Digital Transformation: Different Strokes for Different Banks

Evidence is out there that digital transformation can help financial institutions reap heaps of advantages, ranging from revenue generating data analytics to customer pleasing mobile apps. Yet how should individual financial services firms best apply this buzz phrase? Bank of America, American Express, and BNY Mellon are each regarded by many as digital transformation leaders, but their strategies are quite different. Digital transformation is surely not a monolithic entity, and theories abound about which strategies to leverage.

In one recent report, for instance, PWC points to three main ways in which institutions are riding the digital transformation wave. One way is to change the front end only, focusing on how the customer interacts with the bank, such as through mobile apps or a website.

Another way is to “wrap and digitize,” constructing new front ends while at the same time gradually replacing legacy infrastructures and incrementally integrating back and middle offices. A third approach, typically the choice of newer startup challenger banks, is to go digital in a single bang.

Bank of America: Investing in mobile, AI and cloud

Among established banks, the formation of a digital transformation strategy is also driven by specific corporate goals, and these vary by industry segment. For instance, with consumer banking entities vying for customer engagement with consumer tech giants like Google and Apple, retail banking divisions view online and mobile channels as equally if not even more important than branches and ATMs, indicates a study by Deloitte.

At Bank of America, for example, mobile deposits had already overtaken in-branch deposits by mid-2018. BoA’s increased investments in mobile technologies have brought improved consumer satisfaction ratios while at the same time contributing to higher earnings and better consumer bank operational efficiency ratios, according to The Street.

The customer base for the bank’s mobile platform grew 11 percent in 2Q 2018 after the rollout of Erica, the bank’s virtual assistant. Armed with artificial intelligence (AI), predictive analytics, and natural language (NL), Erica learns customer behaviors over time, helping consumers to complete simple tasks like searching for past transactions, viewing bills, and scheduling in-person meetings at branches. Later in 2018, BoA debuted Erica Insights, a set of enhancements such as Subscription Monitor, for flagging recurring charges , and FICO Score Monitor.

BoA, of course, is also a major commercial bank. In a massive company-wide digital transformation effort announced in December of 2017, BoA has been migrating 80 percent of its technology workloads to virtual platforms, using the public cloud for computing infrastructure.

American Express: Exploiting big data and analytics

American Express, on the other hand, , began way back in 2010 to concentrate on leveraging big data and predictive analytics across the organization for developing innovative value-added products. In doing so, the credit card company used its huge store of customer information as a competitive advantage vs. Visa and Mastercard.

In contrast to these rivals, Amex issues its own cards through banking subsidiaries, providing a closed loop system in which it acts as both issuer and acquirer and is able to view all transaction data on both the merchant and customer sides.

In its pioneering big data initiative, Amex started to build new revenue streams, using machine learning (ML) models. Amex invented algorithms for analyzing cardholder spending trends, creating custom perks like reservations booking for exclusive restaurants, and matching merchants with customers likely to spend more and stay loyal.

Interviewed in Forbes in 2016, Ash Gupta, who was then president for global credit risk and information management, maintained that at every step of the way, from customer acquisition to customer management, the data-driven company produces large amounts of information. This customer information is then synthesized with partner and third-party data to spark insights for improved personalization, customer service, and risk management.

Recently, Amex has acquired companies like restaurant reservation specialists Resy and Pocket Concierge, gaining additional stores of customer data while also setting the stage to spiff up its mobile presence.

In November of 2019, Amex announced that its mobile app would soon get a new feature, driven by its new Resy platform, that will let Platinum and Centurion customers book restaurant reservations online. In the past, customers needed to call Amex by phone when they wanted to use the Amex restaurant concierge perk.

BNY Mellon: Digital transformation from soup to nuts

BNY Mellon, a world leader in investment banking, is now undertaking a sweeping new digital transformation effort with objectives that include eliminating paper and manual processes, creating new businesses, and devising inventive new approaches to everything from client onboarding to wealth management, funds accounting, collateral management, and more.

In June of 2019, BNY Mellon’s Pershing assets management subsidiary launched a series of new automation and integration initiatives to help financial pros operate more efficiently and produce better customer experiences on the Pershing platform.

Roman Regelman, head of digital at BNY Mellon, contends that most other financial institutions are adhering to one of two approaches to digital transformation. "In the Silicon Valley model you are not working at the core of the business, but rather acting as a fintech to drive innovation and digitize the business. It creates great results and excitement, and generates buzz, but doesn’t change the core," Regelman wrote, in a blog post on BNY Mellon's website.

"In the Parallel Bank model you are creating an outpost, which is an entirely new digital bank operating in parallel, with its own separate organization, technology and operations. This unit has the luxury of not dealing with legacy systems. But it won’t have the scale."

BNY Mellon, on the other hand, is instituting an entirely new strategy, according to the head of digital. "So what’s different – and better – about The Digitizing this Very Bank model—the model we have chosen for BNY Mellon? It’s the only model in my mind that delivers true sustainable results—one that is not building something separate, but digitizing everything the firm does. 'Digitizing this Very Bank' is about changing each process, product, and client interaction so they are digital—in line with best standards and client expectations," according to Regelman.

"Our approach is working in a client-centric way, in a cross-functional fashion, using best practice examples from around the world and harvesting the power of our people."

BNY Mellon's strategy also revolves around ML and AI technologies, partnerships, and innovation centers. The bank is building the innovation centers collaboratively with clients, Regelman observed, during an interview with American Banker in June of last year.

In a keynote speech at FIMA 2020, Regelman will deliver an inside, up-to-the-minute look at the current state of BNY Mellon’s far reaching digital transformation initiative. Come to the keynote to find out more.