Justifying Investments to Become a ‘Digital Bank’

While the banking industry agrees that investment in digital initiatives are required, determining the prioritization and ROI of these investments is less certain.

With advancements in technology and an increasingly demanding consumer, investments in digital transformation can be the foundation for decreased costs, increased revenue and greater customer satisfaction. Most banking executives struggle, however, with understanding the optimal allocation of digital investments, and the measurement of business results, due to the multitude of product/segment silos and the complexity of channel delivery and usage combinations.

In a Novantas analysis, authors Chris Musto and Paul Kadin point out that financial executives are becoming skeptical of proposals and funding requests because of previous digital investment initiatives that delivered lackluster (or poorly documented) results. For example, despite a great deal of investment and predictions of great returns, online account opening has failed to meet expectations, damaging the credibility of many early advocates.

Part of the problem is that many new account opening implementations are simply iterations of old paper-based processes, with far too many steps and complexity that is not online or mobile-ready. Another significant issue is the presence of sales models that encourage the ‘restart’ of digital consumer new account opening engagements to avoid losing new account sales commissions at the branch level.

“The digital channel planning challenge is real, yet often made more difficult by constricted calculations that omit customer/market considerations and cross-channel ramifications,” says the analysis. For example, restricting future investments for improved digital account opening processes ignores the documented importance of digital channels in achieving early attention and engagement of digital shoppers and generating new business online and at the branch level.

According to digital banking and payments strategist Alex Jimenez, “Banking’s biggest mistake in digital remains how they approach it as a separate domain. Today’s consumer uses the channel most convenient to them at the moment. Most bank’s insistence on defining each experience by channel leads to siloed planning, and customer dissatisfaction.”

According to Novantas, a better approach is to evaluate the financial contributions of digital within the context of all the bank’s channels and capabilities. Using this approach, there are three “anchors” for business case development:

  1. Improving relationship acquisition by being viewed as a “Digital Leader” among consumers.
  2. Leveraging digital channels for improved share of wallet.
  3. Facilitating cost savings through transaction migration (branch to digital, call center to digital), etc.

Positioning as a “Digital Leader”

The first business case for digital builds on what ongoing Novantas analysis has found – being a “digital leader” drives primary checking acquisition. This is because the majority of consumers begin their financial relationship purchase journey online. By being a digital-first organization, banks and credit unions will be in a top position when alternatives are considered.

Novantas emphasizes that being viewed as a leading online/mobile banking financial institution is not a winner-take-all game, since more than one bank can vie for being the top dog. Instead, it is important to achieve at least competitive parity as a digital bank, offering a degree of digital differentiation, in an easy to use solution. It is then marketing’s job to position the organization as an innovation leader.

As online and mobile enhancements are considered, it will be important to balance capabilities with simplicity. In other words, instead of offering too much, offer the basics in a well-designed, simple solution leveraging the unique capabilities of the channel (photo capture, document pre-fil, etc.). Remember, the vast majority of consumers want your organization to address the basics of “know me”, “look out for me” and “reward me” in the easiest to use, digital manner possible.

Novantas warns that even at this stage of the digital revolution, many bankers over-rely on the traditional drivers of perceived convenience:

Share of branches. While local branch presence continues to influence the selection of a new bank, this trend is becoming less important.

Share of voice. While mass and local marketing still has a role, brand and product marketing is moving to a multi-channel communication model, reflecting digital’s growing role in customer perceptions and satisfaction.

According to a Novantas study, organizations viewed as having a leading online/mobile banking solution had a distinct advantage in winning new-to-bank primary checking accounts versus banks that only scored well on share of branch and share of voice. For example, a 5% increase digital leadership perception could result in a 17% increase in origination volume, regardless of the size of institution.

Being viewed as having a leading digital solution requires investment to improve the back and front office solution as well as an investment in promoting this competitive advantage.

Improving Share of Wallet

Improving share of wallet through digital channels is a critical driver of customer lifetime value and the second business case for digital investment. As visits to the branch have dropped significantly, and basic transactions are increasingly handled online or on mobile devices, the opportunities for face to face engagement and selling are minimal. As a result, the online and mobile channels are the primary branding and selling touchpoints.

Despite this channel shift across all customer segments, banks and credit unions have been slow to develop alternative selling strategies that leverage online and mobile channels. The biggest barrier to success could also be the best opportunity for increased share of wallet.

To leverage online and mobile channels for selling, the banking industry needs to replicate the cross-sell models of digital leaders like Amazon and Best Buy. Organizations need to combine advanced customer analytics, contextual offer engines, improved design strategies and digital fulfillment.

Much like how Amazon understands consumer lifecycle, needs and behaviors over time, banks and credit unions need to develop improved next best offer strategies that take into account life stage segmentation and even geo-locational components.
Unfortunately, Novantas research indicates that regional banks are generally falling behind the national banks and direct players in building the execution capabilities needed for effective digital cross-sell.

Three Stages of Digital Cross-Sell Development

Reviewing different stages of digital cross-sell development, while Stage 1 (Basic) players have little or no ability to route marketing messages through digital channels, the Stage 3 (Advanced) players have developed integrated messaging through all digital channels (e-mail, text message, web site, etc.). For the mobile channel, Stage 1 players can only partially replicate the functionality of the bank’s public web site, while Stage 3 players have replicated the full functionality of the site for mobile-specific access.

Both in online and mobile channels, most regional banks are only at Stage 1 or Stage 2 in the progression of digital cross-sell capabilities, lagging national and direct banks.

Online Mobile
Space and ability to display marketing messages, tailored to geography Limited version of main online website, compatible with a full range of devices
Little or no capture of customer emails Basic mobile banking app with simple features to view and transfer balances, + remote deposit capture
Little or no messaging via digital channels Limited or no ability to display/customize mobile ads
Abbreviated/pre-filled applications


Online Mobile
Effective structuring of public site for ease of navigation and discovery Extra “mobile-only” site features to take full advantage of mobile platform and operating system
Targeted ads based on customer profiles, usage Can direct users to mobile-optimized pages via mobile search or quick response (QR) codes
Access to basic preferences for marketing messages Banking app has limited ability to customize screens based on user preferences and data
Live chat for sales within authenticated space Users can opt-in to push notifications via text (SMS)
Immediate booking of new accounts to online banking


Online Mobile
Detailed tracking of authenticated access to online banking, including usage and page flows Full functionality of the online site is replicated for mobile-specific access
Presentation and tracking of personalized offers Ability to support all forms of mobile message: text, multimedia messaging service (MMS), videos, ads
Sales fulfillment for all products Full ability to customize messages and offers based on customer profiles, behaviors and opt-ins
Email capture for majority of customer base Location-based marketing (LBM) to display mobile ads based on location of the roaming user
Full integration of digital communication channels (email, text messaging, online, etc.) Programmatic tools to optimize messaging to clients, with the same precision as paid media for prospects
Marketing site analytics and retargeting for current customers
Context-sensitive prompts in online banking

Migrating Channels

The third business case for digital investment is transaction migration — shifting even more daily banking activity to less expensive alternative channels. Basic examples in the past include mobile deposit capture, improved ATM capabilities and even easy access to account balances on a mobile device.

For example, combining mobile deposit capabilities with next generation ATMs, one national bank has shifted nearly 60% of retail deposit transactions out of the branch, leaving only 40% to be handled by tellers. According to Novantas, for large regionals, digital channels still carry only 25% to 40% of the deposit transaction workload, with 60% to 75% of the burden still on tellers. The value of digital investment depends on closing this gap of channel shift potential.

Novantas stresses in their research that transaction migration strategies must be based on local market differences and transaction type. Alternative channel acceptance still varies significantly based on demographic and geographic variables as well as on the complexity of the transaction.

The Economics of “Becoming Digital”

The increasingly important role of digital channels in the customer lifecycle can’t be ignored. Banking digital channels are becoming a major consumer touch-point, with important roles to play at each stage of the customer journey. The challenge is managing the economics of this digital transition.

  1. Awareness – Digital brand-building, including high-impact display advertising, native advertising, paid social media.
  2. Consideration – Search engine optimization and paid search. Programmatic display with offers, optimized via real- time bidding, predictive segments, site relevance. Presence on product comparison sites. Contextual and geo-targeted mobile ad delivery. Full use of multi-touch attribution technology
  3. Purchase – Simple, transparent conveyance of product info. Digitally-conveyed offers to bank site visitors. Simple, transparent application process.
  4. Anchor – Assure/facilitate customer engagement in 1st 90 days. Activation, welcome and appreciation. Q&A capabilities, education, problem resolution.
  5. Expand – Rewards, recognition, personalized communication. Promote and present cross-sell offers, consolidate “off-us” balances via authenticated digital space.

According to Novantas, an effective digital investment case should clearly demonstrate why certain initiatives need to be prioritized, and the value they provide. “The business case for digital investment should hinge on digital’s role and contribution in the new multi-channel experience, not just as a standalone channel.”

In other words, it is wrong to justify outlays based only on in-channel metrics, such as online product sales or bill pay penetration. Instead, digital investment business cases should include sales driven across channels.

The same would be true for cost-saving proposals related to transaction migration … metrics should reflect the bank’s overall performance, using inter-connected business cases.

“Instead of a series of one-off proposals, banks and credit unions need a prioritized digital channel investment plan, typically a rolling plan for the next three to five years. This should be a living document that identifies the type and size of investments, the sequencing of initiatives, requirements for cross-channel and cross-functional coordination, risks, critical success factors and appropriate metrics.”

The future satisfaction of the banking customer universe depends on organizations meeting their digital expectations that are being set outside the banking industry. Rather than justifying digital investments on a piecemeal basis, it is important to take a holistic view of becoming a digital bank. In doing so, organizations limit the risk of either over investing or underinvesting in digital channels.

The authors of the report discussed in this article are Chris Musto and Paul Kadin, Managing Directors at Novantas Inc., respectively in the New York and Boston offices. They can be reached at [email protected] and [email protected].

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