Banks have been called out as archaic and slow for the past decades. Decades ago, in 1989 in Germany, a highly reputable member of the management board of Deutsche Bank, Ulrich Cartellieri, branded banks as the steel industry of the 1990s. This warning was barely taken seriously at that time and even multiple crises in the banking sector, whether regionally or globally, seemingly left the business models of banks rather unchanged. Beyond a normal evolution of products, technologies, and work environments, not much has changed.
Over the past decade, the appearance of fintech companies seemed to finally push traditional financial institutions to the brink of extinction. Driven by allegedly disruptive technology but fueled by an incomplete understanding of the function of the financial service sector and outrageously cheap funding, many of those FinTech companies disappeared over the past year as quickly as they became recognized.
Yet, the banking sector now finds itself at the forefront of digital innovation. As customer expectations evolve and the demand for seamless, personalized experiences intensifies, it has become clear that the time for digital transformation in banking is now.
At Q-Lana, It is our mission to strengthen financial institutions to provide better and more impactful financial services for customers. We achieve this through a focus on knowledge-based lending while emphasizing the human aspects of digitalization. Our work is focused on a combination of technology and advisory to ensure that the concepts and tools we offer are well implemented and meet our client’s expectations.
One of our goals is to demystify complex topics around technologies and financial services. As usual in new business sectors, buzzwords and jargon create a layer of confusion around often very simple and logical concepts. Let’s start with an easy one.
Expressions that are often mixed are Digitization, Digitalization, and Digital Transformation:
Digitization strictly describes the process of converting information stored in analog formats like paper, voice, or pictures into a digital format, so that computers can store, understand, and treat this data. Most Financial Institutions have been actively digitizing their activities for decades: implementing systems such as core banking software (CBS) or management information system (MIS) to store and automate the processing of business information. Digitization lowers turn-around-time and can overall improve the portfolio quality due to a more systematic and optimized collection, processing, and analysis of customer business data.
Digitalization refers to providing financial services via digital channels. This can be achieved by Financial Institutions on their own or in partnerships with other firms. Digital Financial Services (DFS) can be offered jointly with e-commerce providers and payment services providers (PSP). Mobile Network Operators can be partners with their mobile wallets. Let’s have a look at an e-commerce platform set up by a Financial Institution:
This case is about a Financial Institution with strong retail operations in a fairly mature market. To promote interaction between its individual customers and its micro-, small- and medium-sized enterprise (MSME) customers, the bank offers its MSME customers the possibility of setting up an e-shop as a value-added service for MSME customers, and accepting digital payments (e.g. by cards) when selling their goods and services to, for example, individual customers. Individual customers can also shop at these MSMEs using a consumer loan streamlined to the online sales process thus expanding the volume of the bank’s activity.
Finally, let’s talk about Digital Transformation: Digital transformation is a longer-term evolution of the nature and business of – in our case – Financial Institutions. Digital Transformation will radically change how banks operate, what their business lines look like, and how they will interact with the whole financial ecosystem. We expect that subject to local laws and regulations, within the next decade, most FIs will have to transform, open their systems, and learn how to cooperate with other sorts of (hybrid) firms, fintechs, and others.
One obvious and already existing novelty is ‘open banking’: FIs provide their existing infrastructure and systems “as a service” to different types of non-regulated companies (e-commerce portals, PSPs, insurance companies, cryptocurrency exchanges, remittance service providers, etc.). More and more countries will navigate towards this.
Overview of this Blog:
We have developed this blog to guide financial institutions through the topics of Digital Transformation and Business Strategies. In the next 9 chapters, we address the items that we consider most interesting and relevant. Here is an overview of each chapter:
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- Steps to prepare for Digital Transformation
- Are you Ready for Digital Transformation?
- Developing a Business Strategy
- Customer Centricity
- Managing Risks is part of your Strategy
- Data Analytics in Financial Institutions
- RAROC, Risk Appetite and Relationship Pricing
- Q Lana’s Open Code Base Open Banking Platform
- Risk Sharing Concepts
We invite you to follow the blog in that sequence to jump to the chapters that interest you most. Each chapter also has a video version. The links are provided. We hope that you enjoy this series and that you find the content interesting and inspiring. We look forward to hearing your comments
Please find the link to the first video below.
