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Bank of Tomorrow - The Digital Banker’s Dilemma: Inside Out Or Outside In?

Every bank in the world today, from the largest multi-national to the smallest neighborhood credit union, is in the process of managing the transition from branch-and-phone interactions to web-and-mobile ones. The stakes are high: the cost for a mobile interaction with a banking customer is just pennies, while a branch interaction costs over $3.00 and a phone interaction over $2.00. Getting proper systems in place to encourage consumers to utilize the digital channels for their banking transactions is one of the chief ways financial institutions can move the dial on their internal costs. The top banks in this regard report over 70% of their transactions taking place in the digital channels; the industry laggards are experiencing…less than that.


It gets worse: even within the realm of digital banking, customers are receiving a wide range in the quality of their services, and they are not shy about making their opinions known on-line. Consider the scores that users of mobile banking apps leave in the Apple and Android app stores. Top rated banks receive scores above 4.5 stars, but the typical bank is much, much lower, around 2.5-3.5 stars. Banks whose apps are rated below 2 stars (and there are many), are providing very poor service indeed.


It is difficult to keep this issue a secret. An app with a poor user experience or a restricted feature set is glaringly obvious to the customer, who quickly returns to familiar, high-cost channels for their banking transactions—if the bank is lucky. According to a recent study by Citibank (full disclosure—Citibank is a customer of Kony, Inc), 80% of those users with “high functioning apps,” or those with five or more features, are likely to stick with their bank over the next 12 months, compared to just 70% of those with low-functioning apps. In that sense, a bad mobile app can be worse than no mobile app at all!


How did we get here? Where did all these bad apps come from? For that matter, where do the good apps come from?

Obviously, the biggest banks can afford large groups of programmers to provide custombuilt systems for customer engagement, but the majority of banks are forced into a common dilemma—should we build from the inside out or the outside in?


Inside Out: In Core We Trust

All financial institutes have a core banking system that acts as their back-end ‘system of record.’ In fact, 95% of them have one of just five well-established vendors: FIS, Fiserv, Finastra (the merger of Misys and D+H), Infosys, and Jack Henry. Each of these vendors has a digital front-end that is integrated to their back-end, and theirs alone. It is this front-end which is offered to the existing core ‘system of record’ customer base. This is what we mean by ‘inside out.’


To their credit, none of these core banking vendors ever claimed to be expert in the digital channels. Without exception, all of them acquired pre-existing mobile banking vendors and absorbed them into their portfolios of products. This approach has led to a vicious cycle for the vendors of systems of record. The acquired company finds itself constrained by the new owner, falls behind the technology curve, and loses momentum in the market. The solution? Buy another mobile banking vendor. For example, Fiserv bought M-Com and later Monitise, Jack Henry bought Banno and GoDough, etc. The quality of the customer experience depends on where in this cycle the vendor is at any given time. Some of these are ‘good enough,’ some are not, but then none were meant to be leaders in the customer engagement space—merely as a profitable add-on to the system of record.


Outside In: Pick A Horse And Ride

The contrasting approach is to pick a vendor with specific expertise providing customer engagement in the digital banking channels, and integrate it with the standing core banking system. This is what we mean by ‘outside in.’ There are a number of vendors of these ‘systems of engagement,’ each with its own compelling story. However, for the IT teams at ever-cautious banks, each also comes with its own level of risk. Most of these vendors still qualify as start-ups, being less than 10 years old and still reliant on venture financing. Bankers need to evaluate the long-term stability of a partner in this crucial space alongside its flashy product or intriguing technology.


Solving The Digital Banker’s Dilemma

Overall, the general trend among banks has been an evolution from the ‘system of record’ into a ‘system of engagement,’ either by sticking with the core vendor and relying on them to acquire and maintain a digital banking company, or by the banks’ purchasing a digital banking solution directly from an independent vendor. In either scenario, the bank must ensure that the vendor has the proper resources to maintain their digital presence, not just today, but into the future through ongoing support and innovation. In the case of the ‘inside-out’ solution, for instance, the following questions are key:

  • Where is the core vendor in the process of absorbing the acquired company?

  • Have they retained the employees and their necessary expertise?

In the case of the ‘outside in’ solution, questions are slightly different:

  • Does the vendor have the size and scope in its organization to support its clients (this is especially true of professional services organizations, which handle integration)?

  • Does it have sufficient banking industry expertise to match its technical chops?

And for both solutions the last question is certainly most important of all:

  • What is the roadmap for continued innovation in this space?

For make no mistake: the goal of any ‘system of engagement’ is a customer experience that will delight and amaze your accountholders and encourage their use of the digital channel— today and tomorrow.


Kony Digital Banking


Kony’s Suite of Next Generation Digital Banking Applications: These are a set of unified omnichannel banking apps built on the Kony Digital Banking Platform, which address the needs of retail banking, loan origination, business banking, new user onboarding, digital payments and more. The pre-built apps allow banks to accelerate time-to-market, provide exceptional omnichannel experiences for members and customers, while at the same time reducing overall implementation costs and cost of ownership.

  • Retail Banking - Manage accounts, transfer money, find ATMs and branches, deposit checks, and more from any channel

  • Business Banking – Empower business account holders to access engaging business banking services across channels

  • Loans – Simplify and speed-up mortgage origination via frictionless digital experience

  • New User Onboarding - Acquire more customers by streamlining and automating the onboarding experience across channels

  • Digital Wallet - Easy payments to friends or merchants using digital wallet and secure payment technologies

Kony Next Generation Digital Banking Platform – a purpose-built platform to enable banks to deliver seamless and differentiated experiences for their customers across banking services and channels – bridging the physical (branches, ATMs and kiosks) to digital (online banking and mobile apps). Kony’s Digital Banking Platform will enable banks and credit unions to deliver exceptional omnichannel experiences without compromising on agility, security, or flexibility.

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