Digital Banking: Why Are Banks Creating Digital Factories?

One of the largest banks in Canada, The Bank of Nova Scotia or Scotiabank recently announced the development of a new Digital Factory that will pursue, design and deliver digital innovations and solutions for the Bank's customers.

As technology plays an increasingly important role in the rise of digital banking, he definition of a Digital Factory will also keep changing as the industry evolves and advances. Scotiabank's Digital Factory will create a new epicenter where top technology minds from around the world will come together to deliver reimagined customer experiences in financial services. This Digital Factory will in fact serve as an innovation hub for banks to collaborate with FinTech startups.

We focus here on why banks and various financial institutions are pursuing this concept. Not everyone may call it a Digital Factory; some banks call it a studio or some others call it innovation labs. Irrespective of the name, they serve the same purpose of innovation via digital banking. Scotiabank’s main aim behind this Digital Factory really seems to be to deliver the best customer experience to its 21 million customers. Scotiabank’s Digital Factory, which will be fully operational in 2o16, has already begun the work. Three customer-driven innovation labs, together known as Rapid Labs, are already in action. Joint business and technology teams work together at Rapid Labs to reimagine key experiences to make banking easier for customers and the bank’s employees who serve them. "When people think about working at a bank, they typically think about the branch. But customers interact with banks in so many other ways -- on their phones, through tablets and online. That is why the development of the Digital Factory excites me. In the Rapid Labs we are working collaboratively in real time with teammates from different backgrounds to constantly push our boundaries and find the right solutions for our customers. The energy is extremely high, and it's amazing to see what we can accomplish together, said Monica Reyes, Rapid Lab team member. But our ‘Digital Factory’ story doesn’t end here; in fact, it doesn’t even begin here. Let’s review a few other related moves by forward-thinking banks in the recent past.

In April 2015 BBVA, a multinational Spanish banking group acquired Spring Studio for its digital banking initiatives. The importance of user experience and design is growing exponentially in banking and with Spring Studio we can move into fast-forward mode with our design ambitions, said Carlos Torres Vila, head of Digital Banking at BBVA. What BBVA wants out of this acquisition are innovative products and customer journeys that delight users, solve problems, and drive real business results. Only a week ago, Citigroup launched a unit called Citi FinTech in its global consumer bank dedicated to the development of its mobile banking services and promoted Heather Cox to be its CEO. Even though Citibank’s announcement was much more focussed on mobile banking, we should not forget that mobile banking is the most important element of digital banking in the 21st century. Wells Fargo launched its Digital Labs last year in September 2014. We’re developing digital solutions to simplify customers’ financial lives and help them succeed financially, says Miranda Hill, a manager for the Wells Fargo Digital Innovation Lab. Technology should enable and enhance the relationships we’re building with customers. It’s not about technology taking over. Some of the ideas being tested at Wells Fargo Digital Labs include banking with a smart TV or in a connected home and video banking technology. In 2014, Deutsche Bank also announced that it is working on setting up joint innovation laboratories with technology firms IBM Corp., Microsoft Corp. and India’s HCL Technologies Ltd to improve its digital banking operations and fend off new market entrants. A few banks may also have two separate divisions. One division focuses on new products like mobile banking and the second looks at digitizing banks with things such as core banking APIs. US Bank is an excellent example of this approach. LTP founders met the Chief Innovation Officer of US Bank at a FinTech event recently and he explained that his unit looks at the latter aspects, of digitizing core capabilities. We also know how Silicon Valley Bank acqui-hired Standard Treasury, a Y-combinator backed API banking platform to enable better digitized services to its clients. Many other globals banks like HSBC are launching FinTech innovation labs to promote new technologies from startups and partners within the bank. Banks are experimenting and adopting advanced digital technologies like biometric authentication, Touch ID technology, mobile apps for smartwatches, instant money transfer or P2P technology, remote check deposit and many others.

With all these things happening around us in the ecosystem, aren’t you confused about what’s really happening in the financial industry? Are banks competing with these startups or are they collaborating them? One of our recent articles talked about how banks can fight FinTech startups with mergers and acquisitions and partnerships. In this side of the story, banks are coming up with digital factories to foster startup-like innovations now inside the banks. Banks are trying to set up entrepreneurial environments within their organizations to invent the newer versions of digital banking.

If you feel differently and would like to share more about it, reach out @abolirg and @letstalkpaymnts to discuss further.