Lesson: Enabling digital banking with data and design

Designing the digital bank of the future
Data and Design

The strategic direction for banking is becoming clear: it’s all about a digital-first approach, cloud computing, having a single, unified view of data, and personalizing offers for customers. This applies in both retail and commercial banking, with similar goals in terms of personalization.

When we examine banking at a high level, there are two key sectors: core lending and deposit-taking, and payments and distribution. Both sectors generate similar revenue, but as Jeremy points out, payments and distribution are often easier to handle, offer higher returns on capital, and are less regulated. This explains the push by tech giants like Google and Apple into payments with platforms such as Google Pay and Apple Pay, though we don’t see them starting traditional banking operations. Established banks must adapt to this shift, ensuring that both core banking and payments/distribution align in a digital context.

Regarding the business case for digital banking, one of the most common metrics to consider is the cost-to-income ratio, which represents operating costs as a percentage of revenue. In traditional banking, this ratio is typically around 50%, meaning that for every dollar of revenue, banks incur 50 cents in operating costs. Digital banking disrupts this model by significantly reducing the cost to serve, bringing it down to approximately 20 cents per dollar of revenue. This reduction in cost leads to a much wider margin for digital banks. Moreover, digital banking can not only help protect income but can also create opportunities for growth in revenue. Understanding how digital banking impacts the business case is critical, as it can result in substantial changes to profit margins in the banking sector.

Creating a successful operating model for digital banking goes beyond just technology—it requires a holistic, overarching approach. While technology is an enabler, it is only one piece of the puzzle. A well-designed operating model must incorporate multiple critical factors, whether at the bank-wide level, within specific functions like risk, finance, or operations, or even at a micro level. Regardless of scale, every aspect must align with a clear business framework, such as a customer proposition, regulatory changes, or cost-cutting initiatives. From this foundation, the operating model can be developed to shape the digital bank effectively.

For designers and architects, everything in an established bank may need to be reimagined, but certain elements make a significant impact. Five key areas are crucial to getting the business case right:

Personalization – Leveraging data to tailor customer experiences, pricing strategies, and engagement while ensuring fair treatment and compliance with regulatory standards.
Ecosystems – Understanding how banks function within business-to-business (B2B) and business-to-customer (B2C) networks, whether as product manufacturers, aggregators, or distributors.
Always-On Banking – Transitioning from batch processing to real-time or near real-time operations, requiring designers to consider system latency and operational efficiency.
Sustainability – Addressing how environmental factors impact banking assets, investment decisions, and long-term financial stability.
Payments Efficiency – Optimizing payment processes, which are central to both cost and revenue structures in digital banking.
The shift to digital banking transforms the entire banking landscape, from business models to customer interactions. Designers play a critical role in shaping this transformation by ensuring that operational models are not only efficient and scalable but also aligned with industry trends and regulatory requirements.