Volume 7 (2022-23)

Each volume of Journal of Digital Banking consists of four 100-page issues. Articles scheduled for Volume 7 are available to view on the 'Forthcoming content' page.

Volume 7 Number 2

  • Editorial
    Simon Beckett, Publisher
  • Papers:
    How can new tools and technology such as artificial intelligence encourage new ways to communicate in the world of prudential regulation?
    Helen Packard, Digital Transformation Lead, Sholthana Begum, Head of Innovation and RegTech and Melvin Lopez-Corleone, Senior RegTech Specialist, Bank of England

    This paper sets out how emerging technologies, such as artificial intelligence (AI), can enhance the supervisory efficiency of a modern regulator. The growth and complexity of data present both an opportunity and challenge for global regulators within the data-driven financial services landscape. The need to communicate and use data presents a skills evolution and optimisation for regulation and society. This paper includes a case study on how introducing an AI search and analysis tool has provided the Prudential Regulation Authority (PRA) at the Bank of England with a vast array of new and exciting insights.
    Keywords: artificial intelligence, digital skills, supervision, communication

  • Leveraging FinTech partnerships to develop niche markets for growth
    Linda Hamilton, Executive Vice President and Chief Operating Officer, Iroquois Federal

    Mobile apps and flashy websites are not enough for banks to retain relevance in an age of increasing personalisation of the digital customer experience. To build the innovations required for ongoing growth, banks should look beyond their local market to opportunities presented by a boundless digital age. In 2020, Iroquois Federal set out to grow its customer base and revenues by targeting a very specific audience — individuals who have recently married, will soon marry or who are in a committed relationship. Although the landscape is rife with digital tools for niche markets, Iroquois Federal identified a unique opportunity to tailor services and benefits to this underdeveloped audience segment. The largest group of consumers soon to wed are young, and many lack financial education. Studies show that 92 per cent of Millennials want to improve their money management skills and newly-weds whose financial literacy lags are at a vastly higher risk of divorce. To support and engage these customers while expanding its revenues, Iroquois Federal partnered with a FinTech service provider to launch Hitched, a financial planning app. With thousands of customers already signed up, Hitched is proving that niche digital markets can provide valuable outcomes for consumers and for banks willing to innovate in order to reach new heights.
    Keywords: FinTech, FinTech banking, FinTech solutions, digital banking, niche banking examples, digital niche banking, digital banking apps, digital banking services, digital banking trends

  • How hyper-personalisation is fuelling digital banking’s second wave
    John Waupsh, Co-founder and CEO, Nerve

    Financial services organisations will live and die by audience connection. In a world where one’s customers (and even prospective customers) double as brand ambassadors, digging into the details and understanding their mindset is important. With a wide-open playing field unencumbered by geographical boundaries, market entrants cannot afford to be niche averse. This paper dives into the need for neobanks and traditional banks alike to embrace personalisation and market niches to build trust and grow their business. The paper provides examples and suggestions for financial service leaders looking to build stronger experiences with their customer base through hyper-personalisation.
    Keywords: digital banking, niche banking, neobanks, customer experience

  • Establishing a strong digital foundation for a 150-year-old building society with business process re-engineering and RPA
    Jay Venkateswaran, Business Unit Head, Banking & Financial Services, Hi-Tech & Professional Services, WNS

    Banking and financial services organisations have been at the forefront of digital transformation. The success rate, however, has been uneven. Digital transformation discussions are often hijacked by conversations around the latest technologies and ignore the building blocks on which these technologies must rest. Moreover, initiatives that are not rooted in the organisational vision and that lack a well-thought-out framework are likely to miss their goals. Yorkshire Building Society (YBS), a 150-year-old organisation based in the UK, took measured steps to embrace digital as a way to reaffirm its commitment to its core businesses of mortgage and savings. The challenging market conditions, largely owing to disruptions caused by FinTechs, led YBS on this path. High dependence on paper-based processes made the business slow, adding unnecessary layers of complexity. YBS wanted to inject agility and efficiency into its operations with digitisation and process automation and lay the groundwork for transformation. The YBS story shows how a deep understanding of business challenges must influence the choice of technology and the approach to transformation. A successful framework must be structured around the critical building blocks and leverage the interplay of technology with process, people and culture to create cumulative outcomes. Here are a few takeaways from the case study: • Customer, and not technology, should be placed at the heart of digital transformation. • Business process re-engineering and robotic process automation (RPA) must go hand in hand for greater outcomes. • Small step changes can become a force multiplier as processes are automated and the foundation for speed and agility is established.
    Keywords: digital transformation, mortgage industry, automation, robotic process automation, process re-engineering

  • Closing the experience gap in banking: Humanising customer experience in four dimensions
    AnnMarie M. Bridges, Associate Director of Strategy and Brian Elkins, Executive Director, Monigle, Kerry Gross, Director of Research Intelligence, Arizent and Brendha da Silva, Analyst, Behavioral Insights Group, Monigle

    In the rush to translate analogue interactions into the digital space, many financial institutions (FIs) skipped a step. They failed to define the holistic customer experience (CX) — the subjective thoughts, feelings, sensations and actions — that they want their tools to generate. This is a significant oversight, because a decade of developments in the behavioral and social sciences have demonstrated that business returns accrue from ensuring that brands engage not only the intellectual but also the emotional, sensorial and behavioral dimensions of human experience. In this paper, we present the first model designed to assess multidimensional experience in the banking sector. The humanising customer experience (HCX) model, developed by brand experience agency Monigle in partnership with American Banker, predicts 78 per cent of bank customer satisfaction and net promoter score (NPS). It measures more than 60 variables, crafted for their relevance to the financial sector, which together create the four dimensions of experience that are proven to drive important customer outcomes. By revealing the dimensions and attributes where FIs are currently lagging, the HCX framework offers newfound precision in directing future CX investments. The inaugural year of data, from 2021, shows that FIs are strongest in delivering on behavioral and intellectual experiences, while trailing in sensorial and emotional dimensions. After outlining the social sciences backdrop of this model and explaining its predictive power, we discuss several areas of industry focus where lopsided investments have led to less than fully humanised CX. We conclude that banks need to design experiences that yield emotional benefits, move from providing self-service tools to supporting customers’ financial self-actualisation, and approach services from a fully interactional rather than transactional perspective.
    Keywords: customer experience, digital experience, brand experience, trust, frictionless, self-service, consumer insights, experience economy

  • Artificial humanity: Smart tooling to implement the human touch in digital investing
    Jürgen Vandenbroucke, Director, everyoneINVESTED

    In recent years, the accessibility of investment services and the business impact of digital distribution channels have drastically improved. The rapid growth in financial technology is one explanation. But this is insufficient. Performing digital investment processes grow beyond cold automation. Equally important, therefore, is the content-driven innovation in methodologies that help understand and anticipate human behaviour. This makes digitisation more successful in the absence of adviser assistance. Government agencies and regulators show a growing interest in this field. Accessibility of investment services is welcomed as it promotes financial inclusion, but it could equally add to systemic risks. Content-driven innovation that delivers technology in support of conscious decision making aligns financial inclusion with digital literacy and investor protection. This paper equips financial professionals and decision makers to spearhead this evolution.
    Keywords: digital investing, behavioural finance, risk aversion, loss aversion, portfolio management

  • Central bank digital currencies: From design to issuance and distribution — A case study of China’s sovereign digital currency
    Hui Gong, Lecturer, Harry Thapar, Head of School of Finance and Accounting and Ann Thapar, Principal Lecturer, School of Finance and Accounting, University of Westminster

    There has been an increasing volume of research and discussion on central bank digital currencies (CBDCs) over the last four to five years, but no central bank of a sovereign country has been able to launch its national digital currency on a large scale. This paper uses China’s national digital currency (digital currency electronic payment, DCEP) as a case study to explore the growing pains of launching a new digital currency. Our findings reveal that central banks need to design CBDCs with an eye to not only technological innovations but also business values and priorities that underpin monetary policies and operations of their country, together with effective circulation of money flows in the economy. This paper proposes three innovations: first, it shows the difference between digital wallets and bank accounts and sets different real-name authentication requirements for the respective users. Second, it suggests replacing the existing ‘know your customer’ with a ‘know your coin’, thus protecting user privacy and commercial viability while satisfying the Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) requirements. Third, a 1+M+N operating mechanism is recommended to substitute DCEP’s existing two-tier operating mechanism, and the justification is provided.
    Keywords: central bank digital currency (CBDC), digital currency electronic payment (DCEP), Blockchain

Volume 7 Number 1

  • Editorial
    Simon Beckett, Publisher
  • Papers:
    How does the decision to build, buy or partner fit into a winning innovation strategy?
    Malin Lignell, Vice President, Digitalisation and Innovation, Svenska Handelsbanken

    With an increasingly fragmented market for financial services and customers’ expectations influenced by their experience in other industries as well, innovation is also crucial in the financial sector. Polishing user interfaces and making existing services available in digital channels will not suffice. This paper focuses on different aspects and perspectives for a winning innovation strategy and cultural and contextual preconditions that will affect your decision to build, buy or partner as part of that strategy. Based on ISO Standards for Innovation Management and a chosen theoretical framework, you will learn how the culture, values and context of a 150-year-old bank affect our innovation process, what is on our Trend Radar for emerging technologies, and how we use this as a tool to choose what to do — and what not to do. Our Digitalisation & Innovation team are ‘pioneers and settlers’, and our success depends on how well we collaborate with our brilliant ‘town planners’. An example of radical innovation activities is an ongoing initiative regarding central bank digital currencies. This is a good example of a joint venture between different parts of the organisation as well as with external partners. There tends to be a perception, sometimes, that partnering for innovation is equivalent to partnering with or investing in FinTechs, including start-ups. It needs to be viewed much more broadly than this. The factors that will ultimately decide whether you have a winning strategy or not depend on the context in which, and reasons why, these decisions are made. And in the end, it will be customers who decide whether your innovation strategy is a winner or not.
    Keywords: innovation, innovation management, innovation strategy, build, buy, partner, value, culture, ISO 56000

  • Leveraging conversation AI to better enable the customer journey: A practical guide to deploying chatbots at financial institutions
    Benjamin Maxim, Vice President of Digital Strategy and Innovation, MSU Federal Credit Union

    The global conversational AI market size is projected to grow from US$6.8bn in 2021 to US$18.4bn by 2026, at a compound annual growth rate (CAGR) of 21.8 per cent during the forecast period. The major factors driving the growth of the conversational AI market are the increasing demand for AI-powered customer support services, omnichannel deployment and reduced chatbot development costs. This paper explores the practical application of leveraging the conversational AI market to advance customer service initiatives and enhance the customer journey.
    Keywords: conversational AI, artificial intelligence, virtual assistants, chatbots, customer experience, digital experience

  • The need for customer due diligence to adapt to the digital era
    Ben Matthews, Partner, Baringa

    Effective ‘know your customer’ (KYC) processes are the foundation of any successful compliance and risk management programme, and the demand of meeting KYC requirements is increasing. Most firms’ KYC and customer due diligence (CDD) processes, however, are inefficient and ineffective. Most financial institutions require customers to provide personal information as part of the KYC process for onboarding. Customers, however, are being made to jump through hoops, damaging their experiences and perception of the bank’s brand. On the other hand, banks are being criticised for collecting too much information about their customers, while, at the same time, being cautioned for poor data maintenance and utilisation. So, what can banks do to tackle these challenges and implement robust, future-proof CDD processes across the full client life cycle that meet customer expectations, satisfy the regulators and empower internal teams? The answer is not more control, more steps, more people. It is about ensuring that your approach is much more tailored, data driven and risk based. Let us see what that looks like in practice. Effective KYC and due diligence processes are essential in understanding customers’ operations and establishing whether business relationships are in the best interest of the bank. As discussed, they are also important in understanding the financial crime risk each customer presents. Regulators expect ‘enhanced scrutiny’ of higher-risk customers. They do not specify what this should look like, but it is generally accepted that this means heightened monitoring of customer activity in the form of financial transactions. This paper explores how today’s CDD processes work, why the current approaches are not working well, how to make CDD more targeted and more effective, optimising transaction monitoring using KYC information, the challenges of using digital technologies for CDD and recommendations for banks.
    Keywords: due diligence, KYC, financial crime, transaction monitoring, watch list, customer screening

  • Defining the digital banking innovation maturity model: A comprehensive maturity assessment for the digital banking innovation framework
    Shripad Ramakant Vaidya, Fellow Chartered Accountant, ICAI

    COVID-19 has driven a paradigm shift, where banks have started digitising their entire life cycle operations, including front, middle and back office, either by modernising the legacy or by integrating with the new-age Technology wrappers and involving various innovations such as artificial intelligence (AI)–machine learning (ML), robotic process automation (RPA), data analytics, internet of things (IOT), augmented reality (AR)–virtual reality (VR), Blockchain, open banking and many more such tech themes. This paper suggests the way maturity can be assessed for a comprehensive digital transformation and innovation adoption programme. As the entire global banking world lacks a universal model of defining maturity, this newly defined ‘digital banking innovation maturity’ acts as a guide to a ‘comprehensive maturity assessment’. This assessment methodology is a blend of multiple perspectives such as (a) unique innovative themes created by the bank, (b) level of adoption of the best innovations and transformation suiting the business needs of banks, (c) The business value achieved from such adoptions based on any existing structured process of tracking the efforts. Four major parameters of this assessment include 1. digital banking innovation capabilities, 2. digital banking proliferation, 3. efforts to create a digital roadmap and 4. level of tracking the business value derived from investments in terms of their return on investment (ROI). This ‘digital banking innovation maturity model’ helps to introspect on such efforts and investment. The model can also help to define a process within the organisation for smooth functioning of such large transformation programmes. In addition, it gives an assurance to top management to research, adopt, experiment and proliferate to achieve the best value or outcome from each such investment. This assessment can help banks and financial institutions to create a good brand perception across the globe while striving for the highest maturity.
    Keywords: digital banking innovation, comprehensive maturity assessment, banking industry benchmark, digital banking innovation roadmap, digital banking innovation assessment, innovation ROI, 5-level maturity assessment for digital banking assessment

  • Choosing a wealthtech ecosystem: Where decisions are not simple
    Nicholas Kwok, Endava

    With the ongoing democratisation of investment and wealth services, there is a proliferation of wealth management technology (wealthtech) platforms that are providing professionals like financial advisers with advanced tooling, regular individuals like self-directed retail investors with approachable systems or both. It is difficult enough to try and pick the right platform or platforms to use regardless of what kind of investor you are, let alone deciding on what combination of them works best for you or your firm. The interoperability and strategic relationships of the wealthtech platforms are equally important when deciding whom to commit to — the ecosystem. As such, a wealthtech ecosystem is the complex network that connects a broad range of applications, services and partners — from enabling financial advisers to empowering self-directed investors and streamlining front-to-back operations to network connecting marketplaces. Both professionals and individual investors leverage a litany of platforms and service providers to manage their clients’ or their own wealth. This paper — leveraging content from a recent report from CB Insights (https://www.cbinsights.com/research/wealth-tech-financial-services-incumbentspartnerships/) — provides an overview of why it is important to look beyond the individual capabilities provided by a wealthtech platform and at the broader ecosystem that you will be participating in. This ultimately begins with an introspection of your own platform, capabilities and tools to determine how best to proceed.
    Keywords: wealthtech, wealth management, broker-dealer technology, ecosystem

  • The adoption of waves of digital technology as antecedents of digital transformation by financial services institutions
    Paul Pal, CTO, Banking and Capital Markets, DXC Technology

    As academia and practitioners achieve a better understanding of the digital transformation phenomenon, companies across industries gain digital maturity and exploit digital transformation tenets in conjunction with digital technologies to build competitive advantage. While industry experts made some attempts to build uniform models, patterns and practices around digital transformation, scholastic literature paid scant attention toward unraveling digital transformation in financial services sector, particularly, how the overarching digital technology ecosystem acts as enabler, allowing incumbent financial institutions to innovate, industrialise and accomplish digital transformation. In order to surmount this dereliction of our responsibilities, we study macro-level digital technology trends, namely Big Data, hybrid cloud and automation, among others that acted as primary levers in the previous phase of modernisation endeavour undertaken by major financial organisations, notably in the western hemisphere. Additionally, drawing on the extant academic literature and techno-business journals, this paper investigates how emerging technologies, specifically, AI, API, metaverse and Web 3.0 underpinned by Blockchain technology will enable go-to-market strategy in future and impact value proposition of the incumbents, eventually changing the banking game. Therefore, this study will help practitioners grasp the evolution of digital technology ecosystem within financial sector, and steer them through disruptive market forces.
    Keywords: digital transformation, digital technology, digital banking, cloud, AI, API, blockchain