Accelerating journey towards digital banking with a 'Bank within a Bank' model

Businesses across various and diverse industries have seen rapid disruption in the past few years. One of the major drivers for this disruption is the consumer and how they are coming to expect a Frictionless approach. Some have called it the Uber effect. No cash is needed, it is on demand and simple to use. That experience is what customers are now expecting when interacting in the Ecommerce world.  Many traditional corporates are playing catch-up and some like Sears, JC Penny's, American Eagle, Sports Authority and Barnes & Noble cannot pivot fast enough, leaving them in a position of reporting negative growth or closing all together. Players like Amazon are disrupting their business models by leveraging the latest in technology and rolling out customer centric digital offerings. These offerings appealed to the digitally savvy customers and those companies have grown rapidly over the past few years. 

The world of banking has seen its own share of disruption. The current business models, organizations structure, culture, processes and technology platform at conventional banks were not designed for this digital era and hyper connected environment. However, many progressive banks have started getting their act right for the new banking ecosystem and digital transformation is now a priority for most banks. Our recent research found that 78% banks want to create a customer centric organization as a priority for digital transformation. Progressive banks have realized that a truly digital strategy is not just adding new channels or enhancing the same old banking business models with digital technology. They understand that they need to rethink their entire business, their organization, indeed their very identity, to align with digital age realities.

Some banks are approaching the digital transformation journey by forming or acquiring digital oriented subsidiaries, a bank within a bank model. According to our recent research, approximately 60% of banks are launching or considering launching a digital only bank as a strategy for dealing with digital transformation. Banks have the right reasons for opting this route as well - over 80% of these banks said that the digital only banks allows them to offer new products & services quickly & leverage modern technologies to design processes that will give them the required agility. This helps them to expand into new customer segments as well.

One such promising example is Marcus, a brand of GS Bank, providing products to help people manage their finances. The first product from Marcus is a fixed-rate, no-fee unsecured personal loan that enables customers to tailor their monthly payment options to fit their schedule and budget. Marcus provides consumers with a transparent and simple approach to consolidate their high-interest credit card debt.

I am delighted that Marcus has deployed the Finacle solution to manage the complete consumer loan-servicing life cycle. Marcus is now able to deliver extensive self-service capabilities on digital channels to design truly personalized products. The system will give end-consumers the flexibility to choose lending terms such as repayment amount and tenure. I feel Marcus by Goldman Sachs is displaying exemplary vision in creating new business opportunities by leveraging modern technology.

Time is of the essence for banks to get their digital strategy and execution in place. It is important that banks also take the lead in identifying emerging and unmet consumer needs and leverage technology to capitalize on the opportunities quickly. The approach should be to build on existing strengths of scale, reputation, brand, trust and customer relationship, and in parallel, experiment with new technologies, innovations and business models befitting the digital age. The bank in a bank model will help banks to relook at the business afresh, upend legacy practices, and generally help think like a startup clearly.