The New Meshed World of Digital Financial Services
Seems every word in the new financial world must contain the “digital” Prefix?!
Digital banking, digital wallets, digital payments, digital lending, digital BNPL, embedded finance, digital remittance, and on and on and on goes the list of an ever-increasing list of all what all could be considered under the umbrella of digital financial services. Regardless of which financial establishment is offering them, whether it is an incumbent bank adopting a digital-first strategy, or a microfinance institution, a credit cooperative, and nowadays the exploding number of Fintechs, at the end it all comes down to digitizing the entire ecosystem of offering various forms of financial products and services. The manner in which innovative ways of delivering variant financial services across multiple digital channels in an affordable, cost-effective, and most importantly relevant to the different customer bases is ever-evolving year over year, in fact, month over month. This has created a tensedan intense friction and push and pull effect between the status quo and the challenging newcomers. In many markets, the incumbents have the regulatory system in their back pockets either influencing or restricting the reform of existing laws and regulations to their favor or preventing actual laws from being passed. It is a complex tug of war where the consumers’ interests are always used as an excuse.
Nonetheless, it is indeed playing into their favor, with more variety in financial products, a more competitive environment, more options, and a much much more enhanced user experience in comparison to a decade or two before, things have undoubtedly turned for the best of everyday consumers. With another infamous terminology, financial inclusion seems to be, actually, happening, better yet, evolving.
However, when we refer to digital financial services, what does that imply? Is it the fact of being able to access a certain financial service through a mobile application or from the provider’s website? Does that make it digital? If that is the case, then a nice 70%+ of global service providers would be considered to have achieved the digital transformation checkbox? Or not?!
The Deep End Behind ‘Digital’
So, what is digital really? Or digital transformation for that matter or whatever new nicknames we want to call it? And especially when we are referring to the different forms of financial establishments worldwide and even more particularly within the emerging world, Africa being a booming star nowadays. Now, as dumb a question as that may seem, through our extensive engagements with even some of the top financial players, they even (after a lot of resistance) admit to not exactly being sure what that involved. Sounds simple, logical, and just bring in a consultant, who would in turn bring in a bunch of other technology providers, pay the money, spend an extensive time implementing and voila, I am a digitally transformed financial institution. Right? Well, billions have been spent and yet many have failed to achieve the simplest of objectives. Why is that? I mean with all those professionals and experts out there.
Well, the sad news is that there is no not one magical equation to digitally transform your organization. It is a process and a long and , hectic one that the kind of technology you adopt, yes does have a considerable impact, however, there are many aspects of it that has to do with restructuring your entire operations, your business logic and workflow process within the depths of your institution that would enable you to gradually transition into a more lean establishment, with less steps, with less bureaucracy, with less cost centers, basically, (another abused term) establish a streamlined operations. Now, again, that may seem like a simple task for any of the numerous top-notch consultants out there, but it is not! Of course, a big factor lies within how big the organization really is. So, a small fintech has it easy, they just need to figure out the right business model since they are starting from scratch, yet many fail. Obviously, a large mammoth bank with international operations would go through a nightmare in comparison to a small local bank or credit union in Africa. I am not going to list what already unlimited reports and surveys already illustrated, but many have failed, and some achieved considerable milestones, and a handful have indeed hit the jackpot. Some of those even include huge multinational banks.
So, what’s the secret? There aren’t any. Every organization really needs to dig deep, again, depending on how large the operations, the portfolio, the variety and size of their customer base, into what are their priorities, what are the most essential of their overall financial suite of products do they really want to digitize first, those that are business critical, or from a different aspect, a new customer segment they intend on focusing on based on market potential they want to adopt a new fresh business line for with all its backend operations. It is taking a phased approach to this complex process that might be the key. Because changing entire operational workflow does not happen overnight and especially when tied to legacy old aged financial systems. It is creating a new operational business model from scratch with a specific focused customer segment or group of customer segments with a specific offering and creating an independent platform to acquire those segments. The approach here is very different, you identify your customer, create the relevant product with the relevant business model, create the operational process behind that would adopt and transition part of the existing policies already in place especially where security, data confidentiality, and other compliance issues are concerned. That is the whole concept of digital you think from the customers’ perspective, create the value proposition around that which would include how do I streamline my internal process to make the service happen and do it in the most cost-effective manner to increase my competitiveness.
Having said that, does not make it again an easy task for any financial institution, but it is simply a clarification of what the word digital actually entails and is most certainly not merely a nice-looking mobile application that you expose your services onto. It is creating the environment behind that that would indeed digitize the whole customer journey from first touch base to actual consumption and most importantly CONTINUOUS consumption.
So, What’s All the Mesh About?
Obviously, technology capabilities play an essential role into completing the puzzle. How it really is agile (again another fancy word used a lot these days) allowing the bank to create, configure (not code or develop) a financial service and make readily available to their different customers with a few clicks of buttons on their digital channels, whether it be, predominantly a mobile app, a web app, an ATM, or self-service kiosk, or as is common in many emerging markets, USSD. Scalability, another game changer whether it is across how quickly I can adopt and offer new products and absorb an increase in my customer base, transactional capacity, or business operations, or from an even broader perspective, enable a standby mode capability of digital expanding my business cross border to include multiple markets.
Although, many technology providers claim their ability to deliver on the above, many have failed. This is another contributing factor to why many institutions attempting to initiate their digital transformation process have not been able to come close to what they essentially aspired for, the lack of expertise, and knowledge to make the right decision on their selection of the right technology partner. It is a long standing and ongoing relationship, not a one-time standoff where you purchase a software license and that is the end of it.
Another crucial part is the ease and speed at which this platform would enable you to integrate in a sort of plug & play mode (nothing is that straightforward though) with any other external parties which is becoming an intrinsic part of the equation, strategic partnerships. Now although a lot of the large global players tend to take a more bullish approach through M&A, most are subtler into realizing the benefits of shaking hands with a variation of other financial service providers, insurance companies, Fintechs, PSPs, other credit institutions, and onwards. This extends nowadays to integrating with all the different e-commerce platforms, food delivery apps, ride-hailing providers, amongst many others into completing the value chain and tapping into the everyday lives of their customers, corporates included.
Back to the topic of microservices (another abused one), the question that enforces itself, is how a technology platform could be designed to support financial microservices creation rather than being designed as boxed bulk products with enclosed features locked to that product, and this is key to the core of this article. What financial institutions really need to start looking at every service as a stand-alone product, meaning, that if you look at what an actual digital banking application should deliver to its customers in an ideal world, is basic services from self-registration and onboarding, opening accounts, ordering credit cards or other cards, (both physical and virtual), settling cards payments, requesting bank statements to be emailed, applying for a loan (whatever the type), making transfers to others, making payments whether it be online, or offline at merchants, making bill payments, cross border payments, buying airtime/top-up, or as they like to call it making payments for my everyday purchases, from food, to other merchandise, to entertainment, etc., etc., etc. Ok so how would a digital lending solution ideally deliver to its customers? Again, self-registration & onboarding, opening an account, applying for a loan (whatever the type: micro, nano, personal, auto, mortgage, etc.), using that loan to make payments, (it is why I am applying for it in the first place) to a number of merchants depending on the purpose of that loan, hence the value of the partnership ecosystem enrichment, making transfers, bill payments, and so on. On to the next, what would an ideal payments application provide? Self-registration & onboarding, obviously using it to make all sorts of payments in my everyday life, online purchases, offline purchases at merchants, bill payments, airtime/top-up, opening a digital wallet account perhaps, cross border remittances and payments, added value by aggregating other financial services besides payments, such as applying for a loan, having microinsurance, etc….
Now there is another catchy dubbing called embedded finance, where nonfinancial enterprises are enhancing their value chain through either by partnering with financial service providers to aggregate their services within their internal platforms or even in several cases becoming a licensed provider themselves. We are seeing the big Tech giants leading the pace to that accordance. We have engaged with automobile manufacturers, mining companies, retailer conglomerates who are following pursuit and exploring the different strategies within which to offer fan array of financial services to their business ecosystems.
Hmmm, seeing the pattern here?! It is apparently turning into what could be called a digital financial pandemic, a big bowl of mesh of different financial services being offered at every turn and every aspect, all in attempt to create more value to their customer audiences. Now, what is very evident, payments come at the heart of all of this. Makes sense, right? Whether a corporate, a small business or an individual consumer, we all use the cash to conduct some sort of payment for a certain product or service at the end of the day. That is what all the hype is all about these days into building the infrastructure behind this from regulatory reforms to further facilitate the ease of processing a payment, to international payment rails and networks, to digitizing all payments players involved, and so on.
What it comes down to, is really the set of core values any financial institution would like to ensure it delivers to its focus customer audience, whether they are more inclined towards large corporates, or MSMEs or what are now becoming the star focus of today, the majority unbanked populations of this world, or all of the above, it is the importance of being able to offer a multitude of financial and nonfinancial services to your customers that may not necessarily be the heart of your business model. It is indeed becoming a mesh of digital financial services.
About CIT Vericash
CIT VERICASH is a division of CIT GLOBAL, an international leading provider of innovative eCommerce and mCommerce software solutions and services with solid expertise spanning 25 years, since its establishment in Toronto, Canada in 1993. By applying CIT Global’s dedicated centers of excellence and its specialized leading products, in cooperation with its strategic partners, the company has delivered innovative and award-winning solutions to its clients in more than 48 countries, serving leading brands from North America, Europe, Asia Pacific, the Middle East, and Africa.