Volume 8 (2023-24)

Each volume of Journal of Digital Banking consists of four 100-page issues. Articles scheduled for Volume 8 are available to view on the 'Forthcoming content' page. 

Volume 8 Number 1

  • Editorial
    Simon Beckett, Publisher
  • How can banks continue digital transformation in a downturn?
    Rishi Khosla

    Digital technologies have come to play an increasingly important role in our lives. Their availability to customers has set expectations for personalised experiences with the banking services they use, making it imperative for banks to innovate and continuously evolve their product offerings to keep up. The banks that are able to do this most successfully are new entrants with advanced technological capabilities that can adapt to changes in the economic environment and consumers’ shifting expectations more quickly. It is this adaptability and technological knowledge that ensures that these new entrants are best positioned to capitalise on periods of downturn. This paper will examine digital transformations that have reshaped the world of banking to date, including the shift to digital banking in the wake of the COVID-19 pandemic, the uses of data and analytics, as well as data-driven tools like AI in present-day retail banking. Furthermore, the paper will detail areas where digital transformation is yet to exert a profound effect on banking, particularly lending to small and medium-sized enterprises (SMEs), an essential area given the contribution that small-to-medium businesses make to economic growth. Finally, the paper will explore ways that new entrants can use digitalisation to support these crucial businesses, as well as detail other examples of digital innovations that are shaping the future of banking; for example, AI automation in know your customer (KYC) and the rise of ‘open banking’.
    Keywords: banking; digitalisation; SMEs; downturn; data; innovation

  • Optimising the customer experience: Lessons for banks from tech giants
    Silke Finken and Katharina Rusp

    Customer experience has received growing attention as an essential element of the overall customer relationship for banks. The omnipresence of tech giants, their customer centricity and their highly intuitive and user-friendly customer experiences are changing users’ expectations regarding banks’ digital and digitally provided services and points of customer contact. This raises the question of which aspects customers value in their interactions with tech giants and which insights banks can derive for optimising their customer interfaces, experiences and journeys. The present paper is among the first to analyse these various aspects and to derive relevant insights and lessons learned for banks. The study is based on a quantitative online survey with 573 participants. Participants were asked about their degree of satisfaction and loyalty regarding their current bank, the aspects they value most in their interaction with tech giants, in general as well as with their favourite tech giant, and which of these aspects they would like their bank to adopt. Convenience and ease of usability of services, products and interfaces; the constant availability of services regardless of time and place; the seamless integration across different channels and access devices; and the high aesthetics of interfaces and services were considered valuable by more than 70 per cent of the respondents. In particular, the degree of convenience, extensive availability, speed and easily understandable interfaces were also rated highest in terms of characteristics that users would like their banks to adopt. For banks, this means that the design and optimisation of their digital customer experiences should be customer-centric and should focus on intuitive usability, timely delivery of services and information, comprehensive availability of functionalities and relevant data as well as an appealing design of their customer interfaces.
    Keywords: Big Tech; tech giants; customer experience; customer journey; open banking

  • Best practices and important considerations for AI and digital transformation in an economic downturn
    Brendan Deakin

    Banks surged ahead with digital transformation during the pandemic — largely out of necessity — when faced with lockdowns and the shift to digital-first transactions. Now, as the banking industry moves into the post-pandemic era, and given the current state of economic uncertainty, the adoption of digital transformation is even more crucial. A large proportion of investment will involve AI to improve automation and personalisation while improving the speed and accuracy of decision making. This is essential for banks to address today’s ever-changing risk landscape, especially as consumers and businesses navigate economic uncertainty, rising inflation and energy prices. In the midst of the current economic downturn, organisations must be purposeful in their digital transformation efforts. This paper provides an overview of best practices for digital transformation in the banking sector when every dollar is coming under increased scrutiny.
    Keywords: AI; digitisation; fraud prevention; alternative data; machine learning

  • Evolving consumer expectations and the future of digital banking
    Srini Kasturi

    The financial services industry has a long history of deploying new technology to respond to evolving customer expectations. The rise of digital banking in recent years represents a significant acceleration of technological change, fuelled by factors like the COVID-19 pandemic and shifting demographics. In the vanguard of sweeping industry changes are the FinTech providers. Advances such as cloud computing APIs and machine learning are being deployed to deliver seamless, 24/7 finance and banking services to consumers who now expect immediate, accessible digital solutions that provide both safety and convenience. Banks need to keep up with the incredible pace of change but face challenges in the form of entrenched legacy systems, siloed operations, a vast beachfront of propositional enhancements and compliance with regulations — issues that typical single-minded FinTechs are less burdened with. Many banks, however, are seeking to overcome these challenges, knowing that otherwise they face diminished market relevance. For many, the answer lies in partnering with existing FinTechs in mutually beneficial engagements that can deliver for increasingly digitally savvy users, such as a partnership between Barclays and TransferMate to deliver advanced cross-border payment services. Regulatory developments like Open Banking have set the scene for increased market competition as well as integrated disparate systems between multiple providers for the benefit of the end user. Onto this stage have entered traditional big-tech firms like Apple, Amazon Google and Meta, seeking opportunities to reshape the digital payments space. In parallel with these developments has emerged decentralised finance (DeFi) offerings that leverage concepts like Blockchain technology, smart contracts and distributed ledgers to provide solutions outside of the centralised processes of traditional finance. This paper explores the changing shape of digital banking; the potential for both competition and collaboration between banks, FinTechs and traditional tech companies; and examines how consumer demands are driving innovation.
    Keywords: digital transformation; FinTech; decentralised finance; Open Banking; banking as a service

  • Case study: Moving towards the scalable service-oriented data management organisation at OTP Bank
    Gergely Babos

    This paper discusses data and data asset management, topics that are growing in importance in organisations, specifically in regard to managing data consciously as a strategic resource to create business value and building the real self-service data consumption capability. You can read a relevant use case in connection with establishing and transforming the data management organisation — which is basically the back-end function — into a service-based operation model from a component-focused one. By the end of the paper, you will have understood the importance of data strategy and the whole data galaxy focusing on the data modernisation programme in a Hungarian banking group. We were able to reduce data expenses (eg maintenance and license costs of data warehouses, implementation costs of new data elements) by modernising the IT architecture, despite the constantly growing amount of data and the multitude of different data storage solutions. As the hunger for data emerges in the organisation, there is a huge demand for data services. The paper introduces the solution of OTP Bank to flexibly scale the organisation in a way that meets the demand.
    Keywords: data management; data asset; data services; data strategy; data-driven company

  • Practice articles: Modernising intra-day liquidity optimisation for commercial banks
    Jeremie Feuillette, Will Towning and Kimmo Soramäki

    Commercial banks are facing a period of exceptionally difficult funding conditions amidst a challenging economic environment. To address this, banks need to optimise their liquidity flows and usage. But existing liquidity optimisation and management methods fall short of materially reducing liquidity costs and can generate large operational risks. This paper describes how advanced analytics and algorithms can be used to optimise liquidity flows and usage in a real-time environment through payment resequencing. This approach can enable banks to significantly and consistently reduce liquidity usage and costs, potentially turning more effective treasuries into profit centres. This paper also describes the fundamental requirements for embarking on a modern liquidity optimisation project and also presents some recommendations for best practices in operational and technological infrastructure.
    Keywords: liquidity; optimisation; resequencing; networks; algorithms; simulation

  • The future of cryptocurrency and Blockchain technology in finance
    Wong Wanyi and Alan Megargel

    Cryptocurrencies have been all the rage in recent years, drawing many to hold them as speculative investment assets. Its proponents also champion the secure and decentralised nature of the technology it is based on, called the Blockchain. Given the secure nature of Blockchain technology, the idea of adopting cryptocurrencies as legal tender currency has also been mooted and experimented with — the most famous example being the Central American nation of El Salvador’s bold move to adopt the cryptocurrency Bitcoin as legal tender in September 2021. In theory, this would provide a solution to the high transaction costs faced by overseas El Salvadoreans when transferring money home and to the lack of bank accounts in the case of 70 per cent of its population — Bitcoin does not require a bank account and can be transferred across borders easily. However, even though individual consumers seem to evince interest in adopting cryptocurrencies as legal tender, most countries have little appetite to do so or to integrate their use into their citizens’ lives. Does cryptocurrency have a future as a legal tender currency or as an investment asset? If not, what are the potential future developments? This paper examines and attempts to answer these questions by (i) analysing the pros and cons of adopting cryptocurrencies as legal tender; (ii) discussing alternative uses for the Blockchain technology behind cryptocurrency; and (iii) reviewing regulatory challenges to cryptocurrency as an investible asset.
    Keywords: cryptocurrency; Blockchain; stablecoin; decentralised finance; central bank digital currency

  • Account aggregator ecosystem: A step towards revolutionising digital lending in India
    Venkat Yellapantula and Venu Madhav Miriyala

    An essential contributor to a nation’s economic success is providing individuals with access to established financial systems. India, through innovative use of digital finance infrastructure, aka India Stack, provided as a public good, removes obstacles in offering financial products to the unbanked and underbanked. The three pillars of the India Stack are: the identity rail (Aadhaar), the payment rail (universal payment interface) and the data-sharing rail of account aggregators (AAs). The next phase in the India Stack is the Open Credit Enablement Network (OCEN), which promises to transform the digital lending industry by shifting the business model from asset-based to cash-flow-based lending. OCEN is a standard set of application programming interfaces (APIs) that pull data based on customer consent from financial information providers and offers it to financial information users to decide on credit requests. AA manages consent on behalf of the customer using data empowerment and protection architecture (DEPA). The rest of the paper explains the interoperability and portability features of the AA ecosystem, the pricing model that the AA can adopt for a sustainable business model, describes the current state of the AA ecosystem in terms of consents provided and fulfilled and concludes with the use cases of OCEN in credit extension and continuous loan monitoring.
    Keywords: account aggregator (AA); India Stack; Open Credit Enablement Network (OCEN); open banking; digital lending; data empowerment and protection architecture (DEPA)