The Future of Digital Banks is not Banking

If we are simply relying on such achievements to claim our bank a digital bank, then we are missing the point.

In recent decade we have been witnessing the advancement of digital technologies such as mobility, cloud, artificial intelligence (AI), blockchain and internet of things (IoT). These technologies can create both challenges and opportunities for innovations in banking business models. Such innovations, as discussed earlier, must not only focus on cost-efficiency, but rather they should strive to improve existing products and services. Taking it further, the innovation should aim at creating new revenue models.

Let’s look at the internet of things. Internet of things is a network of smart devices that is connected to the internet. Nowadays the number of smart devices connected to the internet is massive. In 2015 there were roughly 6 billions IoT connections and by 2020 it is expected to grow more than double to 15 billion connections. Research from McKinsey and Company also estimates that cross industry potential impacts of IoT can reach $11.5 trillion per year by 2025, of which the retail sector impact is estimated up to $1.2 trillion per year. While investments in IoT are still dominated by internal business needs – largely made up of investments in the manufacturing, natural resources and utilities industries – we are now seeing growing IoT initiatives for the retail customers, including in the financial services.

In financial services, IoT has been used primarily to make retail transactions and cash in/ out more convenient. AmazonGo is probably one of the most recent example of how smart sensors with image recognition capabilities are used to track and validate purchases in Amazon’s unmanned groceries stores. In the banking context, IoT has been used to get customer fitness and health data through fitness trackers. The data can then be synced to the customer’s digital banking app to later determine their health score and the associated rewards. A similar approach has been introduced earlier in the insurance industry to create dynamic insurance policies based on customer behaviors and lifestyle. All the aforementioned examples are not hypothetical examples – they are all real examples from the industry.

Reflecting from the IoT implementation in banking, we should be optimistic that banks can do a lot more to reinvent its business models. With the help of technologies, we can do more than just automating and digitizing our internal processes and then exposing them to the internet. A digital bank must rethink and reconstruct its engagement models with the customers to make their financial life easier, faster and safer. When such a digital bank has become the norm, traditional banking services will be operating transparently and reliably in the background while the digital customer touch points will support seamless customers experiences either within banking or through its extended ecosystems (Fintechs, 3rd party apps) going beyond banking.