marketing strategy. Modern technologies enable banks to anticipate, predict and fulfil customer needs; one day all banking will be done this way. Banks that fail to acknowledge this may wind up on the wrong side of history.

But it’s not too late for incumbent banks to act. And in fact they hold many advantages to help make the transformation successful: loyal customers, strong balance sheets and unmatched banking know-how.

Let’s explore some of the opportunities…

Bank or Brand?

With the advent of open banking and all that entails, banks and other financial services providers can no longer assume they “own” the customer relationship. Just look at the success of PayPal, which has built payments success without a network by placing its own brand between the payment provider and its customers. A PayPal payment is a PayPal payment regardless of the card or bank behind it.

Banks as Aggregators

At a fundamental level, banks must decide how they want to participate in an evolving digital ecosystem. They have the option to open up their channels to other participants and offer a range of value-added services under their brand. They may also offer their own products and services through third-party channels to reach new markets where they have no physical presence. Open banking is already generating new alliances, partnerships and business models – the age of competition is also an age of collaboration.

Making it Happen

Open banking is almost synonymous with the application program interface (API). This is the prime technology that enables the exchange of data in real time and the plug-and-play integration of financial functions – such as payments – into third-party apps.

Many banks in global locations are compelled to implement open banking by legislation. Bank digitalization is progressing apace in global locations. But smarter banks are adopting a fully componentized architecture so individual bank services can be distributed through third-party channels; likewise, third-party services can be integrated to bank channels, apps and services.

Why is componentization so important in modern open banking?

With a component-based approach, capabilities are separated into discrete components that each perform a specific function. Componentized solutions can be seamlessly integrated, creating a slimmed-down, nimble, flexible core. Each component can be upgraded or replaced individually without disrupting other bank functions or data. Componentization allows for targeted or holistic banking modernization that supports the bank’s business objectives right now, and advances them far into the future.

The age of componentized and embedded banking is fast approaching – and likewise our banking lexicon is growing and evolving with the times.


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