Alien vs Native – Who will survive the Digital Retail Banking Transformation?

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Alien vs Native – Who will survive the Digital Retail Banking Transformation?

The Customer Evolution

I’m Ian Roberts, Principal Consultant/Architect at DXC and I have been part of the technology explosion that has been transforming our lives over the last thirty or so years. So, to be called a ‘digital alien’ is a bit harsh – but it appears I am. But, what does that mean? Digital Alien was a term first coined by Marc Prensky (October 2001) when referring to individuals who had learned and adapted to new technology as part of their daily lives.

digital retail banking

If we consider the banking sector (and also the tech industry) you will likely find that many people responsible for the digital customer experience and technology are ‘digital aliens’ and have in some way been successful in embracing and driving the Information Revolution. So, we can hold our head up high and be proud of our achievements, right? We’ve moved from paper tape and punch cards to the Internet and wireless connectivity. Pioneers with a laptop!

However, have you ever seen an eight-year-old use a game console, work on a computer or interact with modern day technology? What we had to ‘learn’ appears to be ‘natural’ behaviour to our children and this is often amusing and frustrating. Our teenagers take to new technology extremely fast because they were ‘born’ into this environment and actually know no different. Also phrased by Marc Prenskey, they are the ‘digital native’ and see things very differently from how we do. The difference in how we (the ‘digital aliens’) and our children (the ‘digital natives’) see and understand the world is extremely important to how we design our future lives.

Retail banks have evolved as we, the ‘digital aliens’, also evolved. We introduced ATMs, contact centres, online banking and more recently mobile banking into our world. We did this by extending our knowledge of how things work to include new technology and the result is that the retail banking industry has changed to meet our expectations.

So, what is the problem? Everyone is happy…at least so far.

The issue is that the technology evolution within the retail industry has been predominately driven by my generation i.e. ’digital aliens’ and we have simply applied existing banking products and services into new channels that represent nothing more than new banking layers e.g. telephony, mobile etc. Historically, banks have applied these new layers as ‘channel stacks’ that behaved independently from each other. Discovering that customers might want to see the same information across multiple channels, the banks ventured into providing ‘single customer views’ and other initiatives that simply focused upon sharing data across their stack-based empire.

From a ‘digital native’ perspective, the frustration of working with legacy banking channels is already apparent. Just watch one of my teenage sons trying to use his mobile banking app and wondering why it is overly complex and horrible to use. The fact is, what are acceptable banking standards to the ‘digital aliens’ are certainly not acceptable standards to the ‘digital natives’ and, unlike their parents, they have no desire to bank with ancient society representations for the sake of doing so.

The innovation challenges

It is accepted that the Retail Banks have to change the way they serve their customers or, as with other digitally naïve industries, simply face extinction. Banking will always exist in some form because finance is the very fabric of how society performs commerce, but we don’t necessarily need banks in order to do so. Across the world, FinTechs are challenging the way we bank and providing first principle solutions to problems historically neglected by banks:

  • In Kenya and other African countries, Vodafone introduced M-Pesa (a SIM based bank account) to the unbanked millions and today it creates over 40% of Kenya’s GDP (Bank 4.0, Brett King, 2018)
  • In China, 92% of mobile payments are owned by FinTechs not banks and it is expected that Ant Financial will be four times larger than ICBC of China, the world’s largest bank (Bank 4.0, Brett King, 2018)

So, why are the FinTechs performing so well in emerging economies, such as Asia, Africa and India, while the established banks in Europe and the US are struggling to change? Some of the challenges faced by Western banks are:

  • Unlike FinTechs, banks have to operate within a heavily regulated industry and therefore innovation is often slow and compounded with internal governance
  • Unlike FinTechs, banks very often design by analogy rather than by first principles and this results in the very same products and services being provided by yet another channel – it doesn’t change the product or service just the way we perceive it
  • Unlike FinTechs, banks often fail to see the value in the unbanked population and are often restricted in doing so due to risk comparisons and regulations

Most banks are operationally divisional, representing siloed empires and political chiefdoms that very often refuse to cooperate internally unless forced to do so. It is a tough world being a banker. Executives change on a regular basis and are being constantly judged from within. This creates an ‘us and them’ mentality across business units that kills internal collaboration and enterprise-wide innovation. It is something that banks appear to have built into their culture and is also widely accepted as the norm.

Layered by decades (often centuries) of design by evolution processes, products, channels, risk models, governance and culture, banks are burdened with systems that represent modern day banking using ancient banking practice. They struggle to innovate and, even with substantial IT budgets in the hundreds of millions, continue to build upon existing legacy and failing IT systems in preference to accepting that innovation involves risk and embracing a radical ‘first principles’ mentality. That is, throw away the playbook, look at your customers today and tomorrow (not the past) and start designing how you would interact with them if you had no existing operations or infrastructure. Annually, banks spend a small fortune on modernisation but always focused on evolution not revolution.

DXC Connected Bank-as-a-Service

For banks to modernise and meet the demands of the future generation of banking customers they need to have a platform that will allow them to scale, mature and transform without constraints. DXC Connected Bank-as-a-Service, from DXC Technology, is a solution that enables bankers to innovate, while still offering exceptional customer service. Want to learn more? Register here for our webinar on 30 July. Can’t join – watch it on-demand

Retail Banking beyond 2030

With the increase in Asian and African financial solutions being delivered successfully by FinTechs rather than banks, a divide is beginning to appear between Eastern and Western digital banking capabilities. More importantly, the Asian and African consumer expectation of who now provides their financial solutions has also radically changed.   And this is very likely to expand to Europe and the US as we see more retail banks struggle to change their legacy banking systems at the speed and quality expected by a generation of ‘digital natives.’

So, the reality is that European and US banks can see the approaching digital tsunami of change but the empire they have created was designed a century ago and modernised by technology automation (ATMs, Call Centres, Web and Mobiles) in the last thirty years. Banking will survive the digital tsunami, but banks based upon legacy infrastructure and processes will not.

Evolving banks into truly digital financial powerhouses requires far more than introducing yet another channel representing the same old, it requires a radical shift and a completely new understanding of the ‘digital native’ customer.

Financial solutions not banking products

Requiring cross-industry collaboration to seek the best financial offers e.g. I want a new car purchase offer that includes the best finance, warranty, service plan and insurance (in one package but with flexibility to include and exclude as I see fit).

Instantaneous services not reactive reminders

Banks store a huge amount of our information each day and have done so since data was first stored on a mainframe computer back in the 1960s. Most of this information now resides in large and expensive data warehouses but most of it (95%) remains unused. What if the banks in collaboration with other industries could predict our spending behaviour and provide financial solutions as we enter a digital website or walk through the door of a retail store? Big Data, Artificial Intelligence and Machine Learning promise such things and is only a matter of time that, along with a 5G (and future 10G) network that this becomes a reality.

Digital wallets not bank accounts

Financial automation will be integrated into every aspect of the ‘digital native’ life. Contactless will expand to Automation and small purchases will be performed autonomously on our behalf by our own secure digital network that will radiate around us. The concept of a digital wallet will provide us with an abstracted view of our financial assets and used to automatically negotiate and pay for goods or services on our behalf. Using preconfigured and agreed parameters, our digital wallets will interact with banks, retailers, transport and other digital wallets on our behalf. We won’t need to be worried about managing our monthly income because this will be done – we can override the digital wallet, but it will inform us of the consequences of doing so. Such an action could raise our personal risk level and prevent future automated payments.

Distributed Ledgers not post-payment settlement

Blockchain and Distributed Ledgers are profoundly important to the future of financial solutions. For instantaneous services, collaborated financial solutions and digital wallets to occur, the manner of how financial institutions (not just banks) settle and reconcile payments needs a complete overhaul. As with banking in general, the current payment networks use mechanisms that resemble how it was achieved prior to the modern technology explosion – it is just now computerised and mainly automated. Instead of medieval merchants using a credit note to travel to purchase goods, this is now sent in the same manner using an electronic version. Blockchain and Distributed Ledgers have recreated how payment networks can work and will allow instantaneous, secure and globalised financial interactions to occur using a global monetary-based denominator. It might not only change how we reconcile our finances, but it could also change how we perceive money and store credit. Ironically, it could displace banks entirely.

What should Retail Banks do?

We must accept that the behaviour and culture of our global major banks are not going to change overnight and that, in some cases, such culture can be consumed as a strength. What must change is the way banks see themselves and their customers, and more importantly how they both interact.

Design Thinking is a customer-focused methodology that goes beyond the obvious requirements to highlight key needs and behaviour observations. Used correctly, although it considers existing operations and technologies as part of its process, an identified solution should adopt a first principles approach. This is extremely relevant because, until such a time that our children take over our roles, banking services are still being designed by ‘digital aliens’. This needs to be done in collaboration with the ‘digital native’ to have any success of future-proving and being revolutionarily innovative.

Digital Aliens need to collaborate with Digital Natives i.e. future banking customers!

It is equally important that banks accept that products and services designed hundreds of years ago, using operational functions and IT systems designed thirty or so years ago, need to change to address the modern demands of the consumer and keep pace with how information technology is transforming the world.

A siloed mentality to addressing banking problems by banks is not going to work. Banks need to accept that the way forward is collaboration. Working alongside FinTechs and the Technology Industry giants, banks can use external experience and knowledge to transform how they operate and consume technology; enriching not only the banks profits but also the lives of the ‘digital alien’ and ‘digital native’.

Author: Ian Roberts, Principal Consultant/Architect at DXC


Interested in finding out how your bank can digitally transform? Register for our webinar

Understand how easy it can be to transform and revolutionise your customers’ banking experience. Join our ‘Rapid Banking Transformation with Connected Bank-as-a-Service’ webinar on 30 July 2020 or watch it on-demand.

For further details or to discuss your future banking needs, visit our DXC Connected Banking-as-a-Service page our Banking & Capital Markets team at for further details and to discuss your future banking needs.

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