CASE STUDY: BUILDING DIGITALLY NATIVE BUSINESSES

Mr. India was feeling pleased. His team had just completed disbursement of 50 unsecured business loans over the last week via the digital channel. This was another feather in the cap for the Well Known Bank in Western India (WKBWI), after their successful foray into digital personal loans last year. However, as Mr. India reflected on the journey over the last 18 months and the amount of time which had gone into inter-departmental reviews, Product Management Committees (PMC)/ Change Management Committees (CMC) discussions and firefighting across vendors; he realized that the Bank would need to think differently as it looked to scale digital channels. As the head of the Bank’s retail portfolio, he knew that solving for this would be a key imperative.

Digital had been a key theme for the retail banking franchise of WKBWI, and the Bank had already demonstrated significant value from digital on the retail asset side. Lending via digital channels had increased 2x in a year. The biggest share was from personal loans. Home and auto loans were stepping up their contribution, but had further potential. The profitability of the digital lending book was significantly higher than the overall retail book, driven by lower acquisition costs and opex.

Several initiatives had been undertaken to enable this, most significant ones being:

■ Establishment of retail “pods”, cross-functional teams of dedicated members charged with designing, implementing and scaling specific digital offerings. The team had representation from Digital, Analytics, and Retail Assets amongst other departments. The “pods” represented a significant departure from the traditional way of working, given their cross functional nature, MVP (Minimum Viable Product) driven focus and “agile” way of decision making. Retail Assets was the first area within the bank where pods had been created, and given their success, this concept had been replicated for small business banking (SBB) and retail liabilities as well

■ Creation of a technology platform for digital lending, which interfaced with all the Bank’s digital properties (internet banking, mobile banking, phone banking, website) and was supported by a modular back-end which could facilitate real-time underwriting and had multiple external linkages

■ Strengthened capabilities to track digital foot-prints of customers, and use analytics to drive higher hit rates and better customer experience to increase conversion

The timing of the product build had also been perfect. Given the government’s push towards electronic banking and formal economy, a lot more data was available in the public domain than previously. The architecture to access this data was also being put in place through API vendors focusing on e-banking. Going forward, this access would only increase with GST system, and volumes on BBPS (Bharat Bill Payment Scheme), UPI ramping up, infrastructure on e-Authentication, e-KYC and e-Documentation. And Mr. India was keen to be the first bank in the country to capitalize on these elements.

While Mr. India was happy with the progress made, he wondered what it would take to scale the digital lending business to the next level. This would mean thinking of digital as a separate business – with a topline of more than INR 50,000 crores over the next 3 years. He realized that WKBWI would need to work more like a fintech rather than a Bank as it looked to scale this business. (Refer exhibit 1 for an overview of key success factors for scaling digital offerings)

In the market, other banks within India and outside had already started thinking along these lines. There are several new design methodologies emerging including Agile, DevOps, Two-Speed IT, design thinking and refactoring. Banks are trying to change the way they organize their development functions around these new methodologies.

Some of the key archetypes being observed across banks are:

– Agile within IT: build continuous delivery capabilities within IT. Several banks in the region and outside were starting to embrace this philosophy, including WKBWI for its digital experiments

– Digital task force: ring-fenced teams operating on a project basis with agile and full time staffing of cross-functional staff. The retail “pods” set-up for the retail digital lending platform build within WKBKI are a good example of this archetype (See exhibit 2)

– Digital factory: Separate ‘sand-box’ department involving digital business and IT expertise. Approach taken by Bank Z for scaling its “digi-bank” offering reflects this archetype (See exhibit 3)

– Partially agile org: Transform specific value chains (e.g. mortgages, daily banking) into an alternative org setup. Bank X and Bank Y in Europe had adopted this archetype)

– Fully agile org: Full transformation of the core to design oriented agile approach with cross-functional, multi-skilled teams with clear accountability on end-to-end delivery. Bank A is the best global example of this archetype, and has transformed its entire organization into a series of squads and tribes. (refer to exhibit 4 for a case study on Bank A’s evolution towards an Agile organization)

At the same time, Mr. India realized that while digital lending was an excellent initiative, there might be other initiatives which would require the Bank to modify its way of working and look to scale up in an agile manner. He made a mental note to discuss this with his team, to identify key priority areas where they should focus.

WKBWI had recently acquired Digital Wallet Company, a leading digital payments platform in the country. Digital Wallet Company had a strong customer base of ~50 million wallet customers and 0.2 million merchants. It also had a strong technology platform and a 200 member team which was experienced in designing digital customer journeys. Mr. India was keen to leverage the acquisition to further deepen WKBWI’s presence in the payments space, and also identify additional opportunity areas.

Furthermore, it was quite clear that WKBWI remained quite traditional in several aspects when it came to undertaking new initiatives. Organization wide approval via the online approval platform took 2 weeks on average, with the average number of approvers per note ranging over 10. The PMC/CMC process of the bank also took around 10 days, with participation from ~7 departments. Apart from the originating business unit. Average turnaround time for online approval is more than 15 days with 8+ approvers. (Refer exhibit 5 for key figures around the online approval platform and PMC/CMC process). Mr. India knew that while a degree of organizational oversight would always be required given financial, reputation, regulatory and security risks. However, could there be a framework for undertaking smaller “experiments” which could go through a simpler approval mechanism?

Please help Mr. India answer the following questions in the context of the above case:

■ What are your reflections from the case and implications for WKBWI?

■ What are the key digital banking businesses to scale over the next three years?

■ What initiatives can be undertaken to increase speed to market as they scale their digital businesses?

■ How should the bank think about the Digital Wallet acquisition? And how can they leverage it?

■ What would be key reasons why the Bank would not be able to succeed? How

should they plan for these factors?

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Building Digitally Native Businesses

| 1

Exhibit 1: Eight elements will need to be put in place to build

out and scale the digital proposition

Clear vision and value

creation logic

Tech and data

architecture

Ecosystem of

partnerships

Customer acquisition

and lifecycle

management Agile way of working

Nontraditional people

model

1 2 Analytical decision

models4

Reimagined

processes for a digital

world

3

5 6 7 8

▪ Stateless, context aware

▪ Micro-services and APIs

based architecture

▪ Open source; cloud

based

▪ Single source of truth,

data lake

▪ Security as a founding

block vs an afterthought

▪ Clearly articulated vision

and strategy

▪ Top management

alignment and buy in

▪ Digital as a value

creation engine

▪ Prioritized Maximum

Value Problems to solve

▪ Digital marketing;

analytics led targeting

▪ Always on campaigns;

A/B testing

▪ Acquisitions leveraging

ecosystems

▪ Digital customer lifecycle

management

▪ 80% decisions by

machines

▪ Digital data and

automated decisions

▪ Always on

▪ Machine learning

▪ Non-traditional data

▪ Zero based redesign vs

tweaks to physical world

processes

▪ Paperless

▪ Limited data entry –

digital data

▪ Analytics led process

redesign

▪ Partnerships for access

to proprietary data

▪ Execution partnerships

▪ Acquisition and channel

partnerships

▪ Empowered garages

▪ Ownership of journeys

▪ “Siloless” operations

▪ “Digital” talent:

– Product development

– Analytics

– Customer experience

▪ In-house minimal “core”

tech team

| 2

Exhibit 2: Overview of a typical “Garage”/ “pod” for accelerating

execution for retail assets and small business banking

Key attributes

▪ Cross functional team across

all required departments; 50%

dedicated to the “Garage”

▪ Empowered to take decisions

▪ Co-located (including external

vendors)

▪ MVP based development in

“Sprints”; with regular

feedback from end users

▪ Clear governance

mechanism in place

Departments/functions involved in a typical

Garage (illustrative)

50%

dedicated

▪ SBB

▪ SME

▪ Analytics

▪ Information Technology

▪ Strategy

▪ Risk

External

vendors

▪ Analytics Vendor

▪ Digital Ecosystem

Vendor

▪ E-Verification Vendor

▪ Credit Score Vendor

Adhoc

support

▪ Legal

▪ Compliance

▪ Operations

▪ Marketing

▪ Digital Banking

▪ Process Quality

PMC

members

▪ Head, SME

▪ Head, Retail

Assets and SBB

▪ Head, IT

▪ Head, Strategy

▪ Head, Analytics

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3 lakh bank

accounts

1 cr card

transactions

2.4 lakh accounts

5% weekly growth in

customers

EUR 1.8 bn worth

transactions

processed

GBP 2.5 mn in GMV

Currently only has liabilities

products

USA based digi-bank

with 3 Mn+ users

Built financial services marketplace

models in China with 80% market share

Globally India

8.4 lakh Digibank

customers in 10

months of launch

12 lakh wallet +

accounts

80% less resources,

vs. traditional bank

80% queries

responded by AI

virtual assistant

Germany UK

Exhibit 3: Evolution of multiple ‘digi-bank’ models

in various geographies

BANK X BANK Y BANK Z

Online Bank T Online Bank UeCommerce

Company V

| 4

Exhibit 4: Synopsis of Bank A’s journey towards an Agile

operating model

From … … To

Technology

Process

People

Structure

▪ Modular IT architecture using micro-services

▪ End-to-end agile production process

▪ DevOps with “instant” environment

▪ Output culture

▪ Output steering by top management

▪ “Ongoing coaching” with POCLAC triad

▪ Limited hand-overs, end-to-end squad

accountability

▪ No Process Management unit, new Scrum-based

alignment

▪ New roles (Product Owner, Agile Coach,

Tribe Lead, …)

▪ Team goals

▪ Co-located teams in refurbished, innovative

space

▪ Squad members are 100% dedicated, and have

full delivery responsibility

▪ 3 layers and “no middle managers”

▪ 2,500 FTE in 13 tribes and 300 squads

▪ Empowerment of teams and Product Owners

▪ Cross-functional squads, with specific

“missions”

▪ Spaghetti IT architecture

▪ Waterfall production processes

▪ Manual IT operations

▪ “Meeting” culture

▪ Input steering by top management

▪ Annual traditional performance management

cycle

▪ Multiple hand-overs and no clear end-to-end

owner

▪ Large office focused on process management

▪ Classic roles (channel/product manager, expert,

…)

▪ Individual KPIs

▪ Business and IT in separate locations

▪ Fragmented responsibilities/ownership with

people “spread across” projects

▪ 6-layer organization with multiple middle layers

▪ 3,500 FTE in 30+ departmental silos

▪ Top-down decision making

▪ Complex, siloed department structure

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Exhibit 4: The transformation achieved impressive results for Bank A

within the first year

+20 points on

employee

engagement level

by results of polls

after introduction of

Agile

- 30% FTEFrom several in a

year to one each 2-3

weeks

InvolvementEfficiencyFrequency of

releases

Customer

satisfaction

Significant

improvement in Net

Promoter Score

(NPS)

| 6

Exhibit 4: Bank A has 13 tribes, each with a different area of attention,

that complement each other and are supported by CoEs

Centers of expertise

Communication

Pricing

Experience Tribes – “to the shop”

Retail banking

Advice and affluent

Business banking

Securities and private banking

Service Tribes – “in the shop”

Daily banking

Payments

Mortgages

Business lending

Enabling Tribes

One analytics

Omnichannel experience

Omnichannel building blocks

Client information management

Fraud and cybersecurity

| 7

Exhibit 5: Scope of PMC/CMC

Scope

Change

Management

Committee

(CMC):

▪ Approval of changes in existing products/processes because of

changes in

– Regulatory/Internal guidelines & Policy

– Automation/improvisation of the existing process

– IT applications, hardware and infrastructure

– Inherent risks

– Shifting of activity from one ‘unit’ to another if it involves process

change

– All migration activities, including migration to new systems or

enhanced version of existing systems.

– Modifications in forms/templates/data formats

– Deviation/relaxation/additional documentation

▪ Approval of new processes

Product

Management

Committee

(PMC):

▪ Approval of New products

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▪ The Permanent Members of PMC / CMC are:

– Finance and Accounts (F&A) including F&A (SoX) & Financial Crime

– Management Department

– Compliance

– Law

– Information Technology (IT)

– Risk including Information Security

– Process Quality – Convener

▪ Officials designated for signing off the note can be Deputy Vice Presidents and

above

Exhibit 5: Composition of PMC/CMC