Run, Protect, Grow: Digital Acceleration for Small and Midsize Banks

As money centers, global banks and fintech entrants continue to invest heavily in digital capabilities, small and midsize banks find a digital divide between these competitors and themselves. To narrow this divide, these banks need to act urgently to develop a comprehensive and pragmatic digital strategy framework that provides immediate acceleration.

This framework must allow for rapid innovation without distractions and costly false starts from digital hype. The strategy must also align with banks’ overall business strategy to run, protect and grow the bank as follows:

1. Run the Bank
Adopting modern automation capabilities can help financial institutions find efficiencies throughout their core operations, such as with:

• Autonomous decisioning. Rule-based automation has evolved to prediction-based automation using artificial intelligence (AI) and machine learning techniques. These autonomous decisioning techniques can help banks identify use cases, where the value captured from being ahead with correct predictions far exceeds the loss of falling behind from the incorrect ones.
• Intelligent automation. Increased coverage of mature automation capabilities across the bank helps minimize repetitive processes that are still performed manually.
• Omnichannel experience. Banks should modernize operations to harmonize the app-to-branch experience. Generative AI-based chat interfaces can address common customer inquiries. Video streaming can provide the in-person experience without branch location constraints. Superior customer experience is available across channels while reducing overall costs. Each channel complements, rather than replaces, the others.

2. Protect the Bank
A digital strategy should incorporate advanced tools to enhance fraud detection, ensure cybersecurity and comply with regulatory requirements. This helps small and midsize banks protect their assets, reputation and customer trust. Areas of focus include:

• Cybersecurity. Keeping up with the increased sophistication of threat actors — which now include state-sponsored rogue players with greater access to resources — is paramount. Comprehensive cybersecurity measures include encryption, multi-factor authentication and regular security audits to safeguard sensitive data and systems from cyberattacks. Cyber resiliency is now a must-have capability.
• Fraud prevention. Machine learning algorithms enable banks to detect unusual patterns and transactions. Real-time monitoring can flag and respond to potential threats swiftly, while knowledge graph-based methods can further detect criminal behavior based on customers’ associations.
• Risk and regulations: Robust risk data and analytics for continuous monitoring of operational, credit, financial and liquidity risk for compliance and overall risk management are central to protecting the bank. Organizations should update data and AI governance frameworks to address not only the traditional challenge of establishing trust on enterprise data but also the emerging challenge of governing the proper use of AI.

3. Grow the Bank
A digital framework can better equip banks to enhance their marketing, sales and customer onboarding processes, thus reaching new markets and enhancing customer satisfaction. Some avenues to consider are:

• Deeper customer relationships. Customer 360 views provide a deep understanding of their personas to identify new opportunities. This helps foster lifelong and multi-generational relationships. AI can recommend new products and services and can also provide advanced warning on customer retention concerns.
• Acquisitions. Developing a scalable data and digital architecture allows for quick onboarding of new acquisitions. Mesh architectures and data sharing based architecture can provide a unified view to customers in spite of disparate underlying systems.
• Open banking. Building scalable and secure application programming interfaces enables banks to provide services to non-members. Connectivity with the fintech ecosystem allows organizations to provide a new range of innovative services.

Small and midsize banks do not have to be alone on this journey. Sharing best practices and lessons learned with similar but non-competing peers accelerates the formulation of effective digital strategy. Co-investing with these peers to setup non-production digital sandboxes to test the latest digital technologies in a safe, proof-of-concept setup allows organizations to innovate at the pace of the more resourceful larger competitors.