Digital Transformations

Is it possible to exercise control over operational costs?

By Murthy Veeraghanta

According to a 2016 Celent report, only a quarter of U.S. bank customers have enrolled in mobile banking. At community banks with fewer than $500 million in assets, that percentage is even smaller — around 10 percent. This is an issue that banks must address in order to remain competitive long-term. Banks that do not roll out initiatives to encourage mobile or digital engagement will miss out on substantial revenue.

Customers who enroll in digital banking increase their average product holding by more than 58 percent compared to pre-enrollment, generating 10 percent more in annualized revenue, according to research conducted by Bank of the West. The study also revealed that digital engagement reduces account closures, as digital banking customers exhibit 5 percent lower attrition rates than branch-only customers. Fortunately, there is still a massive opportunity for banks to increase adoption of digital banking as smartphone users are expected to increase to 6.1 billion by 2020. Furthermore, 80 percent of mobile data traffic will be from smartphones, highlighting consumers’ tendencies to use their phones as their primary computing device, according to Ericsson’s Mobility Report.

Now is an opportune time to think of ways to increase customer adoption of digital banking. However, it is important for banks to also consider the IT infrastructure and how it may be impacted by higher adoption rates, as well as the potential for increased operational costs due to fees from third-party solutions providers. Banks must keep these factors in mind to truly benefit from the revenue gains associated with digital banking.

As customer expectations evolve, many banks have taken a gradual approach to digital transformation, implementing new digital banking products here and there from various providers, based on customer demand. Such an approach is fairly common, as more than a quarter of financial institutions implement digital banking on a project-by-project basis, according to a report by consulting firm A.T. Kearney.

While this piecemeal digital banking strategy has been sufficient in the past, it will not be sustainable as the pace of technological innovation continues to increase. Implementing different features and solutions from several providers means that banks have multiple project timelines, back-end systems and channel-specific services to manage. To exacerbate the problem, most legacy systems were not designed with common underlying software architectures, which makes system integrations labor-intensive and costly. In other words, banks must determine how one solution’s expiring contract may impact solutions from other vendors. A similar issue arises when considering how a new product interacts with existing products. This makes delivering a highly functional, seamless digital banking experience to customers difficult, if not impossible.

To address this issue, banks should enhance their technological and organizational flexibility with a more agile underlying IT infrastructure. The introduction of new technologies and customer demands for faster time-to-market requires a flexible system that can easily integrate external products and cloud-based services. In an effort to achieve this, some banks utilize a middleware layer that sits between the core banking system and the front end. This layer computes and processes customer and business intelligence. From there, the bank can grant access to this middleware layer to third parties using open application programming interfaces, which allows them to offer new digital features with minimal effort.

For other banks, it may be best to first assess their core systems. Because of the short shelf life of today’s technology, a system from just five or six years ago could be outdated, so reviewing underlying technology is critical. Banks that are due for a core upgrade should seek a core platform that is an online, real-time system that works on any browser or operating system.

To provide new digital banking products and services that can scale with increased adoption rates without overloading existing systems, banks should look for modular, open architecture technologies like APIs and HTML5. These technologies can support numerous functionalities such as biometric authentication, online account opening, personal budgeting tools, video chat and more, across all channels and devices.

Additionally, deploying an assortment of siloed digital banking functions from several vendors hinders a bank’s ability to analyze data and gain a comprehensive view of customers’ financial activity. This makes it difficult to tailor services for account holders and promote the most relevant products. Instead, banks should utilize systems that support the aggregation of data across all digital banking channels. By doing so, banks can develop and execute more effective marketing campaigns based on granular user data. For example, a customer may use a mobile banking app daily but underutilize the remote deposit capture capabilities. The bank can then engage customers by educating them on the app’s mobile remote deposit feature, further strengthening customer relationships.

By keeping these considerations in mind, banks can deliver an optimal digital banking experience while taking advantage of the latest applications in technology.

Banks must make the shift and adopt flexible digital platforms that support better interactions with customers and empower the development and deployment of relevant products and services. By adopting a unified, agile digital banking platform and leveraging open architecture technology instead of licensing an assortment of solutions, banks can scale their digital offerings as customer and transaction volumes grow. This improved approach to digital banking will enable banks to anticipate and quickly respond to customer needs, as well as market and regulatory changes, all of which are critical to success both now and long-term.


Murthy Veeraghanta is CEO of VSoft Corp. For more information, visit

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