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Top retail banking executives, at institutions both large and small, are expressing a mix of optimism and uncertainty as they look ahead to 2016.

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Digital Banking Gets Personal
The digitization of banking, via apps and APIs, will lead to mass personalization. by CHRIS SKINNER
Nov 29, 2011  |  1 Comments

A bank is a digital business and, as a digital business, can be broken down into pure bits and bytes. More than that, a bank can be seen as three digital businesses in one: a manufacturer of products; a processor of transactions; and a retailer of services.

In this context, the digitization of banking becomes more interesting at a strategic level. First, the products have been deconstructed. Every bank product can be deconstituted into its lowest common denominator of components and then reconstituted into new forms of use and structure.

This component-based bank demands that every bank capability be put into a basic widget form, or object form if you prefer, and then offered to customers to put together as they see fit. In other words, there are no integrated product sets any more, just banking as apps that customers put together to suit their needs. Bank products are just a bunch of apps, manufactured in such a way that customers can put them together to suit their lifestyle.

Moving onto processing, we build upon the app-based product view and begin to consider processes as open source code. The open sourcing of digital processes is rife and has disrupted and changed everything from how operating systems operate, vis-à-vis Linux, to how Google develops its omnipotent reach.

Learning from such open-source processing, PayPal launched X, a developer-based service for PayPal processes as APIs (Application Program Interfaces). APIs allow anyone to pick up and drop PayPal into their systems, enabling PayPal to be reintegrated by third parties into any code and operation desired.

The result is that PayPal’s relevance increased massively overnight and led to Citi following a similar approach, when they announced that their transaction services would be offered as APIs at SIBOS this year. In other words, all bank processing is just open-sourced coding, offered to anyone to plug and play with their offerings through APIs.

Finally, the customer relationship has also changed. The customer relationship used to be human, one-to-one. Then it became remote, one-to-many. Now it is digitized, one-to-one. This is where Big Data comes into its own, as we are now trying to manage remote relationships leveraged through mass personalization.

Mass personalization can only be achieved by offering contextual servicing to each and every customer at their point of relevance. This means analysing petabytes of customer data to identify, on a privacy and permissions basis, what contextual service customers may need as they live their lives. If they are walking past a car showroom, do you promote cheap motor insurance or a car purchase scheme? If they are leaving the casino, do you offer a loan or a referral to an addiction clinic? If they are leaving the maternity clinic, do you offer child investment services or a referral to an abortion clinic?

Some of these may seem controversial, but we are already seeing contextual offers through finance coming into play in the form of Google Wallet. And the aim of such contextual offers is to track your digital footprint, using Big Data analysis, to gain intuitive service offers relevant to your point of living. For example, as Google tracks your searches for plasma TVs, you get an offer for £200 off for the TV you spent the longest time studying online as you walk past the electronics showroom. But the offer is only good for an hour and only when you are in proximity of that electronics showroom.

This is the new augmented reality of customer intimacy through Big Data analysis. And bank retailing will be based upon the competitive differentiation of analyzing mass data to deliver mass personalization.

In summary, the digitization of banking is now mainstream and all bank capabilities will be packaged as digital structures where products will be apps, processes will be APIs and retailing will be contextual, delivered through mobile internet at the point of relevance. Meantime, what happens to the physical structures of banking, as the digitization of everything takes over, will be the biggest challenge of all.

Mr. Skinner is chairman of the Financial Services Club, CEO of Balatro Ltd. and comments on the financial markets through his blog the Finanser. He can be reached at cskinner@balatroltd.com.


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karen gordon
12/6/2011 4:39 PM

I think the most crucial component of the mass personalization of banking is information consumers willingly give to banks. Technology has reached the point where a bank can easily track when, how, and how often each customer interacts with them. This allows the banks to easily cater to customers, as long as they have the appropriate infrastructure in place. Much like Google Wallet can make offers for a TV when a consumer is in an electronics store, banks are able to make offers to consumers that are a direct reflection of their past banking behaviors.