What’s the foundation of banking and how is it affected by digital transformation?
A bank in the past provided physical safekeeping services. As it was hard to keep money safe at home there was a case to build a fortified building with specially protected safe to keep valuable assets. The fortified building, aka bank, could now take deposits and keep books to understand the ownership of the deposited assets. One element of trust came from the people and the other is bookkeeping and from the quality of the building and safe. At the time it was no doubt that an impressive building was a good selling point.
Today banking happens in the cyberspace. The quality of the accounting is still a key aspect. On top risk management becomes much more important mainly due to the way banks create new money. Cybersecurity has replaced the physical security of buildings. All these factors are facilitated by technology which becomes the dominant factor for success and failure. People are still important but today’s banking is no longer computer-assisted – it is human-assisted.
People start to realize that the digital transformation is progressing fast and affects their daily life. It is great to have a talk with an adviser but the people factor has become much more an empathy interface or the voice of a set of algorithms running in the background. If the underlying system is outdated or the user interfaces are bad, then this is results in a poor experience for the client.
In the digital era many of the physical trust factors like buildings and people loose relevance. A big and expensive building no longer suggest trust but rather the bank is wasting client’s money or seen as being high cost. In the past, people had a look into the safe room to gain confidence but now they may soon want to understand how technology is set up and ensures the safety and management of the deposited assets.
Many banks have very nice buildings with a technology landscape full of legacy. The tech giants and many of the neo banks are in a much better position to gain trust in this new norm. They are ahead of the digital transformation curve and ready to take over more and more business from companies which have not yet understood the new normal.
While apps and web pages have replaced the buildings, transparency and openness have become the new currency of trust.