At this critical juncture, boosting deposits has become a top priority for banks. It’s not just a smart move for now; it creates a strong foundation of stability and competitiveness for the future too.

In order to thrive in this new environment, successful banks will need to develop strategies aimed at attracting a broad spectrum of deposits with a particular focus on retail bank accounts and those associated with small business. This diversification of deposits can help financial institutions to navigate through challenging times, reducing the risk of relying too heavily on one source of funding.

In this article, we’ll explore why growing deposits is important in today’s environment and offer some practical strategies that banks can implement to achieve this goal.

Why are deposits so important for financial institutions?

1. Keeping the financial institution running

Deposits are a bank’s financial lifeline. They are crucial for ensuring that the financial institution has got enough cash on hand to cover customer withdrawals and other financial commitments.

2. Protecting the financial institution from economic uncertainty

More deposits mean a sturdier financial safety net for banks with a hefty deposit stash, banks are better prepared to handle tough economic times and deal with unexpected financial surprises.

3. Strengthening lending potential

The lending capacity of a financial institution is dependent on the amount of customer deposits the bank has. Deposits are the fuel that keeps the bank’s lending engine running smoothly. By increasing deposits, financial institutions have more liquidity to lend to retail customers and small businesses. In order to lend out more, financial institutions must secure more deposits.

How can banks increase deposits?

1. Make saving money easy

If banks want to see their deposits grow, nurturing a culture of savings through digital tools and financial literacy tips is key. Arming customers with tools like savings goals or pots, makes saving easier to do and simpler to track. Additionally, financial institutions can make saving more enjoyable by creating challenges and games and keep customers on track by offering personalised incentives when goals are hit.

2. Attract new customers

Another important option for increasing deposits is by acquiring new customers. Using personalised and contextual referral programs, banks can quickly increase the number of customers they have and hence, the number of deposits they draw in.

3. Increase customer loyalty

Boosting bank deposits can be impacted by the level of loyalty customers have to the financial institution. When customers are loyal to their bank, they’re more inclined to centralise their financial activities, including saving more money within that institution. Add to that, they are less likely to churn and move over to a competitor.

In today’s financial landscape, loyalty programs and rewards campaigns have evolved beyond mere promotional tools to attract newcomers. They’ve taken on a central role in financial institutions’ relationships with their customers. Delivering robust loyalty campaigns has become a must for financial institutions to retain and keep their valuable customers engaged in an ever increasingly competitive market.

How can Moneythor help?

Banks can elevate their digital offerings by providing their customers with the tools they need to achieve their savings goals and enhance their budgeting skills. Moneythor’s platform and orchestration engine makes it possible to offer personalised insights, actionable recommendations, and helpful nudges that empower customers to make sound financial decisions, boost customer engagement, reduce churn, and foster customer advocacy.

With Moneythor you can personalise campaigns and seamlessly deploy gamification features and interactive content within your digital banking channels.

The post How to Enhance Digital Banking Experiences to Boost Deposits appeared first on Moneythor.

The Moneythor solution is powered by real-time data, machine learning and behavioural science techniques to help banks improve functionality and power highly personalised experiences for their customers across digital channels.

As a leading bank in Saudi Arabia and being at the forefront of digitalization, Moneythor’s engine and data-driven personalisation capabilities allow SAIB to focus on customer centricity and to enhance its digital engagement capabilities whilst deepening its relationship with customers by providing them with a more intuitive experience to address their financial needs and goals, both short and long-term.

SAIB’s PFM is the first service in Saudi Arabia providing consumers with a solution that serves them with personalised, contextual and actionable recommendations and insights into their day-to-day finances.

“We are thrilled to be partnering with SAIB for this new service provided to their digital banking users in Saudi Arabia,” said Olivier Berthier, CEO at Moneythor. “We wish to congratulate SAIB on a smooth integration project to deliver best-of-breed customer-first digital banking experiences with enhanced financial wellbeing capabilities, which is a central tenet of our solution. It is a pleasure to collaborate with forward-looking financial institutions like SAIB who share the same priorities, and we look forward to implementing the additional use cases we have in store for local users.”

“SAIB customers deserve a unique digital experience beyond traditional internet banking offering with more data driven digital services, and we enable the customers to understand their financial behaviour and provide them with smart recommendations using our PFM platform, which can support their financial decisions,” said Faisal Al-Omran, the CEO of SAIB.

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To learn more, see how the Moneythor solution can help add modern PFM features to your banking app, read our handy guide to PFM Solutions for Banks or contact our team.

The post SAIB taps Moneythor to roll out intelligent PFM appeared first on Moneythor.

With digital banking and data-driven personalisation technology, Islamic banks are empowered to drive the conversation and meet the expectations of their users for modern Shariah-compliant financial products and tools designed to improve their finances in a differentiated manner and at scale.

What is Islamic banking?

Islamic banking (also known as Islamic finance) is a financial management system created in compliance with Shariah (Islamic law). Traditional banks function on the premise of borrowing to lend; money is borrowed from users in the form of deposits then loaned out to other users, thus earning interest on it. On the contrary, Shariah forbids certain elements of traditional finance like interest (Riba’), risk/uncertainty (Gharar) and speculation (Maisir), which sets it in direct conflict with fundamental tenets of traditional banking.

In accordance with Shariah, Islamic banks and financial products are based upon specific guiding principles and contracts. These principles allow for economic activities without going against key Shariah principles as some traditional banks or products might. Islamic finance explicitly prohibits the collection or payment of, as well as transactions that allow for monetary speculation or ambiguity.

The challenge that Islamic banks face is the ability to meet the financial needs of users while staying within the parameters of the Shariah. Most banks today subscribe to a financial management system that successfully navigates the needs of users and requirements of the law, by establishing Shariah compliant contracts for a variety of transactions that are commonly made.

Shariah compliant contracts that are derived from the framework which Islamic banking is based upon cannot involve the payment or reception of interest, should not result in debt and most importantly, must enable equal partnership and a shared risk and responsibility between all involved parties. For ease of understanding, we will classify the contracts into three categories: Contracts of Sale, Contracts of Partnership and Contracts of Security.

Contracts of Sale allow for the exchange of goods for other goods, the exchange of goods for capital, or the exchange of capital for capital. In this category, there are four common contracts:

• Cost plus (Murabaha): a contract where the financial institution sells goods to a buyer for a fixed cost plus a profit, which both parties agree upon in advance. The buyer then makes a deferred or a lump sum payment.
• Tawarruq: a contract where a buyer purchases a commodity from a seller on credit on a cost plus profit (Murabaha) basis. This contract is used by many Islamic banks for liquidity management and as a mode of financing, particularly for credit cards and personal financial requirements.
• Salam: a contract where the full payment for goods is paid in advance, but the delivery of said goods is made in the future on a mutually agreed upon date.
• Trust certificate (Sukuk): a contract which represents aggregate and undivided shares of ownership for tangible assets or investment. Investors do not own a debt obligation by the issuer, but rather a piece of the asset linked to the investment. While bond investors receive periodic interest payments, sukuk investors receive profits generated by the assets linked to their investment.

Contracts of Partnership allow for two (or more) parties to make money by sharing the risk and the profits. In this category, there are three common contracts:

• Profit and loss sharing (Mudarabah): a contract between two parties in which one supplies the capital (rab ul maal) and the other invests in the commercial enterprise (mudarib). Any profit made from the investment will be shared based on a ratio agreed upon in advance.
• Joint venture (Musharakah): a contract which establishes a commercial entity based on capital and labour, with the profit and loss shared equally or based on a ration which both parties agree upon in advance.
• Mutual guarantee (Takaful): a contract based on principles of mutual guarantee and co-operation, thus resulting in shared responsibility, solidarity and joint indemnity. Takaful provides protection in the event of unforeseen change in circumstances, and is also widely known as “Islamic insurance”.

Contracts of Security are used to enable businesses and individuals to retain and manage their wealth, and in some cases debt. In this category, there are several common contracts:

• Leasing (Ijarah): a contract where one party transfers the right to use an item they own to another party for a specific period of time in exchange for a mutually agreed upon payment. While Ijarah is often referred to as “Islamic leasing”, this definition is misleading as it can also be used in other circumstances like employment as well.
• Collateral (Rahn): a contract in which possession is offered as a security for a debt, and in the case that the debtor is unable to pay back the due money, the debt will be taken from it.
• Safekeeping (Wadiah): a contract in which possession of assets or property is given to another for safekeeping, with the guarantee of a full return of the deposited assets. In Islamic banking, deposit and savings accounts are based on this contract.
• Transfer (Hawala): a contract in which a transfer of financial liability from one debtor to another takes place, freeing the initial debtor from any obligations of debt. In Islamic banking, this is the method used for the transfer of funds between two users, as it takes place without any physical money actually moving.
• Responsibility (Kafala): a contract in which a third party accepts an existing obligation and takes on the responsibility of fulfilling someone else’s liability. It is used predominantly for risk mitigation, and the third party is known as a guarantor.

Technology as an enabler of financial inclusion

Going digital while adapting to demands that consumers today have in many regions enabled Islamic banks to respond to the immediate requirements and needs of customers, improve retention levels and reduce the overall cost of serving them in the long run, thus enabling sustainable growth.

Technology applied to digital financial services also allows for more inclusive banking. While financial inclusion is on the rise, research done by UK based digital banking platform Algbra found that 800 million out of the 1.7 billion unbanked adults globally are Muslims. Going digital, coupled with low-cost internet and mobile phones available in the market today allows Islamic banks to serve a larger segment of the global Muslim population, especially those in remote areas and offer innovative and seamless digital solutions to the Muslim world easily and consistently.

The global Islamic financial landscape is currently valued at $2.2 trillion and expected to continue growing 10% to 12% in the next year. The rapid digitisation of financial services, especially during the Covid-19 pandemic contributes to this. Islamic financial institutions should ride this wave and embrace digital channels as they will enable not just the opportunity to reach new customers, but also allow for the ability to operate on par with other traditional and platform- based financial technology companies globally.

Financial wellbeing for Islamic banking customers

Financial wellbeing is becoming an increasingly important theme for users and financial institutions alike, as we now understand how it plays a key role in maintaining positive physical, emotional and overall wellbeing.

Islamic banks can help consumers adopt better financial habits by personalising their digital services and presenting their users with valuable insights into their finances. This will enable users to receive a steady stream of contextual information about the transactions taking place and allow them to develop a deeper understanding of the state of their financial affairs. In turn, it will also reduce uncertainty (Gharar), as customers become more confident of how much money they have and how much they can spend or will be required to save.

Such personalised recommendations and nudges gradually help consumers know their finances intimately, and present them with useful knowledge or actionable steps they can take to achieve financial wellbeing while staying Shariah-compliant.

Hajj savings goals

Performing Hajj, the Islamic pilgrimage to Mecca, at least once in a lifetime is an obligation for any Muslim, and the fifth of the five fundamental pillars of Islam. From Singapore to Bangladesh and Nigeria among other countries, there are banks providing Hajj saving schemes that are specifically created to help users save, with a target end date in mind to perform their Hajj. These saving schemes are typically Mudarabah (profit loss sharing) savings accounts which users credit a monthly instalment payment to until they reach their goal.

Islamic banks can improve on this service by firstly providing a digital experience for users in their banking app that will allow them to manage their Hajj savings goal. Additionally, a great way to ensure consumers stay on track with achieving their goal is by displaying the progress to their target with visual indicators to keep them motivated and going. For users who might be forgetful, a nudge or notification as a reminder to credit the necessary amount into their Hajj savings goal either at the beginning of the month when they get paid, and even mid-month if they haven’t done so will be useful. This way, banks can form a deeper, more personal relationship with users by helping them achieve their aspirations of performing their pilgrimage.

Zakat planner and calculator

Zakat (alms giving) is the third of the five pillars of Islam, and is another foundational facet of the faith. It is a form of obligatory charity for Muslims and is regarded as a form of worship. Every individual of sound mind who possesses wealth over a certain threshold (Nisab) should donate a certain proportion of their wealth to the less fortunate.

Muslims often find themselves guessing how much Zakat they are required to pay. This is especially a pain point for users who have to manage multiple bank accounts and assets. Incorporating a Zakat calculator in the banks’ digital app can be a really beneficial tool for users of an Islamic financial institution. In the case of users who hold multiple bank accounts across several financial institutions, Open Banking and aggregated account information will be highly useful to help with getting a full overview of how much Zakat should be paid.

A Zakat calculator can analyse transactional data and take into consideration the fluctuation and flow of funds in their accounts within the financial year. Users can then be presented with an accurate amount of how much Zakat they are meant to pay in real time based off the current Nisab, against the assets and funds they have.

Additionally, for users who have Sukuk or other related assets that they need to pay Zakat for, but might not have lots of expendable funds in their bank accounts, providing them with timely reminders about their upcoming Zakat contributions will be helpful to ensure that they can plan in advance or set aside some funds for when it is due.

Conclusion

The Islamic finance sector is expanding rapidly, and is certainly expected to continue growing as the global economy recovers from the pandemic. With this acceleration, Islamic financial institutions need to be proactive and keep innovating, as the continued expansion of the industry also depends on keeping up with current consumer needs and demands.

The development of robust digital banking services should be a priority for Islamic banks to ensure continued growth. Such digital platforms also allow banks to, gather insights, anticipate the needs of their customers and understand of what kind of digitally enhanced Sharia compliant tools and products users require for their current and future Islamic banking needs.

How can Moneythor help?

Moneythor offers an orchestration engine sitting between the financial institutions’ systems of record and their digital channels to power engaging and tailored experiences for end users.

With the Moneythor solution, Islamic banks can upgrade their services with personalised insights, actionable recommendations and contextual nudges to elevate the digital experience offered to customers of their Shariah-compliant products & services.

In the deployment of their digital banking services, the Moneythor solution can help:

• Reduce Gharar (uncertainty) to support customers on their financial wellness journey, while also educating them with financial literacy tips.
• Understand their specific savings objectives and ensure customers stay on track with their goals impacting their finances such as the Hajj.
• Give customers an overview of their finances across all their assets and liabilities to track how much Zakat is payable for the year, optionally leveraging Open Banking to do so.
• And more!

The post Elevating the Digital Experience of Islamic Banking appeared first on Moneythor.

Artificial intelligence (AI) is understood to be this generation’s biggest challenge. We all employ some form of AI in our daily lives, whether consciously or not. It is so deeply embedded in our day to day: the hospitals we visit, the schools we attend, the social media we browse and certainly the financial institutions we bank with.

Artificial intelligence is expected to bring various consequential benefits to society. However, an increasing concern today is that we have not kept up with regulations to match the rate at which AI has developed. While the positive outcomes from the application of AI is indisputable, we have seen in recent years that, if unchecked, it can have serious repercussions as well.

In digital and social applications, it can work to reinforce negative social bias, suppress opposing views in the media that we consume, expedite the spread of misinformation and affect the overall emotional wellbeing of individuals.

Financial services are not immune, with unfair limits on certain consumers’ access to credit or the delivery of financial advice without transparency being among the issues encountered with AI-based applications.

What are AI Ethics?

As AI becomes a central part of products and services, organisations across sectors that employ it are starting to develop AI codes of ethics. They are sets of guiding principles, values and techniques crafted to responsibly govern the design, development and implementation of artificial intelligence technology.

How is the nudge theory impacted by AI?

The vulnerability of artificial intelligence is only relevant when considered in the context of its relationship to end users. While AI is ethically neutral, human beings developing systems of AI have individual opinions and biases. It is therefore important to acknowledge the concerns of applying AI to producing nudges at scale, as it could result in the unintended effect of either algorithmic decisioning bias, or personal bias applied during the development of algorithms itself.

The nudge theory is a concept in behavioural economics that proposes nudges as positive reinforcement to help individuals progressively develop improved thought processes, decisions and behaviours. As human beings, we are all susceptible to bias and suggestion. The concept of nudging proposes that when organisations can understand how people think, they can create environments that simplify the decision-making process and make it easier for people to make better choices.

Nudging is meant to help people make improved decisions without limiting their freedom of choice. Nudging and its effects are so established that in 2010, the British government set up a Behavioural Insights Team (BIT), also known as the Nudge Unit to understand how nudges and interventions can be used to motivate and encourage desired outcomes and behaviours.

In a similar fashion to the British government, organisations today are increasingly using AI to manage and steer individuals into action (or inaction), by nudging them towards certain desired behaviours. However, because there are regulations are lacking currently, data collected on individuals can also be taken advantage of by organisations and governments and be used to nudge them into decisions that might not be most favourable for them.

What are countries and financial regulators doing about AI ethics?

As artificial intelligence and its application continue to develop, countries and governing bodies across the globe are cultivating policy and strategy to keep up with its progress. AI is a global issue and should be addressed as such. Canada led the way by launching the world’s first national AI strategy in March 2017, and more than 30 countries and regions have since followed suit.

In April 2018, the European Commission put forward a Communication on Artificial Intelligence and that was the first international strategy published on addressing how to confront and utilise the challenges brought about by AI. Countries and governments recognise the radical nature of AI and its effects and have adopted various distinct approaches that mirror their economic, cultural and social systems.

Australia

Australia published an AI Ethics Framework as a guide for organisations and the government to ensure the application of AI is safe, secure and reliable. It proposes that AI systems should be built with human centred values, consider individual, societal and environmental wellbeing, be inclusive and accessible, uphold privacy rights, be transparent and explainable, whilst being contestable and accountable.

Applying this framework should aid Australian companies build consumer trust in their product and organisations, drive loyalty in AI-enabled services and positively influence outcomes. The AI Ethics Principles were tested on several businesses and the outcomes were recorded and shared.

Use cases implemented by two of the largest banks in the country feature among the prominent examples illustrated under this initiative.

Commonwealth Bank of Australia (CBA)

CBA uses AI to deliver personalised digital banking services to its users. It developed an AI-based solution called Bill Sense to provide more detailed insights into savings and payment patterns to customers. Bill Sense uses AI and previous transactions to understand the regular patterns, predict when an upcoming payment is due and helps understand how much money they will require to pay their bills every month.

Information is not shared or taken from billing organisations and users have total control over the information that Bill Sense can access to generate its insights and make its predictions.

Robust data and risk management guidelines governed the creation of Bill Sense to ensure it functions safely, is accountable and therefore aligned with the banks and Australia’s AI Ethics framework.

National Australia Bank (NAB)

NAB is another financial institution in Australia that applied the AI Ethics Framework. It implemented a solution using facial recognition technology (FRT) to allow customers to verify their identity digitally by taking a picture of their identification document on their phones, while also providing images or videos of themselves. The FRT compares the images provided to verify users’ identities.

In this case, an external supplier provided the FRT software that is being used. NAB implemented it by following the AI Ethics Framework and getting the third-party providers to design their data systems in a manner that it can be audited externally, and ensuring that the technology is responsible, explainable, sustainable and is implemented fairly.

NAB’s process of data analysis and review ensures that its AI projects are ethical before implementation.

Singapore

In 2018, the Fairness, Ethics, Accountability and Transparency (FEAT) Principles were co-created by the Monetary Authority of Singapore (MAS) and the financial industry as a guideline to organisations offering financial products and services for the responsible use of AI and data analytics, but also to strengthen internal governance around data management and use.

Following that, the Veritas Initiative was created, as a multi-phased collaborative project stemming from Singapore’s National AI Strategy announced in 2019. It is focused on helping financial institutions assess their Artificial Intelligence and Data Analytics (AIDA) driven solutions against the principles of FEAT and ensure compliance.

Based on the immediate requirements that the financial institutions had, a set of fairness metrics and assessment methodology was developed for two banking use cases: credit risk scoring and customer marketing.

Upon completion, two white papers will be published to document the assessment methodology for the FEAT principles, and the use cases.

China

China is likely to be the largest Fintech market in the world in terms of volume and transactions, with online (mobile) payment volume reaching 100 trillion yuan in 2016. In May 2017, the People’s Bank of China established a FinTech committee to streamline the coordination, research and development efforts in the financial sector.

Later that year in July 2017, the State Council of China released one of the most comprehensive AI strategies globally. Named the Next Generation Artificial Intelligence Development Plan, it outlines the country’s vision to build a domestic AI industry in the coming years, and to establish itself as the leading AI power by 2030. The plan highlights finance as a key area for development of AI applications.

It also proposed the establishment of big data systems in the financial sector, the development of intelligent financial services and products, and the requirement to strengthen intelligent early warning systems to prevent financial risks for the Chinese economy.

In August 2019, The People’s Bank of China launched a FinTech Development Plan for 2019 through to 2021 that outlines development targets for the financial sector. Based on the current ecosystem and setup, it outlines the requirement for the financial industry to optimise technologies and systems to allow for the integration of AI.

That being said, despite having one of the most developed AI strategies globally, it is still unclear what China’s approach is when considering ethics in AI, and that remains to be seen in the coming years.

How is AI ethics applicable to digital banking?

In the financial services industry, behavioural science techniques are proving to be successful in changing customers’ attitudes towards their money and helping them manage their finances more effectively. From motivating individuals to set up savings goals or nudging them to track their spending and work on their financial planning, behavioural science techniques are a helpful tool that enables the transformation of the way people view and handle their finances.

However, a primary concern that keeps resurfacing around nudging and even more so when powered by algorithms is: when does a nudge stop being a nudge, and start being an unethical tool that is used to manipulate behavioural change? 

The concern that nudges can become unethical is being partly appeased by sharing openly the nature of the nudge and being transparent about the logic behind its generation. Sharing this information with users empowers them with the ability to make conscientious decisions, where users have understood elements of the decision-making process.

Furthermore, nudges should only ever be applied if they enhance the overall wellbeing of the user, and users should always have the final say in the outcome of the course of action they will undertake. The ability to decide on the conclusion is key to ensuring that nudges remain ethical, and that users ultimately have the freedom of choice to decide what they want in any given situation.

As financial institutions increasingly employ artificial intelligence in their digital banking systems to generate personalised insights and actionable nudges, it is important to ensure that AI ethics are taken into consideration. Systems employing AI should be designed in a manner that allows it to be transparent, accountable and explainable for both developers and users alike.

When designed with AI ethics in mind, issues like data privacy concerns, behavioural manipulation or even biases in algorithms will be effectively addressed and managed as systems and applications develop.

Conclusion

As AI becomes a prominent feature in our lives, it is key that financial institutions and services continue to be proactive in fine tuning and redefining their guiding principles to keep up with its evolving nature. This includes predicting potential algorithmic biases, monitoring the development of AI-based applications, and even re-training systems and models when necessary.

How can Moneythor help?

Moneythor offers an orchestration engine deployed between the financial institutions’ systems of records and their digital channels to power engaging and tailored experiences for end users.

With the Moneythor solution, banks and FinTech firms can upgrade the digital experiences they offer with personalised insights, actionable recommendations and contextual nudges designed to deepen the relationship banks have with their users.

The algorithms and AI models used by Moneythor are rooted in behavioural science principles adhering to AI ethics, with a particular focus on:

• Accessibility, to ensure that the suggested behaviour is well explained and accessible in the user’s mind for it to be considered.
• Desirability, where the output of the AI computation transparently highlights the benefits of pursuing a behaviour change as well as the costs of not doing so.
• Feasibility, with built-in personalised calls to action added by the algorithms to enable the user to take a relevant action.

Updated: 18 Aug 2022.

The post AI Ethics And Their Application to Digital Banking appeared first on Moneythor.

Consumers today expect to be rewarded for their loyalty and continued activity, and as such, customer loyalty programs and rewards in digital banking platforms are being used to provide a grounding to develop meaningful and trusted relationships between customers and banks, and even more so when it comes to digital-only financial services.

Gone are the days of cold, transactional exchanges between banks and their customers. Organisations working to grow a loyal customer base understand that an emotional connection is no longer a “nice to have” but rather a “need to have,” and financial services are no exception.

Surveys have shown that 75 percent of consumers believe they would switch brands for a better loyalty program. The quality of the relationship consumers have with their banks will determine whether they stay, or look elsewhere to satisfy their financial needs.

Loyalty features not only build upon the relationship, but also allow banks to offer personalised communications, engaging promotions and relevant actionable offers to their customers. The lifetime value of a loyal customer base is higher, and they cost less to serve in the long run.

Open Banking as a catalyst

As a result of Open Banking, a strategic paradigm shift for financial services is in order. Open Banking aims to leverage technology and enable the delivery of digital financial services to be more flexible and efficient.

More importantly, Open Banking revolutionises the way data is being used in the financial sector. It allows for other entities or third party developers to access customers’ data at other financial institutions with their consent, thus levelling the playing field for delivering innovative services which used to be constrained by inaccessible data sources.

Consumers are spoilt for choice with Open Banking more than ever before, over which platform they choose to adopt to manage their money. In this environment, banks and fin-tech firms must not miss the opportunity to leverage those new data assets to deliver superior value through their digital services.

Data has always been a core requirement in building customer loyalty in digital banking. It helps organisations understand consumer behaviour better, promote content specific to their needs and deliver superior value by the way of customer benefits. Whether they grant offers, points, vouchers, better interest rates on deposits or cheaper access to credit, to name a few of the emerging techniques used by financial institutions to reward their digitally engaged customers, loyalty programs can be made much more personalised when leveraging Open Banking data.

More than a customer retention strategy

Building customer loyalty in digital banking is not just a retention strategy for financial institutions. It also presents them with an opportunity to strengthen the relationship with their customers. The arrival of new digital banks, virtual banks and neobanks introduces stiffer competition, but it doesn’t mean that consumers will dramatically reduce the number of institutions they bank with.

The consensus across global studies shows that each consumer is a customer of not one or two, but an average of five different financial services providers. While consumers are constantly on the lookout for better deals and pricing for financial products, banks can use loyalty program features to offer existing customers more value for the same products they might be considering elsewhere.

This appreciation of the customers’ needs helps to build the relationship between providers and their customers, ensuring their financial needs are met whilst keeping them engaged, thus removing the need to look elsewhere.

What does a great loyalty program look like?

Loyalty programs have moved from being a welcomed bonus to an expectation for customers. They are shown to significantly impact the building of the brand-customer relationship and influence the decision making of a customer.

Beyond customer retention, a recent study showed that 73% of consumers are more likely to recommend a brand with a robust loyalty program. Social proof has shown successes in garnering interest from consumers, but a loyalty program has the potential to utilise robust channels of communication and outreach to not only strengthen, but shape and influence the trajectory of such relationships.

As with other industries and through other channels, a loyalty program applied to digital banking is a competitive strategy, and must be developed as such. It should be personalised to every user, provide dynamic responses and be able to serve customers with timely recommendations, aligned to their ongoing needs.

Rewards include incentives for referrals and expenditure, with cashback such as card-linked offers to drive usage of the customer’s payment and/or credit products. However, digital financial services are not limited to these traditional forms of rewards already used by banks and issuers for years.

They can also promote customers’ use of the financial institutions’ digital channels and reward their level of digital engagement like the frequency of their online visits or the regular use of specific app features. A great loyalty program for digital banks should also aim to develop customer advocacy, allowing consumers to take ownership of their financial wellbeing and be as interactive as possible, to further strengthen their online relationship.

Points rewards system

How can financial institutions incentivise customers to not only make future purchases but also to use their digital bank more actively? A point rewards system for loyalty programs does just that, and encourages customers to come back for more. Not only do points help with customer retention in the long run, they also create opportunities to deliver a more fun experience and to promote adjacent financial or third-party products to the customer through redemptions by converting points into other physical or virtual benefits.

66% of customers say that a points system allowing them to earn rewards will actually change the way they use a product or service. Redeemable points have been proven to increase a customer’s frequency of activities and encourage them to be more engaged with the service provider, reducing the need to seek out a competitor’s alternative offer. Additionally, a points rewards system allows for greater flexibility as to what can be redeemed by customers. Offering a variety of redeemable rewards will ensure that there are ample options to keep everyone interested and satisfied, thus enhancing customer experience and generating long term loyalty.

Card-linked offers

Card-linked offers incentivise customers by linking eligible payment instruments (originally credit cards but now debit products as well as digital wallets too) and giving them access to a list of targeted offers for retail, dining, entertainment related activities and a growing number of digital products.

Data collected on spending patterns enables financial institutions to create personalised and measurable loyalty campaigns to incentivise customers as they spend. These offers linked to a payment mode allow for personalised, hassle free experiences for customers with often automated and immediate collection of rewards, especially relevant with digital commerce having become a mainstay in the way we purchase today.

Card-linked offers as a feature of loyalty programs are becoming increasingly popular, and is considered to be a new favourite marketing tool for businesses and digital banks alike.

Conclusion

A great loyalty program will not only help financial institutions retain customers, but help with increasing digital engagement, maximising relationships with customers and achieving sustainable growth. A well designed loyalty program for a digital bank will have various dynamic touchpoints, leverage the rich data made available via Open Banking and not limit its reach to rewarding usage of financial products but extend its value to rewarding digital engagement too.

Financial institutions of all sizes should consider cultivating a robust loyalty program tailored to their digital channels to attract and retain their valuable customers in an ever increasingly competitive market.

How can Moneythor help?

The Moneythor solution helps banks, issuers and fintech firms implement data-driven loyalty programs that increase engagement, reduce churn and create personalised experiences for their digital banking customers. With the Moneythor solution, financial institutions can manage the requirements of their real-time, digital loyalty programs and rewards campaigns.

In the deployment of such programs, Moneythor can help with:

• Orchestrating the relationship between the financial institution’s core systems and its customer-facing channels to deliver fully configurable loyalty features powered by recommendations, insights and nudges.
• Configuring partners and merchants with an extensive set of properties.
• Supporting multiple and concurrent types of points and virtual currencies.
• Associating points with fully configurable redemption options.
• Loading and configuring third-party rewards and vouchers delivered as QR codes, scratch cards or mini-games.
• Managing end-to-end card-linked offers from targeted invitations to automated redemptions.
• And more!

Updated: 4th August 2022.

The post Enhancing Digital Banking with Loyalty Programs appeared first on Moneythor.

Moneythor’s behavioural science series, a four-part collection of blogs, is based on interviews held with Klaus Wertenbroch, a renowned expert in behavioural economics and consumer-decision-making. In this series we will be delving into the topic of behavioural science in financial services, it’s benefits and pitfalls, the impact it can have on the financial wellbeing of customers and the role it will play in the future of banking.

Part 2 – The Benefits and Pitfalls of Behavioural Science in Banking
 

Part 3 – How can Behavioural Science Improve Financial Wellbeing amongst customers?

 
Financial wellbeing is a topic of growing importance in the financial services space. Many banks are now providing tools and advice that support customers and help them lead healthier financial lives. The benefits of this are numerous: not only do financially secure customers save and invest more, but they also tend to be more profitable customers for banks. Coupled with the application of behavioural science principles, these tools can deliver experiences that improve customers’ financial decisions and therefore their overall wellbeing.

How can behavioural science encourage better financial wellbeing amongst customers?

 
According to Wertenbroch, one of the advantages of applying behavioural science to financial services is that “behavioural science has shown how people’s actual behaviour deviates from the norms of rational choice in economics. Thus, people make systematic mistakes that prevent them from achieving optimal outcomes for themselves. Those mistakes are hardwired into human cognitive processes.” For banks, understanding the limitations of human decision-making is one of the first steps in building experiences that promote financial wellbeing and encourage effective financial decision-making.

Building on the idea of encouraging better financial decision making, Wertenbroch notes that it can often be the small points of friction that have the biggest impact. “One major challenge is that it is often seemingly insignificant, small obstacles that prevent customers from making financial choices that could yield big payoffs in the long term. These small obstacles, such as complicated login processes or overly complex designs of websites, may seem negligible when it comes to financial decisions, but they create so-called friction, which blocks customers from checking their accounts more frequently or from getting started with saving for retirement.”

He adds “customers simply don’t make optimal trade-offs between the small current effort required to overcome small obstacles and the much larger future benefits”. He notes that this is because of present bias, which is the tendency of people to discount their future preferences in favour of more immediate gratification.

In order to overcome these issues, banks can encourage better financial decisions and choices by “recognising and removing friction points from the technology platforms, on which customers interact with banks,” noting this as an important aspect of integrating behavioural science techniques.

How to leverage friction points?

 
While friction can have a negative impact on customer decisions, it can also be used to provoke positive behaviours from customers. “The idea of friction can also be used to discourage customers from making choices that they may later regret. For example, as credit card customers get closer to their credit limits, they could be sent an extra message on their phones that reminds them of their current balance and their remaining credit and that requires them to tap a button to approve the purchase. This creates a small amount of friction to prevent consumers from making a potentially harmful financial choice.”

When it comes to customer wellbeing in financial services, behavioural science tactics and principles when used correctly, can enhance the customer experience and guide customers to make better financial decisions and choices.

Check out part 4 of the series here

About Klaus Wertenbroch

Klaus Wertenbroch is a Professor of Marketing and Novartis Chaired Professor of Management and the Environment at INSEAD, one of the world’s leading and largest graduate business schools. Wertenbroch is an expert in behavioural economics and consumer-decision-making.

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This transformation of banking from in-branch and over the phone services to fully functioning digital-only banks has been made possible thanks to the internet and the global increase in smart-phone usage. Customer preferences for online services have been a driving factor for the emergence of digital banking.

Spurring on this transformation has been the emergence of a whole new industry; fintech, which stands for financial technology and encompasses any business that is using technology to create financial products and services. Some of the most profitable and innovative companies in the world fall into this category of industry and without it the leaps and bounds that have been made in banking and the wider financial services sector would not have been possible.
 

1. Digital Banking Vs Online Banking

While the two may seem interchangeable, there are distinct differences between digital and online banking.

Online banking involves the availability of a subset of data and transactional capabilities residing in core banking systems so that they are accessible to customers online, typically over the web, and include features like account management and statement access. Unlike online banking, digital banking aims to transform the entire customer journey so that all banking activities can be carried out online in a self-service way and removes the need to visit a physical branch.

Entirely digital customer journeys are becoming commonplace with both incumbent and new banks adopting digital-only banking, a move that has been supported by big investments in technology and new regulations and has led to branch closures and a decrease in the use of cash.

2. Evolution of Digital Banking

Since the founding of the world’s first bank, Monte dei Paschi di Siena in Italy in 1472, it is safe to say a lot has changed and banking as we know it has evolved greatly. Technological innovations such as the debit card, over-the-phone banking and online statements are some of the innovations that were driving the banking industry throughout the 90’s and early 00’s. But it was with the launch of the iPhone in 2007, that the idea of digital banking became a potential reality. Like many other industries, the increase in smartphone usage has forced the banking industry to rethink how they serve their customers and a whole new era of banking has emerged where customers can manage every element of their finances with the touch of button and in their back pocket.

While the iPhone and other smartphones made banking accessible, there are a number of other technologies that have pushed the transformation of banking forward.

• AI

Artificial Intelligence is an area of computer science that aims to create intelligent machines that can work and act like humans. AI powered machines have traits that allow them to solve problems, learn, perceive and reason.

In banking, AI transforms customers experiences and makes interactions with a banks’ digital channels simple, efficient and smart. AI can be used to enhance fraud detection, streamline internal processes and provide personalised insights.

• Natural Language Processing

Coupled with AI, natural language processing can be used to build conversational chatbots helping banks to automate processes and deliver real-time intelligent customer service.

NLP and AI in the form of a chatbot reduce the costs and time associated with serving banking customers and support the delivery of personalised and contextual recommendations and content.

• Data & Personalisation

Data has emerged as the key to creating rich customer experiences. Without access to data and the ability to manage it, it is impossible to provide personalised customer experiences online.

Technology advances such as machine learning have given banks the ability to analyse and categorise exponentially more data about their customers than ever before. Data and personalisation will become the new battleground for incumbents and challengers, with customers choosing their bank based on the level of customisation and support they receive through a bank’s digital channels. Data has emerged as a key strategic element for banks and has become a competitive advantage for those banks that have already invested in personalisation.

• Cloud Computing

Cloud computing, often referred to as “the cloud,” is the delivery of computer services, databases, networking, software, analytics and intelligence over the internet. At its most basic, it is a replacement for hardware storage for data and applications, but when used to its full potential, it can become a catalyst for digital transformation and a game changer for how banks operate.

In banking, the cloud is the go-to server system for challenger banks and has positively contributed to their speed to market, improved customer experiences, reduced costs, enhanced security and improved collaboration.

• Biometrics

Biometrics which are automated methods of confirming a customers’ identity by their biological characteristics and traits, are helping banks to provide simple, one-touch banking securely and with reduced risk of fraud.

Fingerprints, facial and voice recognition are becoming the new methods for unlocking bank accounts, onboarding new customers, approving transactions and accessing personal information.

• APIs

Application Programming Interfaces or APIs are a group of tools or protocols that are used to create and share banking products and services. They allow third parties to connect to a bank or financial service provider and access its common tools, services and valuable assets, such as financial information, customer accounts and product catalogues.

APIs have made innovation in digital banking simple, convenient and cost-effective and have encouraged partnerships between banks and fintechs. APIs are having a transformative effect on banking and this is set to continue into the future.

While technology has provided the tools for digital banking, government regulation at national and international levels has been a driving force behind its mainstream adoption.

• Open Banking

Over the last number of years, the concept of Open Banking has emerged as one of the keys to innovation for traditional financial institutions. By allowing third-party providers (TPPs) to access banks’ customer account data, banks and fintechs can create improved services for customers and speed up innovation in an industry that has struggled to digitalise at the same pace as other sectors.

What is Open Banking?
Open Banking is the secure sharing of bank financial data and services with third parties through open APIs enabling those companies to develop financial products.

First introduced in the UK and Europe, Open Banking initiatives and regulation have taken off around the globe. Countries like Australia, Hong Kong and Mexico have all introduced variations of regulation that promote the adoption of APIs to share banking data between banks and non-banks. Open Banking sets out to increase competition and to reduce some of the barriers to entry that were preventing newcomers entering the market. It also looks to make banking simpler for consumers providing them with tools and insights that allow them to manage their finances more effectively.

Secure access to data allows third parties to provide personalised and customised digital banking experiences to customers that carve out competitive advantage for newcomers in an industry that is notorious for its high barriers to entry.

• Digital Banking Licenses

In Europe, new banks have been establishing themselves over the last few years, using a European fintech banking license to disrupt the market there and bring customer-centric banking to the region.

The rise of new digital banks that has been happening in Europe and the UK is expected to be replicated in South-East Asia with the launch of digital banking licenses. Digital banking license schemes have been launched in Hong Kong, Singapore, Malaysia and the Philippines. While the schemes are at varying stages – with Hong Kong seeing the launch of beta digital banks and Malaysia still at the stage of accepting applications – the high volume of applicants applying for licenses across all countries shows the potential growth opportunities for banks in South-East Asia.

The granting of digital banking licenses, is seen as a way to bring new digital-only banks to the market to face head-on issues such as high levels of underbanked and unbanked populations in the region. These licensing programmes are granting licenses to the applicants who can best support local communities with digital banking services that enhance their lives.

The licenses that are being granted are generally full banking licenses, with some that allow SME and commercial digital banks, others that allow recipients to set up a retail banks, and a number that cover both SME and retail banking.

The mix of new technological innovation and supportive government legislation has opened up the banking industry to a wave of disruption. The use of new technology has had implications for both incumbents, fintechs and other market participants and has led to lower costs in lending, payment systems, financial advising, and insurance and overall better products and services for consumers. Regulation like Open Banking has changed the way incumbents and fintech players interact and digital banking licenses have made it possible for digital-only banks to emerge. All of this has naturally increased the level of competition in the market, new entrants are creating rival products and services that are cheaper, digitalised and more efficient to use. There are many new types of competitors emerging that incumbent banks need to keep a watchful eye on:

• Digital-Only Banks

In the last decade digital-only competitors have been set up with the aim of providing banking services online and without branches. The move away from branch-based business has allowed these new players to provide financial products and services at lower costs. With a strong focus on innovation and agility, these digital banks have created effective and personalised customer experiences in much shorter timeframes than incumbents could.

In Europe digital-only banks like N26 and Monzo have signed up millions of customers with their digital-only, free bank accounts, debit cards and cheap exchange rates. In Hong Kong, digital banking license grantees such as Mox, ZA Bank and others are in beta stage and incumbents like Goldman Sachs have launched separate digital banks to compete with the newcomers.

• Fintechs

While there are many fintechs that aim to work alongside incumbent banks, there are also those that are directly competing with banks on a certain product or service. These are not fully functioning digital banks but are financial service providers that rely heavily on digital.

Examples include M-Pesa, the telco-backed remittance company that makes money transfer possible by mobile-phone in Kenya. Ant Financial, the Chinese mega lender that uses tech to grant loans in record times of 3-4 minutes and TransferWise, the UK headquartered fintech that provides cost-effective money exchange and transfer.

• Big Tech

Big tech firms including Google, Amazon, Facebook and Apple, have all launched versions of financial products over the last year. This group of tech companies already dominate a number of industries and have large and loyal customer-bases that would be keen to try their financial products.

 
Digital banking has changed the way people manage their finances and created a more competitive and agile banking market. Here are some of the key ways it has changed people’s lives:

• Financial Inclusion

1.7 billion people across the globe are unbanked. This means they do not have access to a bank account, lending facilities or savings options. Thanks to the increased prevalence of smartphones and internet connectivity more people than ever are accessing banking services online.

Simpler online KYC processes have also made it easier for those who cannot go into a branch to set up an account to get access to banking facilities online. Along with access to accounts, people can now also access financial literacy tools helping those who need it most to effectively manage their money.

There is huge potential in unbanked markets and many of the new digital-only banks that are emerging in South-East Asia are expected to go after these unbanked populations.

• Access to Lending

Customer data has always been a central decision-making factor for financial institutions – bankers may make lending decisions based on your credit score while insurers might look at your driving record or require a health check before issuing a policy. But as people and their devices become more interconnected, new streams of granular, real-time data are emerging which support more efficient and speedier decision-making processes. This is particularly beneficial for SMEs who in the past have struggled getting access to finances when they needed it.

• Personal Financial Management

Personal Financial Management or PFM refers to the digital tools that consumers use to manage their financial situation. Through clearer, digital categorisation of transactions, users can view budgets, analyse trends and track bills online.

PFM tools give customers the ability to manage their finances in an educated and transparent way leading to better financial planning and overall financial wellness. Customers can use PFM tools to take control of their finances by setting up and managing budgets, track progress of their financial goals and set-up notifications and nudges to manage overspending. For small and medium-size enterprises, similar tools are available under the BFM acronym for Business Financial Management and extend their functionality to cashflow management and other business matters.

 
Digital banking has transformed how we manage our finances and how banks serve their customers. Ongoing innovation in digital banking engagement platforms, technology and regulation will continue transforming banking. What will digital banking look like in the future?

• Data Transformation

Data offers companies a way to grow into new sectors and capitalise on new opportunities. Most big tech companies are successful because of the efficient way they manage customer data. In the future, data transformation will play a crucial role in the success of the bank and will be made simpler by innovative tools and technologies such as AI-powered analytics to track and monitor, distributed file systems that allow for easier access to data and cloud technology to make operations leaner and more efficient.

• Banking-as-a-Service or BaaS

BaaS involves banks providing third parties with access to core systems and functionality so that they can integrate digital banking engagement platforms and payment services into their own products. From a bank’s perspective, it involves embracing a more modular way of working and allowing an ecosystem of fintechs and software providers to connect to the bank through APIs.

BaaS provides new revenue streams and improved customer service for banks and faster speed to market and reduced costs for fintech. In the future, incumbent banks will function as platforms that allow customers to choose services personalised for their needs from a range of providers.

• All Banks will be Digital Banks

As technologies such as AI, IOT and cloud computing transition from emerging to transformative, they will cause aspects of banking to become unrecognisable from what we experience today – changing the channels, services and role that banks play in our lives today.

Already we have seen huge shifts in customer preferences when it comes to banking. While more and more customers are embracing digital banking we can expect fully-digital, personalised and one-touch banking to become the norm in the future. A side-effect of this will be a reduced need for in-branch services, as the high level of personalised experiences that will were previously only found in-branch become available online and through a banks digital channels.

Government regulation aimed at digitalising and democratising banking, will continue to push the finance industry forward and encourage a new breed of digital banks and digital banking engagement platforms to emerge.

Digital banks have the capacity to serve groups of the global population that previously been unbanked, increasing access to financial products and services and creating entirely new markets for digital-only players.

In the future, customers will still need to save, borrow, invest and make payments. Digital banks, thanks to technology, shifting customer preferences and government regulation, will continue to help customers find smarter and better ways to carry out these tasks and manage their financial lives digitally.

Updated: 29 April 2022.

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While mature markets are crowded, banks in emerging markets can create new demand and increase banking revenue. Larger market size creates opportunities for banks to spread the cost of innovation further and across larger customer bases. In these big-scale markets, technology utilisation is higher, generally leading to stronger return on investments. In a time when banks are struggling to cut costs and increase profit, unbanked populations can create fresh revenue streams and drive profits.

For consumers, having access to banking services allows them to carry out simple financial tasks like saving for family needs or borrowing for their business. Having access to financial services is critical to reducing both poverty and inequality in these markets.

Tapping into these emerging markets has big potential for banks that are struggling to see growth in domestic markets. Unbanked populations reside across all geographies, including developed countries but their numbers are more pronounced in emerging or developing economies.

Indonesia, for example, is the largest economy in Southeast Asia, the 16th largest in the world and has an unbanked population of 180 million people. Half of the unbanked are under the age of thirty and are open to digital banking products. Banks at the forefront of serving this market are well-positioned to reap major economic value.

But to effectively serve a market like Indonesia, banks need to rethink the way they serve customers. Unbanked populations need easier access to financial services forcing banks to look at alternative distribution models. In Indonesia, one of the prevailing reasons for a lack of banking adoption comes down to the geographical make-up of the country and the tricky logistics involved. Indonesia is made up of over 17,000 islands, of which around 6,000 are inhabited. People are not willing to travel to a neighbouring island to carry out their financial activities which means that banks need to come to them. The good news is that 70% of Indonesians have a mobile phone, 42% of which are smartphones. Mobile technology is the obvious solution to Indonesia’s underbanked population, helping to overcome the logistical issue associated with having a physical presence on every island. However, even with mobile technology available, setting up in a market like Indonesia comes with a number of challenges that banks need to overcome.
 

What are the challenges banks face in emerging markets?

• Lack of infrastructure

• Connectivity issues

• Identification difficulties

• Limited financial literacy

• Lack of infrastructure

These emerging markets tend to lack the infrastructure required to introduce traditional and/or modern banking solutions. Banking technology alone will not solve problems at this scale. Robust ecosystems are required that involve partnerships between banks, telcos, governments and payment providers. These partnerships will need to deal with problems such as internet connectivity, merchant payments, financial literacy and identity issues.
 

• Connectivity issues

In order to get more people into the financial system, the industry must find a way to help more people get access to the internet. Internet access can empower people to overcome financial limitations, but without it these markets become unreachable. And while more and more people are being raised with internet access, banks must consider the role they need to play in helping those who do not have access, get online.
 

• Identification difficulties

A crucial step in setting up a bank account and accessing financial systems is the confirming of identity and KYC. While identification documents are standard in developed countries, the same cannot always be said for emerging markets. Without proof of identity, opening bank accounts becomes a difficult, nearly impossible task. The same goes for credit history which is required as part of the lending approval process. Technology is emerging that aims to solve these issues such as digital lockers that store citizens identification documents and lending platforms that use algorithms to determine the safety of a loan by considering a range of different factors, not just historical credit history. Financial Institutions will have to find innovative ways to conduct KYC and identifying customers in these markets.
 

• Limited financial literacy

Providing these markets with financial products and services is just one part of the puzzle. Banks need to educate consumers on how to effectively use and integrate financial services into their lives, which can only be done through financial education. These markets need access to simple financial education materials which will enable them to manage their finances correctly.

Serving these unbanked populations has many advantages for both consumers and banks. However, banks will need to overcome a number of challenging issues to effectively serve these markets and reap the benefits of serving them.

Blog post updated August 2020

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The banking industry is no different and has seen huge amounts of disruption over the last number of years. This is down to the emergence of new players who offer entirely digital banking services, progressive legislation which has pushed banks to reconsider how they manage data and changing customer expectations.

The changes in the banking industry have made it difficult for traditional banks to maintain customer loyalty and their margins remain low. By Introducing digitalisation strategies, banks can drive customer engagement, reduce costs and Increase revenues.

Banks now face two options: adapt, digitalise and grow or stagnate and become irrelevant. But adapting and becoming a technology company is no mean feat and involves completely reinventing the business from the top down. Banks need to refocus the entire business on digital priorities and strategic goals. Banks must transform their culture, operations, technology and data strategy in order to make the move from financial to technology firm.
 

What are the four requirements for digital transformation in banking?

• Digital transformation requires cultural transformation

• Digital transformation requires operational transformation

• Digital transformation requires technological transformation

• Digital transformation requires data transformation

• Digital transformation requires cultural transformation

One of the biggest hurdles for banks is the inability to change the company mindset from that of a financial services provider to a technology company. Many banks have been in business for decades and over that time have built a strong and long lasting organisational culture, which can be difficult to change.

A whole new way of thinking about problems, customers and solutions is required to transform a company’s culture. The new culture must be clearly defined and become the driving force of the bank’s overall strategy. It should be visible in the structure, brand and processes that the leadership team introduce.

The leadership team play a crucial role in guaranteeing the success of a cultural transformation, they must encourage its adoption and embrace it themselves in everything they do. Without their buy-in, odds are the rest of the organisation will not adopt the new culture.

• Digital transformation requires operational transformation

Operational transformation Is required to ensure the smooth running of new digital Initiatives. Banks must first assess their current operations including current processes, capabilities, behaviours and management practices. They then need to introduce a management strategy, clear vision and implementation roadmap that can guide the entire workforce towards digitalisation.

Operational transformation should be employee-led, and all levels of the organisation should be engaged with implementation of the new strategy. Employees should feel empowered to contribute to the change.

• Digital transformation requires technological transformation

Banks are notorious for having core legacy IT systems that can be outdated and underperforming. In order to transform digitally banks must focus on reinventing their core legacy systems and look for ways to build higher performing and digitally focused systems that provide customers and employees with a positive and efficient experience.

In order to overhaul the technology strategy, managers should be trained to recognise new opportunities and when possible to build in-house capabilities to deliver new technologies. When it does not make sense to build the technology internally, banks should be open to looking for fintech partners that can help them achieve their goals. Regardless of where the technology comes from, there should always be a focus on getting the maximum strategic value from any new technology Introduced.

• Digital transformation requires data transformation

Data offers companies a way to grow into new sectors and capitalise on new opportunities. Most big tech companies are successful because of the efficient way they manage customer data. Banks naturally have access to huge amounts of customer information and data that they are not using to its full potential. They must now take advantage of the technological advances that are making data transformation simpler such as analytics to track and monitor, distributed file systems that allow for easier access to data and cloud technology to make operations leaner and more efficient.

Banks need to introduce a data strategy, which sets a clear ambition for the value it expects to create and to introduce appropriate processes that allow for the correct management of the data. Data governance and regulatory compliance are key to ensuring data quality and to introducing a successful data strategy.

Data, when used correctly can provide customers with a personalised and contextual online experience which leads to higher levels of customer engagement and loyalty, reduces costs and increases online revenues.

Digital transformation is no longer a nice to have but it is a requirement for all banks if they want to stay relevant and provide an exceptional customer experience. If a bank truly wants to go digital, they need to look further than just the technology but consider the implications it will have on the entire organisation.

Blog post updated August 2020

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According to The Centre of Financial Services Innovation, only 28% of Americans can be considered financially healthy, meaning that over 70% of the population are struggling to manage their money correctly. In the same survey it found that nearly half of respondent’s monthly spending had equalled or exceeded their monthly income, leaving them with no savings and high levels of debt.

Statistics like this are scary and prove that there is an obvious need for better financial management, education and well-being.

What is financial well-being?

According to The Consumer Financial Protection Bureau, financial well-being is the “state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow them to enjoy life”.

Why is financial well-being so important?

Financial well-being gives people the security they need to enjoy their lives. The side effects of poor financial health include stress-related illness, decreased work productivity, absenteeism, depression and anxiety. Being financially healthy means people can make better financial decisions, manage debt effectively and plan for saving and retirement.

Added to that, when a country has a financially healthy population it reduces the pressure on governments to support the retiring population and leads to inclusive growth which decreases levels of poverty, inequality and social exclusion.

How can data empower people to take control of their finances?

• Data can help consumers manage their money.

• Data can power financial literacy.

• Data can encourage consumers to invest.

• Data can promote need-selling.

• Data holds the key to financial well-being.

• Data can help consumers manage their money

Having access to financial data is the first step in helping people manage their finances and empowering them to make the right financial decisions. In today’s technological age, accessing financial information should be simple and convenient, with aggregated accounts to provide a dashboard view of one’s current financial situation.

While having access to this data is useful, if it isn’t presented in a transparent way, it can be difficult for people to understand what each payment is and how they can cut back on spending. By giving people a clear view of their income and expenditure, they can properly plan and organise their finances.

The traditional statement is going through a period of disruption thanks to digital and mobile banking. Many banks now offer upgraded statements that are more intuitive and interactive, with transactions categorised by type e.g. food, transport, shopping. Categorising data in this way allows people to see where they are spending their money and highlights any potential opportunities for saving and investing.

DBS offers this type of categorisation on its digital channels and takes it a step further by providing actionable content, including personal financial management recommendations. These recommendations and alerts nudge consumers to make better financial decisions e.g. encourage consumers to setup a budget to manage their spending, to set goals for savings or to alert them to potential cash-flow issues in advance. Recommendations like these are completely personalised thanks to data analytics and machine learning that find patterns based on previous transactions and provide the right recommendation to the right person at the right time.

• Data can power financial literacy

Many people have little understanding of their finances and the impact that today’s financial decisions can have on their future. This lack of understanding is one of the key reasons why people struggle to manage their finances correctly.

Financial literacy, which is the education and understanding of managing personal finance, borrowing and investing, provides people with the knowledge they need to make financially responsible decisions. Financial literacy can be as simple as explaining how a current account works, but it can have a big impact on a person’s overall financial well-being. Those with low financial literacy tend to have less wealth, higher debt and pay more for financial products and services.

• Data can encourage consumers to invest

Once customers have a better understanding of their financial situation, they can start to look into investing some of their extra cash. Modern digital platforms are making investing easier and less intimidating for people.

For example, Raiz Invest, a mobile-first investment platform that serves customers across the APAC region, provides a simple tool for customers to invest their spare change rounded up from daily transactions into a diversified portfolio. It makes investing simple and doesn’t require a big upfront investment. Platforms like Raiz make investing accessible to all people regardless of their earnings.

• Data can promote need-selling

More often than not, people enter into debt agreements that do not suit their needs and/or that they cannot sufficiently manage. Lenders need to offer more personalised and suitable financial services and solutions, rather than using a one-size-fits-all approach which rarely actually fits.

Most lenders and banks collect and collate a huge amount of data on their customers, this data holds the key to need-selling and contextual marketing. By using the data that banks have on their clients and applying technologies such as real-time analytics, machine learning and AI, thousands of transactions can be reviewed and predictions can be made on how much a person will spend, whether or not they will need to go into debt and detect how much money, if any, a person will need to borrow.

This same technology can also stop people from going into unnecessary debt as it can forecast a person’s cashflow, warning them when they are about to go into overdraft and helping them to avoid it.

• Data holds the key to financial well-being

Data holds the key to improving the financial well-being of banking customers, it can give them the transparent overview of their finances they need, educate them on financial affairs and provide them with financial services that will help them to become more financially stable.

Blog post updated August 2020

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