Six Keys to Building a Digital Bank that Delivers

In our recent blog post, we described digital banking strategies that are emerging from traditional and nontraditional industry players. Whether starting from bricks and mortar or monoline, here are six best practices to consider:

Clearly define success

Your institution’s drive to digital banking is indelibly shaped by your current channel infrastructure, ROE/ROA goals, product portfolios and customer bases. So, recognize that digital banking objectives are not all the same:

  • Regional banks are most likely to create digital banking platforms to expand banking operations into new geographic markets faster and cheaper than branch acquisition or build will allow.
  • Monolines, like credit card, financing or segment lenders, are most focused on reducing cost of funding and increasing diversification.
  • The top three are all about defense through offense, and leveraging investment capacity to maintain share and improve profitability.
  • Many are motivated by the chase for younger demographics.

And of course, some banks conclude that evolution is a better strategy than revolution, and focus on enhancing digital banking capabilities rather than launching standalone or sidecar digital banking units.

Get internal support for the development of a digital banking unit.

Change within many organizations – but especially banks, which tend to be conservative – often faces internal resistance from legacy structures, systems, policies as well as organizational inertia. For a digital banking unit to be successful, these internal barriers need to be identified and overcome. Key to overcoming this resistance include:

  • Getting senior management buy-in and active support
  • Ensuring that all relevant bank departments are included in the unit’s design, launch and ongoing rollout
  • Implementing an internal marketing program to gain widespread understanding and acceptance of the new unit

Develop a digital banking unit road map.

Most digital banking units start with a high-yield savings account. Then there is usually a lull before a new product (such as a checking account or a lending product) is added. This delay is due to a number of factors:

  • Banks often create these units with a narrow focus on growing deposits. CIT launched an online bank in October 2011, and its product portfolio consisted of savings accounts and CDs until November 2019, when its launched eChecking (a digital checking account). In the same month, CIT described its digital bank as a “nationwide digital deposit franchise” in an Investor Update.
  • Banks want to analyze how units are performing (in terms of customer acquisition, customer attrition, deposit growth, etc.), what marketing approaches and offers are most effective, and what roadblocks have been encountered.
  • Banks tend to focus investment and energy on the initial launch and not enough on the post-launch period.

This delay in launching additional products can be addressed by creating a rollout plan that also covers the post-implementation period. The plan should include comprehensive feedback mechanisms for providing actionable intelligence to all relevant departments, which in turn improves turnaround times for technology fixes, new product introductions, offer development, and follow-up marketing campaigns.

One bank that has shown the way in rolling out new digital banking products is Citi. In launching a digital-first approach outside of its light branch footprint, one of the bank’s primary objectives was to cross-sell banking products to its huge credit card customer base. In 2019, it launched Citi Accelerate Savings, two lending products (Flex Loan and Flex Pay), and Citi Elevate Checking (a digital high-yield checking account).

Create and launch an integrated marketing plan.

While the technological, operational and product-related issues around the development of a digital banking unit are hugely important, the bank’s marketing department should also be involved in the initial design and development of the unit. Marketing needs to develop a marketing plan that covers:

  • Branding: determining how closely the unit should be associated with the parent bank, and developing a brand and branding guidelines.
  • Targeting: identifying and profiling target segments, and creating a plan to reach them.
  • Media: determining the optimal allocation of investment in traditional and nontraditional marketing channels to reach and engage with targeted consumers.
  • Messaging: developing messaging that both highlights your digital bank channel’s key selling points, and tackles perceived concerns, such as security and privacy. This messaging should be consistently expressed through various media channels.
  • Offers: testing and refining a range of offers (acquisition, cross-sell, referral, etc.) for different segments.

Once this plan has been developed, the bank then has to devote equal energy on the development and implementation of specific marketing initiatives, which should include testing various program components to get feedback on what is working – or not – with a focus on speed and flexibility.

Integrate your digital and human channels.

Even as many consumers move to digital channels for their everyday banking (and even for more complex financial transitions), these consumers continue to prefer a channel mix that includes digital and human components. This is a key advantage that traditional bricks-and-mortar banks will continue to have over digital-only banks, so they will want to leverage digital-human channel integration.

  • PNC is following a digital-first approach outside of its footprint, supported by a very thin branch presence (“solution centers”) in selected markets. In a December 2019 interview at the Goldman Sachs U.S. Financial Services Conference, PNC’s CEO Bill Demchak claimed the bank has been “really surprised to the upside on how important those solution centers are…. We’ve accelerated the solution center build, and we’ll do more than we originally assumed.”
  • Santander Bank’s planned digital bank is expected to operate initially within its footprint, so it will need to coordinate efforts with the bank’s branch channel (and avoid cannibalizing existing clients). In a November 2019 American Banker article, the bank said that the account-opening process will be entirely digital, but clients will be able to access accounts through the branch if they choose.

Build a compelling customer experience.

Even for the most tech-savvy consumers, conducting their banking operations primarily through digital channels is a relatively new phenomenon. While consumers are attracted to the speed, ease and convenience of performing banking tasks online, they remain reluctant to fully commit to the digital channels for all their financial activities (e.g., acquiring new products and services, discussing sensitive financial matters). Banks can in part address this concern by providing the option to engage with the bank through a physical channel. Banks can also build consumer trust and engagement by providing a digital experience that incorporates user experience (UX) design, personal financial management (PFM) tools and content, as well as access to customer support via social media, phone and/or live chat. In a recent ABA Banking Journal article, John Rosenfield, president of Citizens Access, claimed that “designing an excellent customer experience was the highest priority” in creating a digital bank.

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