The digital transformation of banks is an inevitable trend arising from continued financial technology development. However, the digital transformation of banks can take place through different approaches and will be influenced by national conditions and pricing differences. To understand these different models, Runbo Research Center for Digital Finance, THUIFR researched different types of digital banking and the development of open banks in China and published the results in an original report on June 10, 2019.
The report identified the conditions for the development of digital banks and open banking, analyzed the different transformation paths across digital and open banking, and looked at the crucial role of regulation.
The development of digital banks
Advanced technology brings more power and opportunities for financial innovation, promotes new business models and products, improves the competitiveness of financial institutions and promotes services efficiency. The digital transformation of banking operations enables financial services and products to be more accessible for consumers.
Advanced technology shifts the traditional operating model of the banking sector, into new service and digital technology models such as those of Alipay and WeChat. These new models not only change the consumption habits and payment methods of consumers but improve social efficiency and the ability to create value as well.
The different types of digital banking transformation
Different countries have different situation which means differences in digital banking transformation.
1 Different development models of digital banks
| Country |
Name |
Details |
| US |
NeoBank |
Fintech firms—only provide online banking services |
| UK |
Challenger Bank |
Licensed firms—supervised by banks and provide online services via mobile phones |
| Hong Kong |
Virtual Bank |
Licensed firms—providing online retail services to SMEs |
| Country |
Types |
Details |
Typical firms |
| China |
Online banks |
Private banks—use fintech to provide online and convenient banking services |
WeBank--Weilidai |
| Baixin Bank |
Initiated by China Citi Bank and Baidu—technological provider with licensed bank provides online banking services |
Baixin Bank |
| Direct Banks |
Provide both online and offline service, meet various customers’ needs |
Offered by most banks in China |
2.2 Digital banking transformation
In order to develop corresponding products, services and marketing plans, banks should gather information from customers, markets, current process, risk management system and human resources.
Adjust the organisation of the industry to simplify the procedures and establish the data sharing mechanism. Cut down the quantities of information provided by customers to reduce the labour intensity.
The development of open banks
The development of open banks requires open data and changes to the ways customers are acquired. Unlike traditional banking businesses, open banks do not need to directly sell products and services to customers. Rather, they graft various business ecosystems onto the platform and indirectly gain, retain and provide customers with various beneficial financial services.
Internal data integration is promoted through internal channel integration, system interconnection, data sharing and service collaboration. Internal data management aims to effectively integrate data and information sharing across channels, products, systems and organizations.
External expansion requires strengthening exchange and cooperation with banks, technology companies, channel service providers, platform operators, and various customers. Internet thinking and financial technology can be used to promote innovative product services, business processes, business models, and management models. Multi-dimensional integration and systems innovation is needed to realize the bank’s own financial services innovation.
Risk management and regulatory trends in digital bank transformation and open banking
This report argued that in terms of risk management and supervision, increased market access and increased supervision of digital banks and open banks go hand in hand. On the one hand, Internet financial institutions have to franchise; on the other hand, they have refined their business models and products to improve regulatory access. Therefore, in order to find a breakthrough in the market, banks should focus on providing services for inclusive finance through fintech methods.
Due to the lack of unified data standard digital analysis, the ability to process and discover value and technology are relatively backward, resulting in many hidden dangers, such as data distortions, data lag, data silos and digital resource waste. Data opening requires uniform and strict regulatory requirements.
