How banks can incorporate a digital-only strategy into their business

As traditional banking relationships are being disrupted, opting to appeal to the tech-savvy next generation of customers has become paramount.

Amdocs Financial Services

14 Mar 2022

How banks can incorporate a digital-only strategy into their business

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The journey to modernize technology within financial services firms is never straightforward. We take a look at some of the obstacles.

People have changed the way they make decisions about their banking relationships. Ten years ago, for example, someone choosing a bank would more than likely select the one with the branch closest to their home or office. But with bank branch visits declining, people will likely want different things from their bank a decade from now.

“In ten years, I’ll probably go to the application store on my phone and search for the bank with the best application, with the best experience,” says Ilan Buganim, former Pepper EVP, Head of data and chairman. Pepper offers a fully mobile-native digital banking service in Israel spun out from Bank Leumi, one of Israel’s largest and oldest financial institutions.

Delivering the best experience demands more than just offering digital capabilities through a mobile app. Digital banks (often referred to as neobanks) continue to win over consumers with low- or no-fee approaches to doing business, 24/7 customer service and seamless onboarding processes that make it fast and easy to open an account.

Banks that recognize this now can adapt their businesses to deliver on what consumers want. Banks can choose many options when responding to the digital-only trend and meeting customers’ expectations better.

Select an approach

Spinning up a unique digital brand offers one way banks can incorporate the digital-only banking trend into their business. Creating Pepper, for example, allowed Bank Leumi a method of “accelerating the future and creating a bank that is ready for the future,” according to Buganim.

To do that, Pepper needed its independence from Bank Leumi—its own division—operating in a separate building with its own staff and technology.

“You need to attract developers that the bank usually does not attract—people who believe that they are changing the future and that they’re doing something really cool.”

Ilan Buganim

Former Pepper EVP, Head of Data and Chairman

“We decided that if you want to do something totally different, you need to separate it from the bank,” explains Buganim. “You need to attract developers that the bank usually does not attract—people who believe that they are changing the future and that they’re doing something really cool.” (In addition to hiring new talent, the Pepper team also brought over some more experienced people from Bank Leumi who “wanted to go to do this journey with us,” adds Buganim.

But creating a digital-only brand isn’t the only avenue banks have for responding to the competition from digital-only challengers. Other options include:

  • Converting the bank to digital-only (including a complete rebrand)
  • Transforming the bank’s current digital approach into best-in-class (or tier)
  • Accelerating the development of individual features or products, building momentum incrementally
  • Acquiring a digital-only bank for your portfolio
  • Partnering with a digital-only bank
  • Using a Build-Operate-Transfer (BOT) model to select and operate a digital-only bank with the help of a partner

Know who you’re targeting

As you develop your model for embracing the digital-only trend, you must keep your audience in mind. The Pepper team, for example, had a clear demographic in mind when it came to attracting users.

“Millennials were the population that we targeted because we figured the Millennials likely do not have much attachment to their old bank, making them easier to move,” notes Buganim. “They’re also sensitive to price.”

As a business, staying price-sensitive starts with keeping costs low, and traditional banks should keep that in mind when developing their digital-only strategies. For example, since its launch in 2017, Pepper has only been accessible via their mobile app.

“A reason to do that is that it’s much less expensive to handle only one touchpoint with customers,” observes Buganim. “And not only is it cheaper, it also makes you faster. Whenever you have a new feature, you only need to introduce it in one place and not in 10 places, which is one of the reasons why incumbent banks are so expensive and slow.”

Moving faster also enables banks to innovate the customer experience. Digital banks provide examples of models traditional banks can leverage to their benefit. Pepper, for one, personalizes each user’s experience based on their activity through a social-media-like “activity feed” that shares recommendations to help customers with their spending and saving.

Helping customers access products (such as loans and investments) also enables banks to grow their relationships with customers—especially with Millennials, who remain key to their future success.

“While today they may only be up to age 40, Millennials are on their way to becoming financially strong,” says Buganim. “There are many financial products they may need in those coming years, and you don’t want to lose them.”

In conclusion: Accelerate a change in thinking

Ultimately, incorporating a digital-only strategy into their business requires financial institutions to think less like banks and more like best-in-class technology companies. Sometimes, it takes outside partnerships to make (or accelerate) that change in thinking.

“You can do something that is much more innovative. You can compare yourselves to Instagram, to Amazon, to those kinds of leaders that actually set the standard in their industries,” points out Buganim. “Bringing in a partner can take you there faster.”

Incorporating a digital-only strategy into your business starts with looking at trends in your industry, analyzing your customers’ issues and determining how to fix those problems—both from the business point of view as well as the technological and operational aspects behind it. A partner like Amdocs can help you develop your plans and reinvent the customer experience.


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