By now, we all have come to understand and made peace with the fact that any business with a large pool of customer data can quickly set themselves as a bank or position their products to provide financial service.

Historically a bank operated this way:

Front end:

Banks used to have branches, and those branches used to have CSR (customer service representatives a.k.a employees), and those branches were the sales venue. That’s where the bank used to market/sell products or provide services to their customer. As soon as you walked into that branch, a CSR would greet you, shake hands and ask you a few questions about the purpose of your visit.

Based on the response, you would be directed to a teller or another CSR who listened to your queries while at the same time pulling up your account to analyze your financial state, relationship with the bank. While all of this is going on, that CSR is also gauging your need and appetite for new or related financial products. You as a real human being in front of them showed different behavioral and visual cues that spoke volumes about you and your needs. Which all are being summed up by CSR to make a better recommendation to serve you better.

Back end:

Once you walked out of that door, a series of manual (literally manual or manually through software) events used to occur depending on what product you signed up for. In order to deliver your product and subsequently serve you and your product, your new data and records in relation to the product you signed up for, migrated and got synced throughout multiple different systems so that next time when you walk into the branch or pick up the phone, your records are current. Since these processes are manual and often needs to be carried out in batches, it took days to reflect these changes on your account.

That’s why it took or still takes (5 days for your check to clear, 14 days to get your credit/debit card, 30-90 days to claim a refund or reversal of transaction and so on..you know it.)

You no longer need a BANK to bank. Technological advancement, shift in computational devices, access to internet is forcing future of banking to change and the change is happening rapidly. The very guts of banks are going through a seismic shift.

Crossing the Rubicon: Digitized vs Digital Native

As consumer attitude toward digital service and experience continues to change mostly driven by digital experience in transportation (Uber), retail (Amazon), entertainment (Netflix, Spotify), fintech (Robinhood, Venmo) this pace of change is ever-increasing. In particular, at today’s time, financial institutes have no choice but to cross the rubicon so they can meet their customers on the other side.

The convenience of digital experience is making physical front-ends of banks irrelevant. Those who are still deciding whether to digitize or natively go digital, undoubtedly latter would prevail. But why?

For a user, the difference in digitized experience and digital experience is evident but not so much for the bank.

When a bank opts in to digitize its services they have to make an expensive and existential choice whether to digitize front-end or back-end first? Obviously, the front end is the face of the bank, that’s where the user converts into paying customers and banks prefer to look like they are in it to win it. Digitization of back end is painful, costly and it means tearing apart your entire business infrastructure and starting from scratch and re-thinking your business model. They simply can’t elect to digitize back-end first and front-end later, after all, they also need to consider business continuity.

A digitized service replaces old venues (infrastructures) in batches. Your branch would move from the main street to mybank.com or mybankApp but the back end that supports the services that you opted in for still runs through the same old back end.

A digitized service can augment the physical infrastructure but it will leave a massive service gap between the user and bank.

Companies with native, digital services that leverage real-time technology as their front/back end infrastructure to provide financial services that solve the problem of undeserved and overcharged are the ones who will dominate financial services.

Digital service is more than a digitized presence on the internet, it extends their ability to: design, iterate services, communicate in real-time in non-corporate language, aided by seamless onboarding and clear conversational communication when system issues arise.

Point to be noted: native digital infrastructures albeit challenging are low cost to maintain compared to traditional banking infrastructure. This gives much-needed lead for teams to iterate their services multiple times before it’s ready to hit the market.

Dawn of the planet of the Banks

Nothing is truer in the corporate world than two principles of the biological world

Struggle for existence and Survival of the fittest

Incumbent banks are aware of the shift and their struggles, what needs to change is the mentality that, to innovate you have to follow the chain of command. The reason why fintech startups are able to deliver such a successful digital service is that they are free to identify and narrow down their problems within a subset of users and cater to solve their problems. Powered by native digital infrastructures, an idea to delivery time is minimal.

Everything starts small except ambition. Small risks are treated as an opportunity and nothing gets lost in bureaucracy while turning those risks into opportunities.