Backbase presents

Become a
digital-first bank:
How and why to
make it happen

1
Contents

01. Introduction 05. Digital-first banking for 08. The Backbase Open Banking
digital-first customers Marketplace
02. The digital-first customer The digital hub | Think forward We drive innovation
The Backbase digital banking platform
03. Digital transformation 06. Act Now: Your digital partner
Smartphones | The cloud | Machine learning How to become digital-first
Strategy & propositions About Backbase
04. Analysis of market developments Delivery & operations Backbase named leader by analysts
The movement | The reality | Change is coming Digital-first technology
The future is aggregated offers Digital-first speed
Smart Bundling and adjacencies Digital-first culture
API economy
Consolidation and shared services 07. Your partner in digital-first banking
A cashless world | Pay by phone | The P2P The digital business model
The payment giants | The social experience
Investor appetite
Banks and fintech solutions
Introduction

3
 01. Introduction

Introduction
The way we interact with the world has changed. A
quick scroll through any smartphone reveals apps
for social media, rideshare, hotels, dining, dating, and
most crucially—banking.

The digital age has been here for some time, and so
is the need for banks to embrace Digital Transforma-
tion. The fintech era has come of age and the need
for ‘digital-first’ is no longer speculative. Simply put:
banks and banking will never be the same.

In this whitepaper, we will examine the need for digi-

tal-first and explain how you can make it happen.

4
The digital-first
customer

5

The digital-first customer
The first step is understanding digital-first Custom-
ers. An analysis of recent market developments has
concluded that these customers will have their fi-
nancial services needs met on a new generation of
platforms. These platforms will act as Digital Hubs.
One option for banks is to just provide infrastructure
for other businesses that specialise in digital cus-
tomer engagement. But it is our belief that truly for-
ward-thinking banks will want to position themselves
as the Digital Hub for their customers.
02. The digital-first customer
Looking at the key components of a Digital Hub, it’s
clear that any bank pursuing this path must become
a digital-first Bank that meets the needs of digital-first
Customers. But these customers have high
expectations. They want experiences as cool as Ap-
ple’s, as engaging as Instagram’s, as convenient as
Uber’s or even as slick as Amazon’s 1-Click.
Transforming business models, culture, pace, and
technology are all part of becoming digital-first. This
can seem like a lot—but we’re here to help.
6
Digital
transformation

7

Digital transformation
This shift to a digital-first life has been driven by a number of factors:
Smartphones
Most People have smartphones, which can provide
a platform for innovation.
As an example, Square used a simple card-swipe
dongle to trigger a massive transformation of pay-
ment acceptance for SMEs, thereby creating several
new billion dollar businesses.
03. Digital transformation
The Cloud Machine Learning
Cloud computing and the API economy have turned Machine learning has enabled the replacement of hu-
traditional advantages of scale on their head. man operators with cheaper and more reliable tech-
nological solutions.
Small agile teams can access computing power
and capabilities that were previously the preserve of
well-funded industry giants.
8

Although not immune to the effects of these chang-
es, the impact on the financial sector has been some-
what muted during the first wave of disruption for a
number of reasons:
• It is a highly regulated sector where core activi-
ties require prior official approval.
• Customers are deterred from switching due to
the work required and feel nervous about ending
long-standing relationships. That results in iner-
tia, which makes the supplier landscape slow to
change.
• It is a highly interconnected industry with col-
laborative payment and processing networks that
are slow to evolve or accommodate new members
and models.
03. Digital transformation
These factors make it hard for new entrants to break
into the market. However, they offer incumbent pro-
viders a basis from which to build strength by lever-
aging the power of new technology.
But that involves overcoming the challenges of leg-
acy—inherited systems, processes, products, busi-
ness models, people and culture—all of which are
not always adaptable. This is the context behind the
need for Digital Transformation Programmes that al-
most every bank now has underway.
Defining the content of such a programme requires
a bank to have a view on the future of financial ser-
vices. The past 12 months have seen a raft of mar-
ket developments, which offers some indication on
how this future will look.
9
Analysis of
market developments

10

The open banking movement
Open Banking is a vision where customers of finan-
cial services control their own data. They can seam-
lessly switch between rival offerings within a vibrant
supplier ecosystem. Open Banking means that the
customer can truly benefit from the power of the dig-
ital revolution.
The reality
This Open Banking vision is in contrast with the cur-
rent market reality where we see limited account
switching. This is from a combination of low com-
petition and the perception that switching will take
great effort.
Change is coming
The Open Banking movement is gaining momentum
around the globe. In regions such as Europe, regu-
lators are introducing specific Open Banking regula-
tions designed to force open access to financial infra-
structures. With this, new entrants can more easily
bring innovative services to market. This is forever
changing the banking market, including the supplier
landscape.
Now all market participants need to consider their
future role in the emerging new environment.
The future is aggregated offers
Central to the Open Banking vision is the ability of
service providers to aggregate information on all the
different accounts that form a customer’s finances.
This includes not just multiple bank accounts held
at different institutions, but savings balances, loans,
credit cards, mortgages, investments, insurance and
even loyalty products.
04. Analysis of market developments
Open Banking means service providers will have a
holistic analysis of a customer’s financial situation.
• Currently, it’s a laborious manual exercise to
aggregate information from different sources, so
only a dedicated few customers actually undertake
it. Even then it is more of historic information than
a real-time decision platform that’s appropriate for
the digital era.
• Tools like spending analysis are ineffective be-
cause they reflect only part of the picture. A cus-
tomer that wants to understand their use of money
as part of setting budgeting goals gets very little
benefit from a detailed analysis at account level.
A single account only represents a portion of their
overall financial activity.
11

Unsurprisingly, account aggregators are starting to
emerge in markets where Open Banking is most ad-
vanced, such as Europe. A number of major banks
have even launched their own account aggregation
services (generally under a separate brand) to sit
alongside their in-house banking service. Aggregated
propositions present challenges to banks’ traditional
business models and to their brand architectures.
Smart bundling and adjacencies
The un-bundling
The fintech era initially saw the emergence of many
digital start-ups specializing in just one aspect of fi-
nancial services (such as lending, international pay-
ments, investment advice). This was referred to as
the “un-bundling” of the traditional banking model
whereby banks provided a very wide range—in some
cases hundreds–of different products. Inevitably
some of the banks’ product lines would not be mar-
ket-leading and could therefore be vulnerable to cher-
ry-picking by new entrants.
The re-bundling
There are many recent examples of banks joining
with specialist fintech providers to enhance their
consumer propositions. In some cases, this “re-bun-
dling” enables propositions to move beyond the tra-
ditional, narrow banking domain to adjacent areas
04. Analysis of market developments
like investment, insurance, and even parking. This
lets banks play a bigger role in their customers’ ev-
er-expanding digital lives.
The adjacency approach
This move into adjacencies has been a key success-
ful strategy for Chinese Tech Giants like Alipay and
WeChat. WeChat famously started out as a social
messaging network, but then added a payments ca-
pability. It is now one of the world’s most powerful
payment brands. Some major fintechs, such as Rev-
olut, are even starting to add traditional core banking
services as an adjacency to their initial specialist ar-
eas of focus.
12
 04. Analysis of market developments

1_Smart bundling of a third party’s capabilities by banks

This approach is explicitly on the roadmap of other
disruptors such as Marcus (Goldman Sachs’ fintech
subsidiary). For a bank, smart bundling of third par-
Smart bundling
ty capabilities for both traditional banking products Bank Brand Bank Brand
and adjacencies allows them to remain as the cus-
tomer’s primary interface. This lets them offer bet- Bank product systems Bank product 3rd party 3rd party
Current account, Savings, systems providers providers
ter product features than they could deliver in-house. Loans, Mortgages, e.g. Current Traditional Adjacencies
This approach is therefore more likely to attract and International Payments Account banking
Products
retain customers.

Even some fintechs that initially set about developing

direct-to-consumer brands that compete with banks,
such as TransferWise (cross-border payments), have
recognised the hard work involved. For them it makes
sense to partner with banks, tapping into their estab-
lished brand and consumer bases.

13

API economy
Underpinning many of these developments has been
the
rapidly evolving API Economy.
The API Economy refers to the increasing number
of cloud-based services accessible via APIs. This ac-
cessibility greatly simplifies the task of integrating
them into the core offering of a business. Many busi-
nesses, both large and small, are engaging with the
API economy:
• To access specialist services (and bundle them
into their proposition) rather than building them in-
house.
• To distribute their own capabilities and thereby
drive more volumes, data and/or revenue.
A classic example is Google Maps. Many businesses
integrate it into their digital services rather than de-
veloping their own mapping capability. At the same
time this drives valuable insights for Google. In finan-
cial services there are:
• Mandatory APIs: where regulators, for example
in Europe, require banks to provide API access to
third parties, without being able to charge for that
access.
• Premium APIs: some banks are publishing APIs
to enable third parties to access useful capabili-
ties such as credit provision, identity verification
and payment processing. From the bank’s point-
of-view these earn revenue from the end customer
or the third party.
• Product/Service Provider APIs: fintech busi-
nesses publish APIs to make it easy for banks and
other businesses to integrate their capabilities.
Examples can be found across a whole range of
financial services including identity verification,
robo-advisors, savings optimisers, cross-border
payments, commerce payments processing, fraud
profiling and many more.
04. Analysis of market developments
The growth of the API economy is of course not limit-
ed to financial services. As banks seek to expand their
propositions to non-traditional or adjacent services,
there are a host of capabilities to access via APIs.
Such capabilities would extend to areas including in-
surance, travel, ticketing, weather, consumer health,
and for SMEs, accounting, invoicing, insurance, ex-
pense management etc.
Consolidation and shared services
Historically, banks have often collaborated to create
shared national infrastructures with benefits in cost
reduction and network synergies. Payment process-
ing and ATM networks are classic examples. Indeed
the origins of industry giants like Visa, Mastercard
and First Data were in exactly this type of collabora-
tion.
14

A number of factors relating to the digital revolution
are leading to a transformation of this space:
• The “over-the-top” nature of digital services
such as eCommerce means national boundaries
make no sense. There is a wave of consolidation
underway, especially in Europe.
• Significant investment is needed to modern-
ize systems and processes for the digital era.
Banks are, in some cases, poorly placed to make
the required capital available. The well-funded Pri-
vate Equity sector has seen significant success in
taking such businesses off the market, investing
in modernization, and then returning a refreshed
business to the public markets.
The significance of this is that more and more traditional
banking back-office services are becoming available at a
lower cost. This happens through expert third party pro-
viders who benefit from economies of scale and scope in
acquiring and deploying advanced technology. In effect,
this is a driver of the un-bundling of the bank back-office.
A cashless world
Major shifts are taking place in customer payment usage
profiles. Western markets are seeing a shift from cash to
card payments. These are generally debit card payments,
and in turn these cards are increasingly contactless rather
than signature or chip-and-pin. Some stores are moving to
card-only, and discussions have even begun about cash-
less economies emerging in the foreseeable future.
04. Analysis of market developments
Pay by phone
After a slow start, there is evidence that mobile phones
are beginning to replace physical card usage for some
customers. There has been an acceleration of adoption
and usage of OEM Payment Wallets (such as ApplePay
and GooglePay).
In other markets, there has been a leapfrogging of the card
stage straight to mobile phones. In China QR-code pay-
ment methods such as Alipay are ubiquitous, and in some
parts of Africa mPesa-type mobile phone solutions are
widespread.
15

The P2P popularity
In a number of countries, non-bank providers were the
first movers in launching Person-2-Person (P2P) payment
schemes. However, some national bank collaboration
schemes have gained ground on them when it comes to
adoption and usage. Zelle’s progress as overtaking PayP-
al’s Venmo service in the US is a prime example.
At the same time, messaging apps increasingly incorpo-
rate payments capabilities, with the aim of bringing send-
ing or requesting money into a conversational setting.
Sometimes it’s as simple as adding an emoji. This trend
could limit the relevance of standalone payment apps. It’s
also notable that P2P payment schemes are in turn ex-
panding beyond their original scope to include merchant
payment and companion cards.
The payment giants
Another significant trend is a growth in the international
acceptance of giant Chinese payment schemes—Alipay
and WeChat Pay—spearheaded by the desire of merchants
to attract a growing wave of Chinese tourists. It will be
fascinating to see whether this forms a foundation for the
penetration of domestic payment volumes. As physical
commerce inexorably migrates to eCommerce, payment
methods must increasingly work, and be widely accepted,
in both environments.
04. Analysis of market developments
The social experience
It may also be significant that a number of the above trends
are reducing the visibility of a specific payment mecha-
nism (card/account/wallet), and the brand of the bank
enabling it. The emphasis is more and more on social or
commerce experiences. One aim of regulator-driven open
banking initiatives tends to be that of encouraging a shift
from card payments to interbank payments. However, at
this stage it is unclear whether regulatory provisions will
be sufficient to bring this about. The increasing enhance-
ment of interbank rails to provide real-time payments is
however strengthening the proposition of credit transfers
as a competitor to card payments.
16
 04. Analysis of market developments

Investor appetite 2_Number of fintech launches in the last 10 years 3_Fintech investments in the last 10 years in $B
There is a great investor appetite to back fintech proposi-
tions and help them scale. This is evidenced by the acqui-
sition of iZettle by Paypal, the Adyen IPO and numerous 800 40

other fundraising rounds. 724

700 35 34.4
33.0
640

These graphs demonstrate that while the number of new 600 586 574
30

27.3
26.5
fintech startups has slowed, the amount being invested is 25
500
growing, reflecting this emphasis on scaling.
388 20
400
347

295 15
14.3
300
233
10
172
200
134 6.9
5
3.6
100 2.8
1.1 1.6 1.7
5
0 0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 H1 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 H1 2018

Banking Investment Management Insurance Real Estate

17
 04. Analysis of market developments

Banks and fintech solutions 4_Adoption of new technologies by european banks

The European Banking Authority’s recent report provides a
valuable snapshot from late 2017 of the number of banks
A. Use of Biometric authentication for customer
actively involved in adopting new technologies to enhance identification purposes
57% 3% 16% 16% 8%

services and improve efficiency. Some of these technolo-

gy solutions have clearly evolved from being a topic spo- B. Use of Robo-advisors for investment advice 21% 11% 26% 34% 8%

ken of at conferences, to mainstream commercial deploy-

ments. C. Use of Big Data and algorithms for credit scoring 29% 16% 32% 21% 3%

Biometric Authentication and NFC Digital Wallets are the D. Use of DLT and smart contracts for trade finance 5% 21% 18% 45% 11%

most widely deployed, followed closely by Cloud-Comput-

ing adoption, as banks seek the benefits of scalability E. Digital wallet solutions for mobile payments using NFC 53% 3% 16% 16%

and cost advantage.

F. Use of DLT for digital identity 8% 29% 37% 26%

Robo-advice and Big Data-driven Credit Scoring are also
experiencing material deployment, whilst Distributed Led-
G. Use of cloud computing for material activities 39% 11% 16% 26% 8%
ger Technology (DLT) applications seem to be still in the
research phase.
Commercial use Pilot testing w/ consumers Under development Under discussion No activity

18
Digital-first banking for
digital-first customers

19
 05. Digital-first banking for digital-first customers

The previous sections have identified the drivers of

digital disruption in financial services and looked at
key recent market developments.

All this evidence proves that major shifts are taking

place and that there will be more to come. It’s clear
that banking has changed.

We believe that this analysis forms a clearer picture

of the future of financial services. Our conclusion is
that the digital disruption of banking will create a fu-
ture where key financial services for Digital-First Cus-
tomers (including SMEs and corporates) are provid-
ed by Digital Hubs.

20
 05. Digital-first banking for digital-first customers

The Digital hub 5_Digital Hubs as the main providers of digital services for a new generation of customers
The Digital Hub is a gateway to a customer’s finan-
cial life. Like Siri, Alexa or Google Assistant, think of
it as an interactive platform. Machine Learning (and
over time true Artificial Intelligence) is applied to Digital Hub
leverage data on the customer’s situation and inter-
actions. In this way, their needs can be anticipated
01. Authentication 02. Customer 03. Machine 04. Process 05. API
and, where delegated permission has been given, and security experience learning orchestration management

acted upon. More on this later. Facilitate Access Aggregate value Offer advice

Banking Systems FinTech Providers Cross Industries

21
 05. Digital-first banking for digital-first customers

Think forward
The key question when considering this vision is:
who will be the provider of this service to consum-
ers? Options include Tech Giants like Google and An
Financial, or new fintechs that already seem to be
positioning themselves for this role. That leaves the
banks, who can potentially play one or more of three
different roles:
1. Become a Digital Hub provider
2. Be an infrastructure provider working through
Open Banking APIs
3. Be a Product/Service provider to other Digi-
tal Hubs, providing Premium API access under a
banking-as-a-platform strategy

It is our belief that forward-thinking banks will want

to become their customers’ Digital Hub and develop
a suite of Premium APIs, rather than simply being an
infrastructure provider.

22

01. Authentication & security
FaceID is rapidly being adopted, indicating a potential
for authentication to become increasingly frictionless
for users. A smartphone gathers background data
(location, face, voice, app usage,and even stride-pat-
terns). Such data can be compared to normal usage
patterns to give a degree of confidence that the de-
vice remains in possession of the user.
As an example; if my device is in the same location
as usual at 9am, I have been checking the same
news and social media apps I usually do during my
05. Digital-first banking for digital-first customers
commute, the camera can see my face, and the ac-
celerometer can see my stride-pattern matches past
records - most likely there’s no need to request a PIN
to enable me to tap my phone and buy a coffee.
This persistent background authentication could give
sufficient confidence for a range of actions to be un-
dertaken, only calling for additional intervention with
higher risk activities, or when the confidence score is
low.
23

02. Customer experience
A fundamental aspect of the Digital Hub is trust in
its propensity to act in the best interests of the user,
rather than being seen as biased towards the inter-
ests of a particular business. This will be a real chal-
lenge for many businesses aspiring to deliver a Digi-
tal Hub.
If this trust can be attained, consumers will want to
provide access to as many aspects of their financial
05. Digital-first banking for digital-first customers
life as possible, because analysis, recommendations,
actions and hence value to the user are sub-optimal
if based on incomplete data. It would be like allow-
ing a doctor to only check your pulse but not to do a
blood test.
This aggregation could carry over to adjacent areas
such as loyalty programs or travel bookings, extend-
ing the scope of value provided.
24

03. Machine Learning
The Digital Hub would make use of several types of
data:
• Personal details such as age or address
• Device data
• Personal financial data: access to balances,
transactional and contractual data from all of a
user’s financial service providers
• Market data: real time information on market
rates
Analytics (using Machine Learning where appropri-
ate) can be applied to this data to derive recommen-
dations, or helpful ‘nudges’. These recommendations
might include things like:
• There is sufficient probability that a user is in
possession of their device so a transaction can be
allowed
• These transactions appear to be business ex-
penses and could therefore be added to an ex-
05. Digital-first banking for digital-first customers
pense claim
• Several subscriptions are being paid for services
which have not been used for over a year, and for
some services, entitlements to the same benefits
are duplicated
• A purchase should be made with airline loyal-
ty points as there is a special promotion being of-
fered
• Electricity bills could be lowered by switching to
supplier X
• Savings balances could earn more interest if
switched to Bank Y
• Compared with a similar demographic, a user
spends more on food and drink and has lower sav-
ings, so a monthly savings plan could be started • The user is abroad so a purchase of travel insur-
• For this purchase, it would make sense to access ance is recommended
a credit line from provider Y • Detecting a user has just left their house and
• Stock index movements suggest a portfolio appears to be cycling; suggest enabling one-day
switch between X and Y cycle insurance
25
 05. Digital-first banking for digital-first customers

03. Machine Learning

The Digital Hub allows the user to decide what per- tion examples above being items a consumer would
missions are delegated, enabling those recommen- eventually be happy to delegate to a trusted assis-
dations to be executed automatically. tant.

Different users will have different preferences in this This would remove a great deal of day-to-day hassle,
regard, and these will potentially evolve over time as in a way consistent with our high expectations for a
trust grows in the recommendation engine’s accura- Digital-First life.
cy. It is not hard to imagine all of the recommenda-

26

04. Process Orchestration
Traditionally, banks have relied on staff to review out-
puts from one system, decide what to do with them,
and then make the necessary inputs to another sys-
tem. In a Digital Hub approach, these manual pro-
cesses will be replaced with digitized processes in
order to achieve the requisite cost/income ratio and
scalability.
The automation necessary to derive recommenda-
tions, with autonomous execution and delegated per-
05. Digital-first banking for digital-first customers
mission, requires a complex orchestration of multiple
data sources and business rules cy. It is not hard to
imagine all of the recommendation examples above
being items a consumer would eventually be happy
to delegate to a trusted assistant.
This would remove a great deal of day-to-day hassle,
in a way consistent with our high expectations for a
Digital-First life.
27
 05. Digital-first banking for digital-first customers

05. API Management

The delivery architecture for Digital Hubs will be
based on APIs, since access to data and the ability
to execute actions will be dependent on connections
to a range of third parties. In regions such as Europe
where regulators are forcing banks to open up API
access to bank accounts, they will clearly be a great
asset for Digital Hubs. In effect, the Digital Hub rep-
resents a smart bundling of third party capabilities

28
Act now:
How to become digital-first

29

As recently as two or three years ago, new digital
technologies and their ability to change the banking
landscape were primarily a conference discussion
topic, or part of experiments at the Innovation Labs
of bigger banks.
What’s clear from the analysis is that these technol-
ogies are not only prime-time ready, but are already
adopted by digital leaders to gain material market
advantage.
The market transformation towards the Digital Hub
vision has already begun.
Backbase is ready to partner with you so that you
can Act Now to adopt a Digital First strategy.
The actions necessary to become a Digital-First Bank
fall into 2 categories:
1. Strategy & Propositions: defining future busi-
ness models to drive customer value
2. Delivery & Operations: developing organization-
al capabilities
Strategy & propositions
Some banks reckon the forces of change shouldn’t
affect
their customer base because:
• Regulators won’t allow new players to operate in
that way
• Customers won’t be bothered with the hassle of
moving accounts
This is a Prison Paradigm: a mindset that customers
are trapped with their current bank.
Digital-First Banks adopt a Hotel, not a Prison Par-
adigm: our customers choose us because we offer
them the best value proposition.
06. Act now: how to become digital-first
The Digital-First Business Model requires a new gen-
eration of propositions that are:
• Multi-Segmented: banks’ propositions should
be deeply focussed on the needs of multiple dif-
ferent segments. This goes far beyond traditional
consumer/wealth/ SME/ corporate segmentation.
The competitive benchmark is set by an increas-
ing number of propositions on the market tailored
to the specific needs of millennials, migrant work-
ers, families, retirees, freelancers, exporters, gig
economy businesses and workers, etailers, mi-
cro-merchants, marketplaces, fintechs, and more.
A Digital-First Bank will need to develop and con-
tinuously evolve propositions for each target seg-
ment, making them as good as those offered by
leading segment specialists
• Transparent and Consent-Driven: embracing a
new post-GDPR regulatory environment and the
tangible change in societal attitudes
30

• Using Dynamic multi-modal messaging: chang-
es as simple as offering rule-driven alerts rather
than just balance enquiries can transform cus-
tomer engagement. In future, banks must be able
to communicate interactively with customers
through a wide range of methods
• Aggregated: data-driven insights only make
sense when applied across the entirety of a per-
son’s financial status
• Beyond traditional banking boundaries: the
smart bundling of adjacent services creates new
opportunities to build customer value
• Data-driven: banks have access to a wealth of
data which, with suitable permissions and the right
tools, can be applied to improve the personalisa-
tion of services - a true win-win situation
• Omni-channel UX: a fully integrated customer
experience across channels is crucial for future
propositions,
along with a tech-leader style look and feel
Digital-First Banks will also develop Premium APIs:
identifying capabilities that can be made available
to the market through open APIs. Examples might
be payment processing, credit provision or identi-
ty verification. Unlike mandatory APIs imposed by
regulators, these APIs can be charged for, allowing
banks to create new revenue streams, or improve
margins by running higher volumes over the existing
infrastructure. Premium APIs should be viewed as a
product, subject to the same product management
disciplines as any other.
06. Act now: how to become digital-first
The implication is that there will be a new economic
model for Digital-First Banks. Commission revenues
will be earned on third party products, and process-
ing revenues from distribution through third parties.
Monthly Active Users (MAUs) and Average Revenue
Per User (ARPU) will become Key Performance Indi-
cators. They already are for many tech companies.
Low cost-income ratios will be key to enabling effec-
tive competition. This can only be achieved through
a high degree of automation, which brings us to the
subject of Delivery and Operations.
31

Delivery & operations
An organization capable of supporting the Digi-
tal-First Business Model described above will need
to be very different from the typical bank of today. It
will need to share many of the characteristics of suc-
cessful technology businesses.
For example, Eric Ries (a thought-leader in entrepre-
neurial methodologies and management principles)
highlights some of Silicon Valley’s best practices:
• Small teams focussed on delighting customers
by solving problems and generating dramatic im-
provements
• Entrepreneurship as a career: Recognise those
with the special skill of making things happen
• Give employees equity in the business
• Focus on leading indicators like customer en-
gagement and repeat usage, rather than trailing
indicators like market share
• Control through metered funding, where authori-
ty is delegated but further funding requires demon-
stration of progress
• Experimentation: tolerating failure within a di-
verse portfolio of activity
• Build - measure - drop the quest for perfection
and
learn to create a constant cycle of improved adap-
tations
06. Act now: how to become digital-first
It’s easy to see how these best practices will be rele-
vant, indeed essential, to operating a Digital Hub, but
it’s a lot less clear how banks can achieve this state
with a starting point that’s far from being a green-
field one. For example:
• How can teams be given development autono-
my when there are complex interdependencies be-
tween different systems?
• Does the bank even have entrepreneurs in its
staff cohort, and how can the requisite reward and
recognition systems be reconciled with the diktats
of Regulators and a board-driven focus on the an-
nual operating plan?
32
 06. Act now: how to become digital-first

6_The four pillars supporting the digital-first bank

The challenges of legacy for a bank extend beyond its sys-
tems and architecture. Products, processes, staffing and

Act Now
culture also reflect the historical evolution of a bank, often
these are not fit-for-purpose in a digital era.
Become a digital-first bank for digital-first customers

This can lead banks to envy the greenfield / blank sheet

Strategy & Delivery &
of paper start-ups operate from. But those businesses be- propositions operations
gin with no product, no customers, no brand...is that really
something to envy? It is important for banks to formulate
a positive paradigm around being an incumbent; brand,
customer base, distribution network, revenue, experience Digital-first Digital-first Digital-First Digital-First
and expertise - all are real assets. Business Model Technology Speed Culture

To release the value of these assets, a Digital Transfor-

mation is needed, one which delivers a true Digital-First
Bank, not just digitization of a Legacy Bank. The Pillars of
the Digital-First Bank incorporate a Digital-First Business
Model and also include:

33

01. Digital-first technology
The demands of multi-segmented propositions necessi-
tate a decoupled architecture so product change can be-
come a business process, unconstrained by operating
system interdependencies. Delivery capability will be:
• Cloud-based: it’s essential to capture the benefits of
cloud computing in order to retain competitive cost-in-
come ratios. However, transition to the cloud will have
to be managed progressively, in line with local regulato-
ry mindsets; and
• API-driven: internal systems connectivity, third party
connections and B2B distribution all need to be based
on APIs
06. Act now: how to become digital-first
The adoption of maturing new technologies will be essen-
tial to enable new propositions and drive efficiencies. For
example, Machine Learning underpins new approaches in
areas such as Customer Authentication and On-boarding,
or Credit Assessment and Fraud Profiling. Process Dig-
itization is key to achieving paperless institutions. The
goal is to drive seamless, omni-channel, conversational
dialogues. At the same time, operational efficiencies are
driven through automation, increasing flexibility for fast,
business-driven changes.
34

02. Digital-first speed
Incremental changes, partial transformation, or the pur-
suit of niche markets will not deliver success in the new
market landscape. Straining for increased development
throughput that’s 2 or 3 times better - at best - is not the
right trajectory.
A particular fintech principle is noted from time to time,
which says only differentiators should be built in-house;
all other capabilities should be sourced from third-parties.
Certainly for specialist technology like Machine Learning,
or product capabilities like robo-advice, banks will have to
overcome their traditional vertically-integrated, in-house
build mindset. The delivery organization therefore needs
06. Act now: how to become digital-first
to become Ecosystem-Based, which in turn requires banks
to get better at procurement and partner management.
Banks will have to work at the “clock-speed” needed to
develop and maintain competitive propositions for digi-
tal- first customers. They will only get there by adopting a
de-coupled architecture and deploying an API orchestra-
tion layer for inbound and outbound connectivity to
an ecosystem of third parties.
Digital-First Speed also requires the adoption of Agile
working in small teams, supported by processes geared
to the same aims. And this brings us in turn to...
35

03. Digital-first culture
A strategic change to technology architecture, as described
above, is essential to becoming a Digital-First Bank, but
this has to be complemented by a similar shift in culture.
Digital-First culture starts when a bank’s leadership sets a
Digital-First Vision, which is embraced by investors, staff,
partners and of course, customers. Challenger banks such
as Fidor and Monzo illustrate how being open to sharing
the business vision and roadmap with customers (in some
cases even involving them in priority setting) builds pow-
erful advocacy.
Equally important is to review how staff are recruited, de-
veloped and incentivised. Banks will need to adopt new
ways of working, ones more characteristic of the fintech
generation:
06. Act now: how to become digital-first
• Pursue Agile development rather than the traditional
waterfall
• Embrace Lean principles
• Implement DevOps to enable rapid deployment cycles.
As Eric Ries highlights, culture is also about behaviours
and attitudes. The tone is set by the leadership, and the
following must be evident:
• Experimentation is encouraged
• Entrepreneurship is valued and rewarded
• Authority is delegate
• Constant improvement for customers is the key driv-
er, not a quest for perfection
36
Your partner in
digital-first banking

37

We know that the digital transformation described
in Section 6 is highly demanding. For a bank dealing
with day-to-day legacy IT challenges, it can seem like
an impossible task. Of course, there is an alternative:
continue to watch and wait, while making only incre-
mental changes. But unfortunately this can lead to:
• Failure to attract younger customers or growth
start-ups
• Lost share-of-wallet amongst established cus-
tomers
• Falling behind in product innovation
• Progressive relegation towards the role of a
highly-regulated, capital-intensive infrastructure
provider, while exciting data-driven digital services
are delivered by others
07. Your partner in digital-first banking
The industry is currently at a tipping point. Incum-
bent business models are not efficient anymore as
their cost-income ratios are too high and velocity of
change too low.
The digital-first business model
So as introduced in this report, business models need
to be transformed. Bold movers such as neobanks /
challenger banks adopt a “New Digital First” business
model. These businesses have a digital organisation
and approach to bringing new products and services
to the market. Some existing banks that are able to
cross the chasm properly adopt a Digital-First busi-
ness model and agile practices—some of which will
only focus on a very specific niche segment of the
market in order to survive.
38
 07. Your partner in digital-first banking

7_The tipping point for incumbent business models

Not changing in this respect will ultimately mean fail-
ure, or at best being commoditized to a banking ser-
vices provider on top of which others create actual Tipping Point
Market share Incumbent business
value. models are threatned
100
This is why forward-thinking banks recognise the
Bold movers
need for a strategic change to their delivery capabili- (attackers and agile incumbents)
survive and rise
ty and commit to a Digital First business model.

Effectively, a bank has a finite number of sprints avail-

Incumbent New Digital First
able to become digital-first. This is where Backbase
business models Business models
can help.
A few incumbents
partially transform
and/or find niche
markets
0
Some incumbents do not Time
respond and utimately fail

39
The digital-first
banking platform

40
 08. The digital-first banking platform

8_The components of the digital-first banking platform

Tailored Real-time Digital Financial Front-office
Advice Support Sales Insight Empowerment

01. User Experience Management

02. Digital Banking Capabilities

03. Identity & Access Management

04. Process Digitization Capabilities

05. Cloud Deployment

8_ strong digital banking platform is a function of well-
managed user experiences, backed by digital capabilities,
security, smart processes and cloud deployment.
Source: Backbase

41

Google owns information, Amazon owns ecom-
merce, Facebook owns communication - these play-
ers dominate in their areas. Now it’s time for banks to
own finance. They must reinvent themselves and go
beyond a digital transformation to achieving a busi-
ness transformation. Banks that work the digital-first
banking platform properly will empower themselves
to do things 10 times better. That’s how they will hold
onto their customers at a time when the threat of at-
trition is bigger than ever.
A robust, agile digital-first banking platform will con-
nect and empower all parts of the organization to
optimize omni-channel customer journeys. It works
alongside legacy systems, connecting, aligning and
informing to support staff and customers.
08. The digital-first banking platform
When all systems talk to each other, tailored ad-
vice and real-time support are instantly available to
customers. Frontline staff are freed from slow, pa-
per-based processes and empowered to deliver ex-
cellent service, with the right information at their fin-
gertips. The user experience works, from onboarding
to upselling, and this drives digital sales. Enhanced
financial insights help customers to manage their
financial lives and banks to strategize. The digital
banking platform connects all the dots to deliver for
the end customer and ensure the bank can compete
into the future.
42

01. User experience management
Behind every great user experience is a smooth in-
tegration with back-end services. When customer
data can be quickly sourced, frontline staff are em-
powered with real-time, accurate data, and custom-
ers enjoy superior self-service capabilities.
Digital marketing professionals should be able to tai-
lor the end-user’s experience, without the need to call
on IT for every change. Backbase offers a range of
user-friendly tools that empower digital marketers to
08. The digital-first banking platform
edit content and navigation, add widgets, update the
mobile app, run digital marketing campaigns across
multiple channels, and more.
A modular, flexible orchestration layer will connect
and streamline existing core banking and back-end
systems for frictionless, personalized, omni-channel
experiences. This empowers banks to deliver opti-
mal, relevant customer journeys, reduce time to mar-
ket, and ease the burden on the IT department.
43

02. Digital banking capabilities
To compete in a digital world, banks must offer smart
digital products and services that are easily acces-
sible over every device. Banks need a platform that
supports their efforts to stay competitive by provid-
ing innovative digital excellence.
Backbase is the digital banking platform that em-
powers banks with superior Banking-as-a-Platform
capabilities. Built on a state-of-the-art microservices
architecture and with API-based banking capabili-
ties, Backbase complements existing core banking
08. The digital-first banking platform
systems. Modular architecture enables easy cus-
tomization, while both classic and cloud deployment
are facilitated.
This leading omni-channel digital banking platform
helps financial institutions create, manage, and opti-
mize superior customer journeys, on any device and
over multiple channels. Functionality can be tailored
for seamless, omni-channel customer experiences
that normally would not be available directly from
the core banking or back-end systems.
44

03. Identity and access management
Identity and access management is key to ensur-
ing access security in today’s open banking market-
place. A sophisticated entitlements solution makes
this easy, by automating and managing the process
of granting access rights to trusted users.
Backbase offers a sophisticated entitlements solu-
tion that lets a bank integrate the existing entitle-
ments system, or leverage Backbase Entitlements to
tailor access levels and permissions to view, create
or approve transactions. Various password combi-
08. The digital-first banking platform
nations, tokens, Integrated Multi-Factor-Authentica-
tion (MFA) and alerts strengthen and simplify access
control.
Access to permitted functions and data can be limit-
ed and authentication can be stepped-up in high-risk
situations. Users can fully customize to create their
own views, and select preferred accounts or busi-
ness performance metrics. Payments can be autho-
rized on-the-go and mobile alerts and access to out-
standing approval requests are also available.
45

04. Process digitization capabilities
Smart online forms and logical processes are key to
efficient customer journeys. When they don’t work
properly, abandonment increases, impacting the
success of online initiatives. Smart forms and dy-
namic process management increase efficiency and
remove manual, paper-based tasks - making life eas-
ier for both customers and employees.
Backbase Digital Forms simplify and streamline all
customer dialogs across multiple channels, while on-
boarding or self-service dialogs integrate with inter-
08. The digital-first banking platform
nal systems for straight-through processing (STP).
Banks can actively streamline their online customer
dialogs and manage their self-service and customer
enrolment processes.
Backbase automates daily tasks, connecting people
and information to handle each case quickly and ac-
curately. Built-in mobile and social capabilities simpli-
fy collaboration via any device or channel, and com-
munication with legacy systems is also possible via
configurable connectors.
46

05. Cloud deployment
Cloud deployment powers constant feature or func-
tionality updates, without any impact on day-to-day
business. New code can be deployed thousands of
times per month, and fast. Development teams can
bring new capabilities to market via a highly auto-
mated platform that scales with the business. Secu-
rity can also be automated, making it easier to keep
pace with industry regulations and compliance stan-
dards.
08. The digital-first banking platform
The Backbase platform supports both traditional app
servers and new native cloud deployment models,
enabling banks to safely make the transition from
a classic deployment to a native cloud deployment,
without re-engineering. Backbase has done the hard
work of abstracting the platform capabilities from
the various cloud deployment models, The Back-
base Cloud is supported by an ecosystem of certi-
fied technology and infrastructure providers that fa-
cilitate service provision across multiple countries,
all with a proven track record in financial services.
47
The Backbase
Open Banking Marketplace

48

It used to be that one organization could not be all
things to everyone—but that’s changing. Banks can
add to their products and services by connecting to
the open banking ecosystem. By adding incremental
value from the open marketplace, banks can put all
of the pieces together and offer seamless solutions.
This is something that customers want to be a part
of.
We drive innovation
The Backbase Open Banking Marketplace is the per-
fect platform to establish mutually beneficial partner-
ships. It enables financial institutions and fintechs to
connect to the innovative Backbase Digital Banking
Platform.
The Backbase digital banking platform
This revolutionary platform is an open API-based
technology, which allows for any third-party fintech
capability to be easily integrated and leveraged into
09. The Backbase Open Banking Marketplace
a seamless digital customer journey across all chan-
nels.
Backbase Open Banking Marketplace offers the per-
fect fintech solution to significantly boost speed and
efficiency in any go-to-market strategy.
Your digital partner
With the right platform in place, a bank can create
superb customer experiences, react swiftly to mar-
ket changes and capitalize on unexpected marketing
opportunities.
All of this begins with understanding the needs of
customer and our increasingly Digital-First world.
Through a keen focus on each of the platform’s four
pillars and a strong Digital-First approach, banks will
move from the role of follower to formidable com-
petitor. The future is digital, and its bright.
49
Backbase Named a Leader in the Ovum Decision
Matrix for digital channel banking platforms
“Backbase hits the most important aspects of
digital channels, which are in demand for banks
looking for a very modern, agile, and neat solu-
tion. Backbase allows a rapid time-to-market
with its responsive design approach to the dig-
ital channels.
With this solution banks are getting a number
of features that are well aligned with current
trends in the digital economy, not only allowing
for efficient servicing but also effective sales
and marketing actions.”
Ovum Decision Matrix is emphasizing the impor-
tance of developing an effective omni-channel
banking strategy, selecting a future-proof digital
banking platform and taking into account the
emergence of new technologies - all in order to
empower banks to stay relevant to their custom-
ers, improve their customer banking experience
and not lose out to digital challengers. The eval-
uation criteria for the Ovum Decision Matrix in-
cludes market impact, business functionality,
and product execution - across which Backbase
scored exceptionally high. This is the second
time in a row that Backbase is nominated within
the Matrix as Market Leader.
Backbase Named a Leader in the Forrester
Wave™ for Omni-Channel Digital Banking
“Backbase offers broad business capabilities,
rich support of customer experience, and very
solid technology and architecture. With Back-
base being a pure-play vendor, it is not a sur-
prise that its commitment to its omni-channel
banking solution is high.”
Backbase was among a group of select vendors
that Forrester included in its most recent Wave
for Omni-Channel Digital Banking software. The
Backbase Digital Banking Platform is listed as
leader and received the highest score in the Cur-
rent Offering category. Being named a leader in
the Forrester Wave provides the market with fur-
ther validation of Backbase being at the forefront
of digital innovation. We are very happy with this
recognition and are energized to help our cus-
tomers accelerate their digital transformation.
Our software is used by leading banks around
the world, and we are 100% committed to ena-
bling them to create superior digital customer
experiences, any time, any place, and on any de-
vice.
About Backbase
Backbase is a fast growing fintech software
provider that empowers financial institutions
to accelerate their digital transformation and
effectively compete in a digital-first world.
We are the creators of the Backbase Omni-Chan-
nel Banking Platform, a state-of-the-art digital
banking software solution that unifies data and
functionality from traditional core systems and
new fintech players into a seamless digital cus-
tomer experience.
We give financials the speed and flexibility to cre-
ate and manage seamless customer experienc-
es across any device, and deliver measurable
business results. We believe that superior digital
experiences are essential to stay relevant, and
our software enables financials to rapidly grow
their digital business.
More than 100 large financials around the world
have standardized on the Backbase platform to
streamline their digital self-service and online
sales operations across all digital touchpoints.
Our customer base includes HSBC, ABN AM-
RO,CheBanca!, Credit Suisse, Fidelity, HDFC, His-
cox, ING, KeyBank, Legal & General, NBAD, OTP,
PZU, PostFinance, Navy Federal CU and West-
pac.
Industry analysts Gartner, Forrester and Ovum
recognize Backbase as an industry leader in
terms of omni-channel banking platform capa-
bilities, and award the company high marks for
its deep focus on customer experience man-
agement and unparalleled speed of implemen-
tation. Forrester named us a leader in the For-
rester Wave for Omni-Channel Banking. Ovum
nominates Backbase as the market leading pro-
vider of next-generation digital channel banking
platforms, from both a functionality perspective
and execution perspective.
Backbase was founded in 2003, is privately fund-
ed, with headquarters in Amsterdam (HQ Global)
and Atlanta (HQ Americas) and regional opera-
tions in London, Mumbai and Singapore.
Americas HQ
10 10th Street, Suite 325
Atlanta, GA 30309, United States
Toll-Free Number: +1 866 800 8996
Office Number: +1 470 881 8780
sales-us@backbase.com
Regional Office New York
1460 Broadway New York
NY 10036, Suite 110005
United States
Email: sales-us@backbase.com
Regional Office Boise
US Bank Plaza,
101 S Capitol Blvd. Suite 1750
Boise, ID 83702
United States
Email: sales-eu@backbase.com
European HQ
Jacob Bontiusplaats 9
1018 LL Amsterdam,
The Netherlands
Phone: +31 20 465 8888
sales-eu@backbase.com
Regional Office London Regional Office Toronto
81 Farringdon Street The Dineen Building,
London, EC4A 4BL 140 Yonge Street,
United Kingdom Ste 301 Toronto, Ontario M5C 1X6
Phone: +44 20 3735 8437 Email: sales-us@backbase.com
Email: sales-eu@backbase.com
Regional Office Cardiff Regional Office Singapore
Ground Floor, The Bounded Warehouse 22 Cross St
Atlantic Wharf, Cardiff, CF10 4HE Level 3 WeWork Building
United Kingdom Singapore 048421
Email: sales-eu@backbase.com Email: sales-eu@backbase.com