The digital revolution has changed the banking sector with the rise of smaller and nimble neobanks (digital-only banks) challenging the traditional concept of what is money and how it is being used.
These neobanks offer very low or no fees with high annual percentage yields (APYs) with digital tools that attract digital-native consumers born in the internet age. In the United States, digital banks like Varo Bank has just been approved by Federal Reserve and FDIC in 2020. These “born in the cloud” neobanks are not constrained with any legacy businesses.
Posing a grave threat to the traditional business models of banks like ING Group, a Dutch bank, restructured its entire business following the aftermath of the global financial crisis in 2008–2009. Customers were telling ING:
“We don’t need banks, but we do need banking”
From 2010 to 2018, ING embarked on transformation journey to be become a “platform bank” where they now claim that they are a tech company, serving 34 million customers with banking services’. A metaphor used by ING in the transformation was that they were elephants (ING) racing against greyhounds (the neo-banks). The analogy signifying big and slow for the former and fast in a race for the latter.
Figure 1: Elephants Racing Against Greyhounds — Source: Calnan & Rozen (2019) ING Internal Communication
By 2019, Forbes was hailing them as one of the best banks in the world. So, this Banking Elephant is now leading in digital banking services market. By the end of 2021, ING hopes to refocus its digital strategy amidst the COVID-19 pandemic as it further transforms itself to a data-driven digital bank through the use of 4 key areas according to its CEO, Steven van Rijswijk
1.Global use of its fundamental cloud.
2. Data and modular IT technology infrastructure.
3. Re-use developed mobile app components for efficient delivery of services.
4. Wider rollout of digital products for insurance, investments and consumer lending.
Another Banking Elephant is the DBS Bank of Singapore. It embarked on its own journey to becoming a platform bank through a 7 year transformation program from 2014 till today. It was also named as the “World’s Best Digital Bank” by Euromoney in 2018.
‘We act less like a bank and more like a tech company’
Piyush Gupta, CEO of DBS Bank
According to Piyush Gupta, 5 key elements will be the future trends for fintech and banking.
2. Artificial intelligence/ Machine learning
3. Natural language processing
5. Platform ecosystem partnerships
The basic idea is that banking must become invisible.
Invisibility and ubiquity of banking services are keys to the success of these Banking Elephants against the Neobank Greyhounds through a platform operating model for AI Bank of the future.
The consumers themselves should not be aware that they are utilizing banking services! See below Figure 2. for the DBS’s Technology and Operation (T&O) merging with the different business units to form business capability platforms.
Figure 2. DBS Business Capability Platform — Source : Sia et al (2021)
Furthermore, DBS established a two-in-a-box governance system.
The two-in-a-box approach relates to the entire notion of us wanting to operate in the guise of a start-up. If you’re in a startup digital business, the two main people are the CEO and the CTO. These two have to be synced. So for every platform, we have a business and a tech lead. These two people make all the decisions for that entire platform: they have joint KPIs, so they are both delivering one dream.
Bidyut Dumra, Head of Innovation at DBS
According to McKinsey, these Banking Elephants must build a platform operating model that encapsulates the agility of a fintech and scale of a large enterprise. Notice how DBS is organized in Figure 2 to Figure 3.
Figure 3: Platform operating model for consumer lending — Source: Mckinsey
Key enabling platform technology components are cloud, with a cornerstone focus on cybersecurity with the use of artificial intelligence on data (new oil/air/water). Building on top are the enterprise where key capabilities of the Banking Elephant include Cloud DevOps, DevSecOps, data access and governance. The integration at the business platform is thus the final but critical layer where the bank needs to orchestrate the Application Programmatic Interfaces (APIs) to their platform ecosystem.
Both ING and DBS met all the 5 main building blocks highlighted in the McKinsey article during the course of their multi-year transformation journey, and thus are reaping the benefits today.
1. Agile ways of working
2. Remote collaboration
3. Modern talent strategy
4. Culture and capabilities
5. Architectural guardrails
The platform approach also increases the Banking Elephant’s performance in speed, efficiency, and productivity realizing the business model of a large enterprise but small enough to keep the team nimble.
Finally, shifting to a platform model can help the Banking Elephant future-proof its business model through continuous improvement flywheel effect and win the battle against the Neobank Greyhound for the consumer wallet.
Calnan, Martin, and Rozen, Alon. ‘ING’s Agile Transformation — Teaching an Elephant to Race’. Journal of Creating Value 5, no. 2 (2019): 190–209. Accessed doi:10.1177/2394964319875601.
Carson, Brant, Chakravarty, Abhishek and Koh, Kristy. ‘Platform operating model for the AI bank of the future’. McKinsey & Company. May 18, 2021. Accessed on June 12, 2021, https://www.mckinsey.com/industries/financial-services/our-insights/platform-operating-model-for-the-ai-bank-of-the-future#
Sia, Siew Kien, Weill, Peter, and Zhang, Nila. ‘Designing a Future-Ready Enterprise: The Digital Transformation of DBS Bank’. California Management Review 63, no. 3 (2021): 35–57. Accessed doi:10.1177/0008125621992583.
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