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Shaping the future of finance

The three things you need to be a Digital Bank

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As mentioned last week, I delivered a keynote at the DreamForce conference.  As it has been shared online, I’ll share it here.

The slides …

The video (my bit starts at 10m33s) …

If you can’t see it easily, the summary is this (taken from the review of my book Digital Bank by Nick Miller, CEO of Clarity Advantage:

“[E]very single one of the 7 billion people living on the planet can now communicate, share, transact, and trade with each other electronically, one-to-one, globally… [This] is the reason why … data is the new battleground for commerce…Unfortunately, this is where banks are failing. They are too slow to change.…”

Change 1: Component-Based Banking

Banking will evolve to “banking as a service” in which each bank integrates best-of-breed specialists into its platforms as ICICI Bank, a full-service bank in India, has done, rebranding Smarty Pig as iWish in its social banking offerings.

Specialists (e.g. Zopa, Simple, Personal Capital, Moven, Funding Circle, Kickstarter, eToro, Friendsurance, Square, Paypal, Bitcoin, Applepay) are attacking the universal bank model.

In the future, instead of manufacturing and selling a full line of proprietary or branded banking services through retail, commercial, private banking, and other business lines, 80% of each bank’s activity that is the same as every other bank’s activity will be handled invisibly, in the background, through open source, universally available code.

The differentiable 20% will be component-based banking comprised of combinations of:

  1. Innovative cloud-based products developed through use of big data;
  2. Easy to use APIs that plug-and-play the bank’s processing capabilities into anyone else’s (Paypal’s launch of its API was the first demonstration of how powerful this will be, boosting Paypal’s revenue significantly within a year of launch); or
  3. Supercool, customer-intimate apps that position the bank as the preferred digital relationship for the client.

Change 2: Digital Core, Access, and Security

“Everything is an access point. ‘Banking’ is no longer about banking money but about banking data and keeping data secure.”

The foundation of banks has been physical with digital or remote channels added on top. Banks began with one location and expanded by adding locations – a branch network. They then added ATMs, call centers, Internet banking, and now mobile banking, seeing each as separate but related channels (thus the discussion about “omni-channel”). Bank data bases evolved in a similar way, organized to support products or lines of business rather than customers (and creating many gaps between systems for hactivists to exploit).

Banks should stop thinking about separate-but-related delivery channels (branches, call centers, Internet, mobile) and start thinking that there is just one, single digital core that provides the foundation for all of these through multiple access points used for both internal and external purposes.

Physical distribution may be added on top as appropriate for each bank’s strategy – some banks will have branches for sales and relationship building, others won’t (Skinner forecasts that branch density will drop from 1 branch per 25,000 people to one branch per 250,000 people within a few years).

Access will be the critical issue. Everyone on the planet, whether they own a smartphone or have access to one, has the ability to connect with anyone else on the planet. Each of these devices is an access point. As the Internet of Things expands, everything from cars to clothing with smart chips embedded in them will also be access points for banking.

As a result of this shift to a digital core and dozens or hundreds of access points, the bank of the future will have shifted from being the safe keeper of money to the safe keeper of data. Digital cores will be more secure than current data bases. Data will become the new currency and real-time tracking of access and attacks will become the new competitive battleground.

Change 3: Trust and Attraction

Digital banks will build trust around their brands and attract people naturally to become fans and users of the banks’ apps and services, advising them at their point of living.

Traditional banks grew up around the products they developed and the lines of business through which they sold them. This resulted in a series of stovepipes with products, data, and operations sequestered into each of the stovepipes. Banks’ traditional method of selling and marketing has been to push information or offers through advertising, signage, and, more recently, smart ads through digital channels.

Broadband technology and mobile capabilities mean that the digital bank of the future will be organized around its core database and its customers rather than around its products and stovepipes. Customers will no longer be segmented by demographic information. In the digital world, there will be one target client base: people who want to deal with a cool and fair bank through the mobile Internet.

Digital banks will develop their own branded versions of “cool.” Through social media, social networking, social banking, and social money, digital banks will build trust around their brands and attract people naturally to become fans and users of the banks’ apps and services instead of pushing smart ads through channels.

A great example is Fidor Bank in Germany which attracts people by offering to lower loan interest rates and increase savings interest rates based on the number of Facebook Likes they receive. They do this because each Like links them to 338 people (the average number of friends someone has on Facebook). The result is that the bank receives customer account openings at a cost of just $20 (most traditional banks spend over $1,100 to get a customer).

Once customers have opened accounts, information from customers’ digital footprints – social media, proximity monitoring, mobile devices, and joint relationships with other vendors – will help banks personalize and integrate financial services into their customers’ daily lifestyles, advising them at their point of living.

Nick Miller, president of Clarity Advantage, helps banks generate more profitable relationships faster with small and medium-sized companies, their owners, and employees. He can be reached at For more information about Chris Skinner and the book, Digital Bank, visit and

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Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog,, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

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