The Future of Digital Banking with Benjamin Quinlan

Digital banks are expected to spur more financial innovation and accelerate the digital transformation in the finance marketplace in coming years. However, it’s not easy feat - one must navigate often-complex regulatory landscapes and be bold to experiment with something new.

Going ahead of traditional banks in terms of flexibility, self-service capabilities, customer needs, and personalisation, are digital banks able to cross the line into profitability? Read on this interview with Benjamin Quinlan, CEO & Managing Partner at Quinlan & Associates to find out the opportunities and challenges that lie ahead.

Tell us about Quinlan & Associates and what excites you most about the financial services industry?

Quinlan & Associates is a leading independent strategy consulting firm specialising in the financial services industry. We offer end-to-end strategy consulting services designed to deliver commercially executable solutions for our clients’ most pressing business problems. Unlike the big consulting houses, we live and breathe financial services and FinTech, which provides us with a major competitive edge in the market.

What excites me most about the financial services industry is that it remains in a constant state of flux, with new market developments and disruptive industry trends being witnessed on a near weekly basis. The rise of FinTech, in particular, has further sped-up digital innovation across the entire industry, from virtual banking to InsurTech to digital assets, making this the most exciting time to be a part of the industry.

With the focus on improving the digital customer experience, is it more than just making a process ‘digital’?

Absolutely. While digital transformation has helped shift the customer experience from offline to online, companies need to push the envelope much further to win. The real gamechanger is how firms can leverage customer data to derive rich insights and hyper-personalise user engagement.

Leveraging customer data appropriately can allow financial services providers to gain a granular understanding of their customers and tailor the experience accordingly. For instance, you can A/B test your user interface (“UI”) to see which of your customers reacts more positively, track critical touchpoints along the digital customer journey which are causing significant drop-offs or uplifts in engagement, and observe spending patterns to get a peek inside customers’ lifestyle choices (including how you can best position your service offering to address their needs in a real-time manner).

I expect companies with a digital-first mindset who can effectiveness harness the power of data to win the lion’s share of customers’ hearts and minds in years to come.

What has been the biggest challenge with digital transformation in Asian banking?

I strongly believe that culture has been the biggest challenge with regards to not just digital transformation, but also broader innovation efforts at Asian banks.

To begin with, the very foundation is hampered by a chaotic and poorly designed innovation processes, which are further plagued by problems with legacy systems and challenges around integrating with complex IT / data architecture.

If we take a look at some of the larger players, then most of their digital innovation efforts, such as “innovation labs”, are frequently used as marketing tools, with no meaningful incentive structures to drive firm-wide innovation efforts, and bureaucracy-driven competing interests restricting firm-wide buy-in. Unfortunately, the smaller banks also have their own cultural shortcomings, as they may be hamstrung by key personalities or organisational / skill-set misalignment between innovation teams and the businesses they intend to transform.

If there is to be a meaningful digital transformation, then it must first be preceded by a cultural one.

How can traditional banks leverage their existing foundation to compete with new and nimble digital/mobile-first competitors?

I see multiple options and paths that traditional banks may adopt, in order to better prepare themselves for the digital age.

First, by reducing physical branches and locating them strategically, coupled with greater investments in technology to build-out digital channels, traditional banks can gain a competitive edge through a “phygital approach”.

Second, traditional banks can focus their efforts on higher touch clients (e.g. large corporates, high-net-worth individuals (“HNWI”)), whose more complex needs necessitate in-person interactions that can be completely placed by digital solutions.

Third, we should not rule out inorganic routes like accelerating partnerships with third-party FinTechs or acquiring digitally native competitors.

In a nutshell, with some traditional banks like HSBC and DBS launching digital banking apps, while others like Standard Chartered and BOCHK invest in newly minted virtual banks, I don’t think that the bigger names are going to have the rug pulled out from underneath their feet.However, some smaller industry players may struggle to remain relevant. 

What are top 2 biggest changes we will see in banking in the next 5 years?

As a result of the ongoing wave of digitalisation, I see two key changes in the banking landscape: (1) greater personalisation and (2) integration with lifestyle offerings, as banks become a one-stop-shop for a wide range of financial and non-financial needs, forming a closed ecosystem. We are already seeing two distinct pathways emerging; one that is organic and another that is partnership-based.

Take the example of Tinkoff Bank in Russia, which has evolved from an alternative credit card issuer to a financial super app, providing current accounts, loans, mortgages, investments, savings, and insurance products. Recently, it has branched out into various “quasi-financial” services, including cinema tickets, restaurant reservations, and much more.

On the other hand, Starling Bank in the United Kingdom (“U.K.”) has opted for a marketplace model by integrating with various third-parties for business offerings like accounting, payments, communication, etc., and for retail offerings like mortgages, insurance, investments, etc.

What advice would you give new organisations (as opposed to traditional banks) to be better positioned for the future?

I believe the two most important things that virtual banks need to focus on are: (1) building a trusted franchise and (2) creating a path to profitability.

New entrants need to build-up a sizeable customer base by establishing a trustworthy brand through a relentless focus on customer experience. It’s not just about getting customers through the door; it’s also about keeping them engaged. We estimate that the Hong Kong virtual banks are seeing a ~35% dormancy rate, which can be reduced through focusing on initiatives such as gamification and by expanding their suite of offerings – particularly those that are likely to drive “screen time” (e.g. trading / wealth management).

Second, you need to bear in mind that the end goal is to attain profitability and generate respectable returns for shareholders. The key building blocks to achieving this include: (1) securing a low cost of funding; (2) building a captive audience; (3) monetising customers through annuity-style, fee-based revenue; and (4) developing a closed ecosystem.

What will you be sharing at the upcoming Fintech Connect conference and why is this a must-not-miss event?

At the upcoming Fintech Connect conference, I will be sharing my perspective on two key developments: (1) virtual vs. traditional banks and (2) digital securities.

On the virtual vs. traditional banks front, I will discuss the outlook for the virtual banking industry – why they are not likely to completely pull the rug from underneath their brick-and-mortar rivals but may be able to capture a significant market share for a handful of players to flourish. Going further in-depth, I will speak about what to expect from the ultimate winners, as it will involve much more than branching off from traditional banking business models; a truly differentiated value proposition is needed, centred around a customer-centric, closed ecosystem model.

In addition, I will look to demystify the digital assets universe, focusing on key regulatory developments, the digital assets which are likely to thrive, and which market participants may emerge as winners or losers.