BIAN and Diasoft’s Expertise: Digital Banking as a Strategic Development Direction of a Modern Bank

Published in August 2015

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Bank customers have changed. Classic banking services are now consumed by people of the Generation Z — the Next Generation. These customers select quick and convenient ways of using banking services. They are already integrated into the digital environment, and banks should run twice faster if they want to move ahead and provide the new generation with modern services in the digital environment.

Many banks have already implemented remote banking systems, integrated them into the existing IT landscape and provided their customers with an access to their products and services via Internet and Mobile channels. The question is: Does this solve the task of creating a dynamic digital environment for the new generation of users? What is the digital banking concept? What should a bank do to integrate successfully into the already existing digital environment? What features should the digital platform have to ensure the bank’s long-term development in the digital environment? We have discussed these and other vital questions associated with the development of digital banking with Alexander Glazkov, Managing Director, Diasoft, and Hans Tesselaar, Managing Director, the international non-profit association BIAN.

Who is Going Digital?
As of today, most banks have standard multi-level processes that require enhanced controlling. These processes are supported with the help of core banking systems, which allow banks to provide their customers with high quality products and services based on the traditional servicing approach. Implementation of separate servicing channels — Internet banking, Mobile banking — does not solve the task of creating of a digital environment in a modern financial organization. “You cannot build a digital environment separately, by implementing individual service channels. There should be created a complex vision, an ideal picture of the digital bank”, says Alexander Glazkov.

For a classic bank, it is quite difficult to integrate into the existing digital environment, moreover to create their own digital landscape that will develop in pace with demands and expectations of the new generation of customers. Large systemically important market players that have been investing into development of their digital strategy and innovative banks that initially created their business model in the digital environment have become the locomotive of digitalization of the banking business. Such banks take top positions in authoritative ratings and market surveys (Deloitte, Markswebb Rank & Report). Their internal processes, as well as their products, services and delivery channels are based on the one-to-one principle, that is the bank and the customer communicate directly with each other without involving customer service managers or consultants. Other market players either try to catch up with these banks or decide to give up any digitalization attempts.

It is worth mentioning that the market of traditional banking services faces appearance of new players. These are both non-banking companies (Google, Apple) and new providers of banking services, such as international Knab, Moven, Fidor Bank and domestic Rocketbank, Instabank, Modulbank.

According to Hans Tesselaar, the Financial Services Industry Value Chain will transform into the Value Network where all, current and new, actor will find their roles. It’s key for banks to determine upfront which roles they want to play (keep playing) to stay profitable. So, it is not about competing but about collaboration. Banks are trustworthy and they can take advantage out of it. They should avoid turning into “White Label”product providers that will completely become invisible for the customers, but they will stay responsible, at high cost, to be compliant to all regulatory rules.

Creation of a new bank business model and building of an IT architecture that will be able to efficiently support its development, including the digital area, is a highly time- and budget-consuming task. Banks can reduce their integration costs (specifically, expenses for integration of core banking systems and front-office solutions used for customer servicing), increase flexibility of their IT solutions and streamline the existing IT architecture with the help of the reference model offered by the Banking Industry Architecture Network (BIAN) — an international non-profit association of banks, software vendors and service providers.

The BIAN’s strategy is to unite the leading architects of banks, software vendors and service providers to create common standards based on the principles of the Service-Oriented Architecture (SOA). The list of experts that design the reference model includes the leading banks, such as ABN AMRO Group, Credit Suisse, Societe Generale Group, Deutsche Bank, Unicredit Group, ING, Achmea, Rabobank, UBS, Banco Galicia and others, as well as software vendors Temenos, Diasoft, Infosys, Sopra Banking Software, TCS Banks, IBM, SAP, Microsoft and many others.

The list of BIAN members constantly expands and today the association has a little under 70 members from all around the globe. Leading software vendors and IT-service providers implement the BIAN model into their solutions as the most promising architectural model that meets the development requirements of the modern market.

“Diasoft is our partner in Russia. This gives us both the opportunity to have an open knowledge exchange and make the BIAN deliverables applicable in a different banking landscape. This also allows Diasoft to tailor its solutions to a wider market. I firmly belief that in the near future Russian banks will also join the BIAN community to give their IT architecture a boost”, commented Hans Tesselaar.

Digital Banking
What is the digital banking concept, so popular today, and what organizational and technological steps must banks take to be successful on their way to digitalization and to create the digital-oriented development strategy?

“The way I perceive Digital Banking is to offer the bank’s customers the same experience they have at Apple or Amazon. All customer interactions should be 2 or 3 mouse clicks away and processed real-time and 24/7. This requires Channel Consistency, (Automated) Personalized Offerings, Straight Through Processing (STP) and Real-Time Insight”, said Hans Tesselaar.

As mentioned by Hans Tesselaar, an important cornerstone of becoming a digital bank is the “Employee Culture”. The staff needs to be empowered to enable agile development in all aspects of the bank. Long and hierarchical decision-making can and will block timely innovations. This is a challenge for both management and employees. This also requires an agile IT environment that enables (and does not block) timely and fast changes in product offerings, usage of channels and (digital) back-office processes.

Banks that had been building their organizational and technological processes during decades and then, following modern trends, implemented remote service channels, make a mistake thinking that thus they have covered their customers’ demands for remote services. By integrating classic core banking systems with service channels from different vendors, they have to deal with a complicated and costly integration project, which eventually does not allow for further development, and, therefore, for meeting customer requirements and expectations.

“To build a digital environment, a modern bank needs a separate class of front-end solutions capable to support an integrated process of customer servicing via any channel — an ATM, a call-center, Internet bank, Mobile bank, a branch network. Such solutions must allow banks to set up this process only once, integrate it with classic core banking systems via APIs, and then connect channels — simple, convenient, with identical interfaces — to ensure customer comfort in services”, commented Alexander Glazkov.

Digital banking is a development strategy of a bank that decided to move towards digitalization. The digital environment and the digital culture must become a natural environment for both bank customers and employees. If the implemented changes are not accepted by bank employees at different organizational levels, there will be serious difficulties in customer communication in the digital environment.

Digital Platform
In our discussion, we also touched on organizational changes, which must be made by the bank management for realization of the digital strategy, and on development of information technologies, without which it is impossible to build the digital environment. So, what are the main requirements that must be met by the technological digital platform?

“The digital platform must provide a single mechanism of business processes management, IT security, access to services, and integration with the core banking system. The single processes of servicing used as a basis of the digital platform will allow the bank to adjust its products and services for any service channel, including branches. The platform also must support integrated access to customer data and bank services in different channels to avoid inconsistency in actions, for example when a service is provided via the Internet bank and via the call-center”, commented Alexander Glazkov.
Other important requirements to the digital platform include the round-the-clock availability of bank services, support of customers’ ability to manage their access to bank services in different channels, usage of open APIs for integration of customer service channels into external systems, such as social networks and search engine widgets, individually configured by each user.

A modern IT platform should be seamlessly scalable, consist of different components that can be replaces by components from other vendors. Therefore, there is a need for standardization of those components; there should be a general agreement on what functionality is expected from a specific module / component. “If banks and vendors can agree on the boundaries of these components and the information dependencies between those components, we are a big step closer to an “App Store for Banking Software”and “Plug and Play”can become reality”, said Hans Tesselaar.

Another important concept for the development of the digital platform is the Open API technology. If banks want to offer to their customers other services in addition to their own or to exchange data, usage of APIs will make this interaction quick and convenient. The BIAN arranged an Open API Working Group with the aim to define a standard around developing such APIs. This will not be an easy task but there is a huge need from the industry because now all banks are developing the same APIs at huge expenses.

Diasoft was among the first companies in its market that started using the SOA technologies for the design and modernization of its products. Both product lines of the company — Diasoft FA# and FLEXTERA — are based on the principles of the Service-Oriented Architecture.

“Due to the proper architectural approach with the use of the BIAN practices, Diasoft FA# and FLEXTERA for financial institutions were positioned in the Gartner Magic Quadrant for International Retail Core Banking”, underlined Alexander Glazkov. The Magic Quadrant for International Retail Core Banking is a rating of automated banking solutions that best of all meet the development strategy of the modern market.

“The platform FLEXTERA Digital, based on the single business process of customer servicing, will allow banks to realize their digital strategy in a step-by-step manner, thanks to Diasoft’s expertise reduce architectural and project risks associated with implementation of the digital platform, and evolutionally redesign processes and structures of banks, keeping unchanged their unique business features. FLEXTERA Digital represents innovations that are available for all banks. It allows creating both the digital environment that meets requirements and expectations of the new customer generation and the internal digital culture of the bank itself”, said Alexander Glazkov.