Is digital banking another dot-com pipe dream?


Remember the late 1990’s when every CEO had to have an internet strategy? Even if they had no idea what the Internet was, they knew they had to have one of those “internet things” and to look at changing the company name to some funky buzzword with no real meaning.

is starting to feel a bit the same these days. Maybe it is just because I am in banking, but lately there seems to be more conferences and related groups covering digital banking than any other topic in the industry, with perhaps running a close second.

It seems beyond doubt that most now have a “digital” program – even if this is just a rebadging of their mobile banking program – and have set up innovation labs with lots of 64-inch video screens and sixties-retro styling, but like the late nineties I have the sense that much of this “digitization” is just me-too management.

I think it is important to differentiate between renaming your internet and mobile channels development as “the digital program” and truly embracing digital transformation. A digital program has to have three key characteristics:

  1. It has to be end-to-end digital – internet channels that back into manual processes, are supported predominantly by call centers, and facilitate check-books are not digital.
  2. It has to be scalable – the infrastructure, architecture and operating model has to be rapidly scalable so that it can grow as your digital customer base grows. As Jack Ma commented, the difference between Alibaba and Walmart is that Walmart has to construct a new warehouse every time it wants to add 10,00 customers; he just has to add another two servers.
  3. It has to be pervasive – digital thinking has to be creeping into every part of your business: from the customer-focused product creation through to the business and financial planning; across the system architecture and operational support into the regulatory engagement and risk management. It should be spreading like ink in a glass of water.

Like the period, the era of digital banking is upon us. Also like the dot-com period, there is some fundamental strategic substance underlying the me-too push for digital programs. While the dot-com period was marked with “bubbles” of over-inflated equity valuations, the internet did change the way we do business. Many companies that pivoted correctly during the period came out the other side stronger, while others perished.

I believe the same will happen during the current digital banking era. Some banks will embrace the change fully and thrive, while others will become marooned on bricks-and-mortar businesses with an ever decreasing customer base.

The imperatives for the transition to digital banking are clear:

  • Costs – When fully realized, digital banking is cheaper to run and grow than “traditional” banking, once you hit a critical mass (in the millions of customers). Of course some less-digital channels such as branches and ATMs are not going to disappear any time soon, but their disbursement and footprint will decrease as fully digital channels and touch-points take the ascendancy. Banks left on traditional business models will progressively become noncompetitive on price.
  • Scale and Aggregation – Digital banking is rapidly scalable. The banks that are early to realize the cost reductions of digitizing will be uniquely positioned to quickly take market share from those banks that are slow to transform. This will inevitably lead to aggregation.
  • Customer expectation – The Millennials are here to stay, and they don’t care about banks, they just want to be able to move their money around in their digital world seamlessly and quickly. For the foreseeable future, the platform of choice is a smartphone, so if banks can’t be there to facilitate the financial needs of Millennials via a smartphone, they will progressively lose market share.

So yes, digital banking is a bit like the dot-com period, in that it signals the coming of a transformation in banking, but it is not a pipe-dream, it is a call-to-action for banks to either step-up or step-out.

[linkedinbadge URL=”″ connections=”off” mode=”icon” liname=”Gregory Morwood (莫恪瑞)”]  is Head of Strategy and Planning, Digital Bank at DBS Bank