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How Digital 2.0 Is Driving Banking’s Next Wave of Change


By harnessing the power of artificial intelligence, blockchain, the Internet of Things (IoT), robotic process automation and open banking initiatives, financial institutions can build a more resilient, customer-focused bank of the future that incorporates the virtues of non-banking rivals.

In the last half century, waves of new technology have forever changed the banking industry. The second half of the 20th century, for instance, included a major shift to electronic operations and the introduction of ATMs. Together, these led to an efficiency-obsessed and automation-driven model that made banking more transactional and tech-savvy. 

Figure 1

Over the last decade, social and mobile altered the way banks engage with customers. Combined with analytics and cloud, this Digital 1.0 wave of technologies lead to hyper-personalized offerings and a broader understanding of how, when and where customers want to access credit and other financial services. 

Now a second wave of disruption, or Digital 2.0, is set to drive even more profound change. This time, the influential technologies include robotic process automation (RPA), artificial intelligence (AI), Internet of Things (IOT) instrumentation, blockchain distributed ledgers and banking platforms controlled by open application programming interfaces (API). 

In our view, these forces will reshape how financial institutions (FIs) evolve and operate for the foreseeable future. 

Getting Started

While these Digital 2.0 components come of age, FIs remain in a value- discovery phase, conducting multiple trials and experiments, some of which are generating encouraging results. Global assets under management by robo-advisories, for example, will total $8 trillion by 2020, according to some estimates. And in 2016, blockchain start-ups reaped $500 million in investment funding.

As these technologies become commercialized and demand increases for them, we expect the banking industry to see unprecedented change, particularly as nontraditional banks and fintechs move into all segments of the banking space. Consequently, we anticipate widespread adoption of many of the above technologies by all institutions. While leaders have shown keen interest in Digital 2.0 research and small-scale incubation, several organizations have dedicated funding to deploy real-life customer situations today. 

Envisioning the Future

To stay relevant, FIs must reconsider how a “bank” should look, think and act today. In our view, the resulting “bank of the future” will be characterized by the following traits and roles:

Orchestrator of customer journeys.

FIs will need to create expansive solutions and a rich, curated customer experience across touchpoints.

Aggregator of banking capabilities.

FIs will need to channel capabilities available in the evolving banking ecosystem rather than building offerings from the ground up.

Provider of platforms.

FIs will use platforms to serve entire business lines, hastening the development process and facilitating improved operational agility and speed of deployment and integration.

Integrator of front- and back-offices.

FIs will need to optimize expenditures in conventional business operations, while freeing budget and human resources to innovate and build smart products and services.

Processor of customer behaviors.

FIs will create micro-segmented customer groups by combining big data with “thick data” (ethnographic/human behavioral data) to reveal customer intent and needs.

Consumers of on-demand offerings.

FIs will be pressured to decouple their dependency of “on-premise” systems and shift to software-as-a-service offerings on the cloud that boost agility, improve extensibility, reduce total cost of ownership (TCO) and accelerate provisioning.

Furthermore, Digital 2.0 banks will need a deft understanding of AI and RPA governance, trust and reputational challenges. They’ll also need additional security and privacy controls when leveraging IoT data. And ultimately they’ll need to rely on decentralized intermediaries as  blockchain’s distributed ledger technology moves mainstream. 

Looking Ahead

Simply put, Digital 2.0 will impose secular changes on the banking ecosystem. As regulatory actions improve collaboration between financial institutions, we expect to see the development of markets and standardized revenue-sharing mechanisms within partner ecosystems. Lines will blur between various entities; in fact, we expect the industry narrative will shift from banks vs. fintechs, to banks and fintechs.

That said, a human touch will still be a differentiated and highly relevant factor to customers. And a well-thought-out framework will be necessary to determine the right balance between human and machine intelligence when serving the former. 

Ultimately, we believe that Digital 2.0 will emerge through a series of incremental innovations and nurtured through value discovery and investments by progressive FIs. Success will continue to be driven by a clear leadership vision that steers a sustained commitment to platform thinking, a focus on the value chain and dedication to collaboration-driven innovation within and outside the industry.

To learn more, read “How Digital 2.0 Is Driving Banking’s Next Wave of Change,” visit our Banking Practice, or contact us.

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How Digital 2.0 Is Driving Banking’s Next Wave of Change