Dear Bank, Digitisation and Digitalisation are different!

Bank  “We launched the new version of the mobile App.”

Me ”That’s good. Is mobile an extension of your branch or a branch in itself?”

Bank, “We will have 3 Apps now for our customers.”

Me “Customers? You mean account holders?”

This was a recent conversation, although much longer (and it was some task to make them see beyond the app and online banking!) But, even this condensed version has much between the lines. If you are willing to read, that is.

I cannot claim to know banking anymore than my fellow bankers and nowadays its tough talking to them about ‘digital banking’, in particular. They know it all – Blockchain, AI, Machine learning, VR, AR, Neural Networks and mobile App, you name it. But Banks have known banking from times immemorial and have faltered time and again. Just a few years ago they knew banking as ‘Branch, DSAs, RMs, Assets, Liabilities, fees, NII..’. The latest banking formula is to mix ‘what they knew’ with what they have just learned about digital.

To speak in less cryptic terms- Banks want the digital tools to complement their existing infrastructure and processes. They want to become digital. How? Just convert the existing physical process to an App or online based system or convert a paper to online form. The fund transfer process is now on app, balance enquiry can be done remotely and transfers are enabled on mobile, instead of branch. One can even apply for loan on the website. And yes, the RM now carries a tab! That’s going digital.

Digitisation requires moving a manual or paper-based process to digital platforms. It may be stretched further to re-engineering the process to improve efficiency or reducing pain points. All good, but Digitalisation goes a step further. It asks a more fundamental question- Is the process relevant for the customer, at all?

A Bank looking to digitise its lending operations would look at a Loan Origination System to automate the sourcing and link it to their credit scoring models for faster decisioning. It is essentially replicating the paper-based loan application and file-based credit evaluation process.

For digitalisation, the questions would be deeper- does the customer need to apply for the loan at all? Do we need to start credit evaluation after the application? Is debt the only way we can fund? In short, the philosophy of digitalisation is to question the established linearity of process and use digital tools to create new process that are customer centric. P2P lending and Crowd Funding may just be the two examples of how lending can be upended. Or the way cryptocurrencies question the very essence of fiat currencies.

Before rushing to the dictionary for digitise and digitalise, it is important that banks realise that this message isn’t about the meaning but the nuance.

The difference between digitise and digitalise may not be so obvious every time. For example, Wallets may seem like a simple digital payment channel.  But a deeper look would reveal that in reality, this ‘ simple digital payment channel’ redefines ‘who is a customer’. Even before wallets came, anyone could still make payments, digitally, as long they were the customers of the bank. So a wallet at best could be called a ‘me too’.

However, for a bank the definition of a ‘customer’ is someone who comes to the branch, with all the documents to open an account, waits for the account to be active and then waits further for the cheque book or card to come. This ‘bank customer’ was peeved at their ‘digital banking channel’ asking for two factor authentications, even for smallest of payments. Wallets provided the relief, to everyone, agnostic to the length of bank account number.  For a Wallet, a customer is anyone who downloads an app. Infact, if not for regulators, this new wallet customer, wouldn’t even need a linked bank account to use wallet.

In short, for a payment service like Wallet, everyone with a mobile phone is a customer. But for a ’digital bank’, ‘our customers’ is still the account holder!

There are many more radical changes that are digitalising the industry. With Payment Services Directives (PSD2) in Europe, even the regulators have now mandated Open APIs, forcing the banks to provide customer account access to other non-banking players. In other words, banks would provide the platform, accessible to others. ‘Bank as a platform’ is a powerful concept and some banks have realised its potential.

BBVA Compass, for example, partnered with online SME lending company, OnDeck, to refer customers who do not fit into BBVA’s loan policy. OnDeck gains customers with BBVA as a ‘sourcing platform’. BBVA retains customer confidence, whether or not it gives the loan itself. BBVA’s vision is well articulated by Chairman and CEO, Francisco Gonzalez, “BBVA will be a software company in the future”

Fidor, a German bank, takes this a step further by offering ‘Bank as an Operating System’. Fidor is not only a digital bank, but with its FidorOS,  it provides a ready technology platform for anyone wanting to launch a digital bank with a front-end layer, an API layer, Core banking, data management and more. Basically it means anyone can take Fidor’s technology backbone and set up a digital bank on it using Open Banking and Open APIs. The banks may be different but its on Fidor’s platform.

Its obvious that digital has moved a step beyond to ‘digitalise’. So, Dear Bank, while you may still debate the semantics, I hope the message is clear. Go beyond replication of existing process to digital platform. Instead ask if the process is required at all! It requires giving up the convenience of ‘digital’ to a little more thought provoking and tongue twisting ‘digitalise’

The smarter banks are asking these fundamental questions, while the wannbe digital banks are busy converting the application forms to online. Or maybe still updating their mobile app to enable UPI payments!

Is your bank ‘digitising’ or ‘digitalising’? Do leave a comment.

-Amit Balooni


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