Backbase presents

Becoming
Digital-First
Your Digital
Transformation
Roadmap
/1
 Contents

01 _ Introduction 5
02 _ Digital-First: the writing on the wall 7
03 _ Digital Transformation 9
04 _ Analysis of Market Developments 13
Open Banking 13
Aggregated Propositions 13
Smart Bundling and Adjacencies 14
API Economy 15
Consolidation and Shared Services 15
Payments 16
Investor Appetite 16
Adoption of Fintech Solutions by Banks 18

/2 /3
05 _ Digital-First Banking 21
for Digital-First Customers

06 _ Act Now: How to become Digital-First 27
Strategy & Propositions 28
Delivery & Operations 29

07 _ Making it real: 33
We call this Digital-First Banking
The Digital-First Banking Platform 34

Backbase named leader by analysts 40

About Backbase 41
 SECTION _ 01

Introduction

/4 /5

Digital Transformation has been on the agenda for
banks for many years now, as technology has a grow-
ing impact on various aspects of our lives, and hence
on the priorities of businesses that exist to meet our
needs.
Digital disruption is no longer a speculation on possible
future outcomes. The so-called “fintech” era has come
of age, creating tangible changes that indicate the future
shape of financial services.
One thing is already clear: banks and banking will never
be the same again.
We believe forward-thinking banks will want to position
themselves as a Digital Hub for their customers, rather
than as a provider of infrastructure for other businesses
specialising in digital customer engagement.
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.
This whitepaper identifies a need to Act Now to become
a Digital-First Bank. Transforming business models, cul-
ture, pace, and technology are all part of this need.

In this whitepaper, an analysis of recent market develop-

ments concludes that the key financial services needs
of increasingly digital-first consumers will be met by a
new generation of platforms. These platforms will act
as Digital Hubs.
 SECTION _ 02

Digital-First:
the writing on the wall

/6 /7

The early years of the digital revolution were all about
pioneering solutions and early adopters. The sheer
excitement of having something new for its own sake
made unwieldy customer experiences completely for-
givable.
But over the past decade, excellence of vision, design
and execution has delivered solutions so demonstrably
superior to legacy approaches, that we see rapid, mass
market adoption and radical changes in the supplier
landscape.
This is all happening in retail, travel, dining, music, pho-
tography, dating and increasingly more aspects of our
lives. We are all becoming Digital-First consumers, with
high expectations for the services we use. Experienc-
es should be as cool as Apple’s, as engaging as Insta-
gram’s, as convenient as Uber’s or even as slick as Am-
azon’s 1-Click.
 SECTION _ 03

Digital
Transformation

/8 /9

This shift to a Digital-First life has been driven by a

number of factors:

• Powerful supercomputers, in the form of smart-
phones, are now in the hands of most of the popu-
lation. They can be leveraged to provide a platform
for innovation. As an example, Square used a sim-
ple, inexpensive plastic card-swipe dongle to trigger
a massive transformation of payment acceptance
for SMEs, thereby creating several new billion dollar
businesses.
• Cloud computing and the API economy have, al-
most overnight, turned traditional advantages of
scale on their head. Small agile teams can access
computing power and capabilities that were previ-
ously the preserve of well-funded industry giants.
• Over the past decade, machine learning (a forerun-
ner to artificial intelligence) has made massive ad-
vances. It now enables the replacement of human
operators with cheaper and more reliable technology
solutions in many walks of life, bringing almost sci-
ence-fiction like ideas to the mid-term roadmap.
• The spectacular growth of over-the-top global
technology businesses has created huge wealth for
these giant tech companies and their investors. This
means there is plenty of funding available from in-
vestors wanting to repeat the cycle, and a new global
oligopoly of businesses with almost infinite financial
resources to apply to extending their reach.
• Hand-in-hand with these shifts in business me-
chanics has been the emergence of new business
models. Cloud-based shared infrastructures provide
subscription access to reduce entry barriers and
make legacy in-house solutions uneconomic. Auto-
mation has the effect of reducing both cost-income
ratios and industry revenue pools.
 No-one seriously believes the financial services sector is
immune to the effects of these changes, but change has
been somewhat muted during the first wave of disrup-
tion for a number of reasons:

• It is a highly regulated sector where core activities

require prior official approval.

• It’s still a lot of work for customers to switch bank-

ing relationships, and there is some nervousness
around that too, as these relationships are gener-
ally long standing. People fear the consequences
of something going wrong. That results in inertia,
/ 10 / 11
which makes the supplier landscape slow to change.

• It is a highly interconnected industry with collab-

orative payment and processing networks that are
slow to evolve or accommodate new members and
models.

These factors make it hard for new entrants to break

into the market. At the same time however, they offer in-
cumbent providers a basis from which to build a position
of strength by leveraging the power of new technology
for their own advantage. But that involves overcoming
the challenges of legacy; inherited systems, processes,
products, business models, people and culture, all of
which are difficult to adapt to the new reality. This is the
context behind the Digital Transformation Programmes
which pretty much every bank has underway.

Defining the content of such a programme requires a

bank to have a view on the future of financial services.
The past 12 months have seen a raft of market devel-
opments, which offer some pointers on how this future
will look.
 SECTION _ 04
Analysis of
Market Developments
/ 12
Open Banking
Open Banking generally refers to a vision where con-
sumers of financial services have clear control of their
data. They can seamlessly switch between rival offer-
ings within a vibrant supplier ecosystem, and can there-
by truly benefit from the power of the digital revolution.
This contrasts with the current market reality where we
see limited account switching, which indicates a com-
bination of low competition and high perceived effort in
switching. The open banking vision is therefore widely
supported by regulators all around the world.
In regions such as Europe, regulators have gone further,
introducing specific Open Banking regulations designed
to force open access to financial infrastructures. In this
way, new entrants can more easily bring innovative ser-
vices to market.
The Open Banking movement is gaining momentum
around the globe. It is creating change in the banking
market, including the supplier landscape, so all market
participants need to consider their future role in the
emerging new environment.
/ 13
Aggregated Propositions
Central to the Open Banking vision is the ability of ser-
vice providers to aggregate information on all the differ-
ent accounts that form a consumer’s finances. This in-
cludes not just multiple bank accounts held at different
institutions, but savings balances, loans, credit cards,
mortgages, investments, insurance and even loyalty
products.
This is significant because it enables a holistic analysis
of a customer’s financial situation, in stark contrast with
the current situation, where:
• It’s a laborious manual exercise to aggregate infor-
mation from different sources, so only a dedicated
few consumers actually undertake it. Even then it
is more of a historic set of accounts rather than a
real-time decision platform that’s appropriate to the
digital era.
• Tools like spending analysis are ineffective because
they reflect only part of the picture. A consumer 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 ac-
tivity.
 It is no surprise then that account aggregators are start-
ing to emerge in markets where Open Banking is most
advanced, such as Europe. Interestingly, this includes a
number of major banks who have launched their own
account aggregation services (generally under a sepa-
rate brand) to sit alongside their in-house banking ser-
vice. Aggregated propositions present challenges to
banks’ traditional business models and to their brand
architectures.
Smart Bundling and Adjacencies
The initial phase of the fintech era saw the emergence
of many digital start-ups specializing in just one aspect
/ 14
of financial services (such as lending, international pay-
ments, investment advice). This was referred to as the
“un-bundling” of the traditional banking model where-
by banks provided a very wide range - in some cases
hundreds - of different products. Inevitably some of the
banks’ product lines would not be market-leading and
could therefore be vulnerable to cherry-picking by new
entrants.
There are numerous recent examples of banks joining
with specialist fintech providers to enhance their con-
sumer propositions. In some cases, this “re-bundling”
enables propositions to move beyond the traditional,
narrow banking domain to adjacent areas like invest-
ment, insurance (and even parking) so banks can play
1 _Smart bundling of third party capabilities by banks
Smart Bundling
Bank Brand
Bank Product Systems
Current account, Savings, Loans,
Mortgages, International Payments
a bigger role in their customers’ ever-expanding digital
lives. This move into adjacencies has been a key suc-
cessful strategy for Chinese Tech Giants like Alipay and
WeChat. WeChat famously started out as a social mes-
saging network, but then added a payments capability.
It is now one of the world’s most powerful payment
brands.
Some major fintechs, such as Revolut, are even starting
to add traditional core banking services as an adjacency
to their initial specialist areas of focus. This approach
is explicitly on the roadmap of other disruptors such as
Marcus (Goldman Sachs’ fintech subsidiary).
From a bank’s point-of-view, smart bundling of Third
Party capabilities (image 1) for both traditional banking
products and adjacencies, allows them to remain as the
customer’s primary interface, and to offer better product
features than they could deliver in-house. This approach
is therefore more likely to attract and 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.
Bank Brand
Bank Product Third Party Third Party
Systems Providers Providers
e.g. Current Traditional Adjacencies
Account Banking
Products
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 accessi-
bility greatly simplifies the task of integrating them into
the core offering of a business. Many businesses, 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 develop-
ing their own mapping capability. At the same time this
drives valuable insights for Google.
In financial 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 capabilities
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 businesses
publish APIs to make it easy for banks and other busi-
nesses 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 pay-
ments processing, fraud profiling and many more.
The growth of the API economy is of course not limited
to financial services. As banks seek to expand their prop-
ositions to non-traditional or adjacent services, there are
a host of capabilities to access via APIs. Such capabil-
ities would extend to areas including insurance, travel,
ticketing, weather, consumer health, and for SMEs, ac-
counting, invoicing, insurance, expense 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 processing
/ 15
and ATM networks are classic examples. Indeed the or-
igins of industry giants like Visa, Mastercard and First
Data were in exactly this type of collaboration.
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 modernize
systems and processes for the digital era. Banks
are, in some cases, poorly placed to make the re-
quired capital available. The well-funded Private
Equity sector has seen significant success in taking
such businesses off the market, investing in modern-
ization, and then returning a refreshed business to
the public markets.
The significance of this is that more and more tradition-
al banking back-office services are becoming available
at a lower cost. This happens through expert third par-
ty providers 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.
 Payments Another significant trend is a growth in the international 2_Number of fintech Launches in the last 10 years
Major shifts are taking place in consumer behavior and acceptance of giant Chinese payment schemes, Alipay
associated payment usage profiles. and WeChat Pay, spearheaded by the desire of mer-
800
chants to attract a growing wave of Chinese tourists. It 724
In the physical world, Western markets are seeing a shift will be fascinating to see whether this forms a founda- 700
640
from cash to card payments. These are generally debit tion for the penetration of domestic payment volumes.
600 586 574
card payments, and in turn these cards are increasingly
contactless rather than signature or chip-and pin. Some As physical commerce inexorably migrates to eCom- 500
stores are moving to card-only, and discussions have merce, payment methods must increasingly work, and
400 388
even begun about cashless economies emerging in the be widely accepted, in both environments. 347
foreseeable future. 300 295
233
It may also be significant that a number of the above
200 172
After a slow start, there is evidence that mobile phones trends are reducing the visibility of a specific payment 134
/ 16 / 17
are beginning to replace physical card usage for some mechanism (card/account/wallet), and the brand of the 100
consumers, as adoption and usage of OEM Payment bank enabling it. The emphasis is more and more on 5
0
Wallets (such as ApplePay and GooglePay) accelerates. social or commerce experiences.
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 H1 2018

In other markets, there has been a leapfrogging of the One aim of regulator-driven open banking initiatives
card stage straight to mobile phones. In China QR-code tends to be that of encouraging a shift from card pay-
payment methods such as Alipay are ubiquitous, and ments to inter-bank payments. At this stage it is unclear 3_Fintech Investments in the last 10 years in $B
in some parts of Africa mPesa-type mobile phone solu- whether regulatory provisions will be sufficient to bring
tions are widespread. this about. The increasing enhancement of interbank
40
rails to provide real-time payments is however strength-
In a number of countries, non-bank providers were the ening the proposition of credit transfers as a competitor 35 34.4
33.0
first movers in launching Person-2-Person (P2P) Pay- to card payments in commerce.
30
ment schemes. However, some national bank collab- 26.5 27.3
oration schemes have gained ground on them when it Investor appetite 25
comes to adoption and usage. Zelle’s progress in over- The acquisition of iZettle by Paypal, the Adyen IPO and
20
taking PayPal’s Venmo service in the US is a prime ex- numerous other fund-raising rounds evidence the inves-
ample. At the same time, messaging apps increasingly tor appetite to back fintech propositions and help them 15 14.3
incorporate payments capabilities, with the aim of mak- scale. As the graphs 2 and 3 show, whilst the number
10
ing, sending, or requesting money in a conversational of new fintech start-ups has slowed, the amount being 6.9
context as simple as adding an emoji. This trend could invested is growing, reflecting this emphasis on scaling. 5 3.6
2.8
limit the relevance of standalone payment apps. 1.1 1.6 1.7
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 H1 2018
It’s also notable that P2P payment schemes are in turn
expanding beyond their original scope to include mer-
chant payment and companion cards.
Banking Investment Management Insurance Real Estate

Source: Venture Scanner data, Deloitte Center for Financial Services analysis. June 30, 2018,
 Adoption of fintech solutions by banks
The European Banking Authority’s recent report provides
a valuable snapshot from late 2017 of the number of
banks actively involved in adopting new technologies to
enhance services and improve efficiency. Some of these
technology solutions have clearly evolved from being a
topic spoken of at conferences, to mainstream commer-
cial deployments.
Biometric Authentication and NFC Digital Wallets are the
most widely deployed, followed closely by Cloud-Com-
puting adoption, as banks seek the benefits of scalability
and cost advantage.
Robo-advice and Big Data-driven Credit Scoring are also
experiencing material deployment, whilst Distributed
Ledger Technology (DLT) applications seem to be still in
the research phase.

/ 18 4_Adoption of new technologies by european banks / 19

A. Use of Biometric authentication 57% 3% 16% 16% 8%

for customer identification purposes

B. Use of Robo-advisors for 21% 11% 26% 34% 8%

investment advice

C. Use of Big Data and algorithms 29% 16% 32% 21% 3%

for credit scoring

D. Use of DLT and smart contracts 5% 21% 18% 45% 11%

for trade finance

E. Digital wallet solutions for 53% 3% 16% 16%

mobile payments using NFC

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

G. Use of cloud computing for 39% 11% 16% 26% 8%

material activities

Commercial use Pilot testing w/ consumers Under development Under discussion No activity

Source: European Banking Authority – Report on the Prudential Risks and Opportunities arising for Institutions from
FinTech. July 2018
 SECTION _ 05
Digital-First Banking for
Digital-First Customers
/ 20
The previous sections have identified the drivers of
digital disruption in financial services and looked at
key recent market developments.
Drawing these threads together, it’s clear that major
shifts are taking place: banks and banking will never be
the same again.
Furthermore, we believe the analysis of recent key mar-
ket developments forms a clearer picture of the future of
financial services.
Our conclusion is that the digital disruption of banking
will create a future where key financial services for Digi-
tal-First Customers (including SMEs and corporates) are
provided by Digital Hubs (image 5).
The Digital Hub can be thought of as a platform people
would interact with in a manner similar to Siri, Alexa or
Google Assistant. It is the consumer’s gateway to their
financial life. Machine Learning (and over time true Ar-
tificial Intelligence) is applied to leverage data on the
consumer’s situation and interactions. In this way, their
needs can be anticipated and where delegated permis-
sion has been given, acted upon.
/ 21
The key question when considering this vision is: who
will be the provider of this service to consumers? Will
it be one of the Tech Giants such as Google or Ant Fi-
nancial (the parent company of Alipay)? Or maybe one
of the new fintechs that already seem to be positioning
themselves for this role?
And what are the implications for Banks? Banks can
potentially play one or more of three different roles:
A. be a Digital Hub provider
B. be an infrastructure provider working through
Open Banking APIs
C. be a Product/Service provider to other Digital
Hubs, providing Premium API access under a bank-
ing-as-a-platform strategy
We believe forward-thinking banks will want to be po-
sitioned to become their customers’ Digital Hub. They
will also want to develop a suite of Premium APIs, rather
than simply being an infrastructure provider.
 5_Digital Hubs as the main providers of digital services for a new generation of customers ticular business. This will be a real challenge for many some services, entitlements to the same benefits are
businesses aspiring to deliver a Digital Hub. duplicated

If this trust can be attained, consumers will want to pro-
vide access to as many aspects of their financial 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 allowing a doctor to
only check your pulse but not to do a blood test.
• A purchase should be made with Airline loyalty
points as there is a special promotion being offered
• Electricity bills could be lowered by switching to
supplier X
• Savings balances could earn more interest if

Digital Hub This aggregation could carry over to adjacent areas

such as loyalty programs or travel bookings, extending
switched to Bank Y

the scope of value provided. • Compared with a similar demographic, a user

/ 22 / 23
spends more on food and drink and has lower sav-
Authentication Customer Machine Process API Machine Learning ings, so a monthly savings plan could be started
and Security Experience Learning Orchestration Management The Digital Hub would make use of several types of data:
• For this purchase, it would make sense to access a
Facilitate Aggregate Offer
Access Value Advice • Personal details such as age or address credit line from provider Y

• Device data • Stock index movements suggest a portfolio switch

between X and Y
• Personal financial data: access to balances, trans-
Banking Systems FinTech Providers Cross Industries actional and contractual data from all of a user’s fi- • The user is abroad so a purchase of travel insur-
nancial service providers ance is recommended

It is important therefore to examine the key components
of a Digital Hub:
Authentication & Security
FaceID is being rapidly adopted, indicating a potential
for authentication to become increasingly frictionless
for users.
A smartphone is capable of gathering a lot of back-
ground data (such as location, face, voice, app usage,
and even stride-patterns). Such data can be compared
to normal usage patterns, giving a degree of confidence
that the device 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 commute, the cam-
era can see my face, and the accelerometer 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 under-
taken, only calling for additional intervention with higher
risk activities, or when the confidence score is low.
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 interests of a par-
• Market data: real time information on market rates
Analytics (using Machine Learning where appropriate)
can be applied to this data to derive recommendations,
some of which could be viewed as helpful ‘nudges’.
These recommendations might include things like:
• There is sufficient probability that a user is in pos-
session of their device so a transaction can be al-
lowed
• These transactions appear to be business expens-
es and could therefore be added to an expense claim
• Several subscriptions are being paid for services
which have not been used for over a year, and for
• Detecting a user has just left their house and ap-
pears to be cycling; suggest enabling one-day cycle
insurance
The Digital Hub allows the user to decide what permis-
sions are delegated, enabling those recommendations
to be executed automatically.
Different users will have different preferences in this re-
gard, and these will potentially evolve over time as trust
grows in the recommendation engine’s accuracy.
It is not hard to imagine all of the recommendation ex-
amples 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 con-
sistent with our high expectations for a Digital-First life.
 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 system.

In a Digital Hub approach, these manual processes will

be replaced with digitized processes in order to achieve
the requisite cost/income ratio and scalability.

The automation necessary to derive recommendations,

with autonomous execution and delegated permission,
requires a complex orchestration of multiple data sourc-
es and business rules.
/ 24 / 25

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 represents a smart bundling of

third party capabilities in combination with core internal
capabilities.

This analysis demonstrates that only Digital-First

Banks will be equipped to meet the needs of Digi-
tal-First Customers.
 CHAPTER _ 06

Act now:
How to become
Digital-First
/ 26 / 27

Two or three years ago, new digital technologies and
their potential applications in re-shaping banking ser-
vices were primarily a conference discussion topic, or
part of experiments at the Innovation Labs of bigger
banks.
So, the first ingredient in the Winning Formula for Banks
must be Act Now to adopt a Digital First strategy.
The actions necessary to become a Digital-First Bank
fall into 2 categories:

What’s clear from the analysis above is that these tech-
nologies have become increasingly prime-time ready,
and are indeed being adopted by digital leaders to gain
material market advantage. The market transformation
towards the Digital Hub vision is already underway.
• Strategy & Propositions: defining future business
models to drive customer value
• Delivery & Operations: developing organizational
capabilities to deliver new propositions with pace,
agility and efficiency

6_Becoming a Digital-First bank for Digital-First customers

Act Now
Become a Digital-First Bank For Digital-First Customers

Strategy & Propositions Delivery & Operations

 Strategy & Propositions
Some banks reckon the forces of change shouldn’t af-
fect 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.
/ 28
Digital-First Banks adopt a Hotel, not a Prison Paradigm:
our customers choose us because we offer them the
best value proposition.
The Digital-First Business Model requires a new genera-
tion of propositions that are:
• Multi-Segmented: banks’ propositions should be
deeply focussed on the needs of multiple different
segments. This goes far beyond traditional consum-
er/ wealth/ SME/ corporate segmentation. The com-
petitive benchmark is set by an increasing number
of propositions on the market tailored to the specific
needs of millennials, migrant workers, families, retir-
ees, freelancers, exporters, gig economy businesses
and workers, etailers, micro-merchants, marketplac-
es, fintechs, and more. A Digital-First Bank will need
to develop and continuously evolve propositions for
each target segment, making them as good as those
offered by leading segment specialists
• Transparent and Consent-Driven: embracing a
new post-GDPR regulatory environment and the tan-
gible change in societal attitudes
• Using Dynamic multi-modal messaging: changes
as simple as offering rule-driven alerts rather than
just balance enquiries can transform customer en-
gagement. In future, banks must be able to commu-
nicate interactively with customers through a wide
range of methods
• Aggregated: data-driven insights only make sense
when applied across the entirety of a person’s finan-
cial status
• Beyond traditional banking boundaries: the smart
bundling of adjacent services creates new opportu-
nities 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 personalisation of ser-
vices - a true win-win situation
• Omni-channel UX: a fully integrated customer ex-
perience across channels is crucial for future prop-
ositions, 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 pay-
ment processing, credit provision or identity 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 high-
er volumes over the existing infrastructure. Premium
APIs should be viewed as a product, subject to the same
product management disciplines as any other.
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 processing
revenues from distribution through third parties. Month-
ly Active Users (MAUs) and Average Revenue Per User
(ARPU) will become Key Performance Indicators. They
already are for many tech companies.
Low cost-income ratios will be key to enabling effective
competition. This can only be achieved through a high
degree of automation, which brings us to the subject of
Delivery and Operations.
Delivery & Operations
An organization capable of supporting the Digital-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 successful technol-
ogy businesses.
For example, Eric Ries (a thought-leader in entrepreneur-
ial methodologies and management principles) high-
lights some of Silicon Valley’s best practices:
• Small teams focussed on delighting customers by
solving problems and generating dramatic improve-
ments
• 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 engage-
ment and repeat usage, rather than trailing indica-
tors like market share
• Control through metered funding, where authority
is delegated but further funding requires demonstra-
tion of progress
• Experimentation: tolerating failure within a diverse
portfolio of activity
• Build - measure - drop the quest for perfection and
learn to create a constant cycle of improved adap-
tations
It’s easy to see how these best practices will be relevant,
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 autonomy
when there are complex interdependencies between
different systems?
• Does the bank even have entrepreneurs in its staff
cohort, and how can the requisite reward and rec-
ognition systems be reconciled with the diktats of
Regulators and a Board-driven focus on the Annual
Operating Plan?
/ 29
The challenges of legacy for a bank extend beyond its
systems and architecture. Products, processes, staffing
and culture also reflect the historical evolution of a bank,
often these are not fit-for-purpose in a digital era.
This can lead banks to envy the greenfield / blank sheet-
of-paper start-ups operate from. But those businesses
begin with no product, no customers, no brand...is that
really something to envy? It is important for banks to for-
mulate a positive paradigm around being an incumbent;
brand, customer base, distribution network, revenue, ex-
perience and expertise - all are real assets.
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 Busi-
ness Model and also include:
• Digital-First Technology
• Digital-First Speed
• Digital-First Culture
 7_The four pillars that support the Digital-First Bank
Act Now
Become a Digital-First Bank For Digital-First Customers
Strategy & Propositions
Digital-First Digital-First
/ 30
Business Model Technology
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-income ratios. However, transition to the cloud
will have to be managed progressively, in line with
local regulatory mindsets; and
• API-driven: internal systems connectivity, third par-
ty connections and B2B distribution all need to be
based on APIs
The adoption of maturing new technologies will be es-
sential to enable new propositions and drive efficien-
cies. For example, Machine Learning underpins new ap-
proaches in areas such as Customer Authentication and
On-boarding, or Credit Assessment and Fraud Profiling.
Process Digitization is key to achieving paperless insti-
tutions. 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.
Delivery & Operations
Digital-First Digital-First
Speed Culture
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-par-
ties. Certainly for specialist technology like Machine
Learning, or product capabilities like robo-advice, banks
will have to overcome their traditional vertically-integrat-
ed, in-house build mindset. The delivery organization
therefore needs 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 orches-
tration 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...
Digital-First Culture
A strategic change to technology architecture, as de-
scribed 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
/ 31
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 priori-
ty setting) builds powerful advocacy.
Equally important is to review how staff are recruited,
developed and incentivised. Banks will need to adopt
new ways of working, ones more characteristic of the
fintech generation:
• Pursue Agile development rather than the tradition-
al waterfall
• Embrace Lean principles
• Implement DevOps to enable rapid deployment cy-
cles.
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 delegated
• Constant improvement for customers is the key
driver, not a quest for perfection.
 SECTION _ 07
Making it real:
We call this
Digital-First Banking
/ 32
The digital transformation described in Section 6 is
highly demanding.
For a bank wrestling with day-to-day legacy IT challeng-
es it can seem like an impossible task. There is an alter-
native: continue to watch and wait, while making only
incremental changes, but one can predict that this will
lead to:
• Failure to attract younger customers or growth
start-ups
• Lost share-of-wallet amongst established custom-
ers
• Falling behind in product innovation
• Progressive relegation towards the role of a high-
ly-regulated, capital-intensive infrastructure provider,
while exciting data-driven digital services are deliv-
ered by others.
Looking at image 8 we see that the industry is currently
at a tipping point. Incumbent business models are not
/ 33
efficient anymore as their cost-income ratios are too high
and velocity of change too low. Hence, 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 that has a
fully 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 business model and adopted agile practices
- of which some will only focus on a very specific niched
segment of the market in order to survive. Not changing
in this respect will ultimately mean failure, or at best
being commoditized to a banking services provider on
top of which others create actual value.
This is why forward-thinking banks recognise the need
for a strategic change to their delivery capability and
commit to a Digital First business model.
Effectively, a bank has a finite number of sprints avail-
able to become digital-first. What are you going to do?
How are you going to structure this?
 8_The tipping point for incumbent business models
Tipping Point
Incumbent business
Market Share models are threatned
100
Bold movers
(attackers and agile incumbents)
survive and rise
Incumbent
business models
/ 34
0
Time
The Digital-First Banking Platform
Google owns information, Amazon owns ecommerce,
Facebook owns communication - these players dom-
inate in their areas. Now it’s time for banks to own fi-
nance. They must reinvent themselves and go beyond
a digital transformation to achieving a business trans-
formation. Banks that work the digital-first banking plat-
form properly will empower themselves to do things 10
times better. That’s how they will hold onto their custom-
ers at a time when the threat of attrition is bigger than
ever.
A robust, agile digital-first banking platform will connect
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.
New Digital First
Business models
A few incumbents
partially transform
and/or find niche
markets
Some incumbents do not
respond and utimately fail
When all systems talk to each other, tailored advice and
real-time support are instantly available to customers.
Frontline staff are freed from slow, paper-based process-
es and empowered to deliver excellent service, with the
right information at their fingertips. The user experience
works, from onboarding to upselling, and this drives dig-
ital 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.
01. User experience management. Behind every great
user experience is a smooth integration with back-end
services. When customer data can be quickly sourced,
frontline staff are empowered with real-time, accurate
data, and customers enjoy superior self-service capabil-
ities.
Digital marketing professionals should be able to tailor need a platform that supports their efforts to stay com-
the end-user’s experience, without the need to call on IT petitive by providing innovative digital excellence.
for every change. Backbase offers a range of user-friend-
ly tools that empower digital marketers to edit content Backbase is the digital banking platform that empowers
and navigation, add widgets, update the mobile app, run banks with superior Banking-as-a-Platform capabilities.
digital marketing campaigns across multiple channels, Built on a state-of-the-art microservices architecture
and more. and with API-based banking capabilities, Backbase com-
plements existing core banking systems. Modular archi-
A modular, flexible orchestration layer will connect and tecture enables easy customization, while both classic
streamline existing core banking and back-end systems and cloud deployment are facilitated.
for frictionless, personalized, omni-channel experiences.
This empowers banks to deliver optimal, relevant cus- This leading omni-channel digital banking platform
tomer journeys, reduce time to market, and ease the bur- helps financial institutions create, manage, and optimize
/ 35
den on the IT department. superior customer journeys, on any device and over mul-
tiple channels. Functionality can be tailored for seam-
02. Digital banking capabilities. To compete in a digital less, omni-channel customer experiences that normally
world, banks must offer smart digital products and ser- would not be available directly from the core banking or
vices that are easily accessible over every device. Banks back-end systems.
9_The components of the Digital-first Banking Platform
Tailored Real-time Digital Financial Front-office
Advice Support Sales Insight Empowerment
The Digital-First
Banking Platform
01. User Experience Management
02. Digital Banking Capabilities
03. Identity & Access Management / Entitlements
04. Process Digitization Capabilities
05. Cloud Deployment
 03. Identity and access management. Identity and ac-
cess management is key to ensuring access security
in today’s open banking marketplace. 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 solution
that lets a bank integrate the existing entitlements
system, or leverage Backbase Entitlements to tailor ac-
cess levels and permissions to view, create or approve
transactions. Various password combinations, tokens,
Integrated Multi-Factor-Authentication (MFA) and alerts
/ 36
strengthen and simplify access control.
Access to permitted functions and data can be limited
and authentication can be stepped-up in high-risk sit-
uations. Users can fully customize to create their own
views, and select preferred accounts or business perfor-
mance metrics. Payments can be authorized on-the-go
and mobile alerts and access to outstanding approval
requests are also available.
04. Process digitization capabilities. Smart online
forms and logical processes are key to efficient custom-
er journeys. When they don’t work properly, abandon-
ment increases, impacting the success of online initia-
tives. Smart forms and dynamic process management
increase efficiency and remove manual, paper-based
tasks - making life easier for both customers and em-
ployees.
Backbase Digital Forms simplify and streamline all
customer dialogs across multiple channels, while on-
boarding or self-service dialogs integrate with internal
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 accurately.
Built-in mobile and social capabilities simplify collabora-
tion via any device or channel, and communication with
legacy systems is also possible via configurable connec-
tors.
05. Cloud deployment. Cloud deployment powers con-
stant feature or functionality updates, without any im-
pact 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
automated platform that scales with the business. Secu-
rity can also be automated, making it easier to keep pace
with industry regulations and compliance standards.
The Backbase platform supports both traditional app
servers and new native cloud deployment models, en-
abling banks to safely make the transition from a classic
deployment to a native cloud deployment, without re-en-
gineering. Backbase has done the hard work of abstract-
ing the platform capabilities from the various cloud de-
ployment models, The Backbase Cloud is supported by
an ecosystem of certified technology and infrastructure
providers that facilitate service provision across multi-
ple countries, all with a proven track record in financial
services.
The Backbase Open Banking Market-
place
One organization could not be all things to everyone be-
fore - but that’s changing, banks can add to their prod-
ucts and services by connecting to the open banking
ecosystem. By adding incremental value from the open
marketplace, they can put all of the pieces together
seamless solutions that have magnetism, something
customers want to be a part of.
The Backbase Open Banking Marketplace is the perfect
platform to establish mutually beneficial partnerships
that drive innovation. It enables financial institutions and
fintechs to connect to the Backbase Digital Banking Plat-
form. The Backbase Digital Banking Platform is an open
API-based platform, which allows for any third-party fin-
tech capability to be easily integrated and leveraged into
seamless digital customer journeys across all channels.
Backbase Open Banking Marketplace offers the perfect
fintech solution to significantly boost speed and efficien-
cy in any go-to-market strategy.
/ 37
Driving value with the digital banking
platform
With the right platform in place, a bank can create su-
perb customer experiences, react swiftly to market
changes and capitalize on unexpected marketing oppor-
tunities. All of this begins with noting the pain points for
the customer and solving these with the digital banking
platform. A keen focus on each of the platform’s four pil-
lars and a strong digital-first approach will move banks
from the role of follower to formidable competitor and
sustain their business into the future.
 Backbase Named a Backbase Named a Leader
Leader in the Forrester in the Ovum Decision
About Backbase
Wave™ for Omni-Channel Matrix for digital channel Backbase is a fast growing fintech software provider More than 100 large financials around the world have
Digital Banking banking platforms that empowers financial institutions to accelerate their standardized on the Backbase platform to streamline
digital transformation and effectively compete in a their digital self-service and online sales operations
10 Leader Challenger Follower
digital-first world. across all digital touchpoints. Our customer base
Bubble size represents market impact
Note: Scale has been adjusted to improve legibility
Backbase
includes HSBC, ABN AMRO, CheBanca!, Metro Bank,

Overall execution assessment score (scale 1-10)

9
We are the creators of the Backbase Omni-Channel Fidelity, HDFC, Hiscox, ING, KeyBank, Legal & General,
EdgeVerve
Banking Platform, a state-of-the-art digital banking Bank ABC, OTP, PZU, PostFinance, Navy Federal CU and
8
SAP
NETinfo Temenos EdgeVerve
Systems
software solution that unifies data and functionality from Westpac.
Tagit TCS
Temenos traditional core systems and new fintech players into a
/ 38 Intelligent
Finastra
7 Sopra Banking / 39
Environments
Intellect Design
Software
Misys
seamless digital customer experience. Industry analysts Gartner, Forrester and Ovum recognize
Arena
Sopra Banking
Software
6
Backbase as an industry leader in terms of omni-channel
Corillian
CR2
Oracle We give financials the speed and flexibility to create and banking platform capabilities, and award the company
5 CR2 manage seamless customer experiences across any high marks for its deep focus on customer experience
Intellect Design device, and deliver measurable business results. We management and unparalleled speed of implementation.
Arena
Market presence
4 believe that superior digital experiences are essential Forrester named us a leader in the Forrester Wave for
4 5 6 7 8 9 10

Overall technology assessment score (scale 1-10)

to stay relevant, and our software enables financials to Omni-Channel Banking and Ovum nominates Backbase
rapidly grow their digital business. as the market leading provider of next-generation digital
“Backbase offers broad business capabilities, “Backbase hits the most important aspects of channel banking platforms.
rich support of customer experience, and digital channels, which are in demand for banks
very solid technology and architecture. looking for a very modern, agile, and neat solution.
Americas HQ European HQ
With Backbase being a pure-play vendor, it Backbase allows a rapid time-to-market with its
10 10th Street, Suite 325 Jacob Bontiusplaats 9
is not a surprise that its commitment to its responsive design approach to the digital channels.
Atlanta, GA 30309, United States 1018 LL Amsterdam,
omni-channel banking solution is high.” With this solution banks are getting a number of
Toll-Free Number: +1 866 800 8996 The Netherlands
features that are well aligned with current trends in the Office Number: +1 470 881 8780 Phone: +31 20 465 8888
Backbase was among a group of select vendors digital economy, not only allowing for efficient servicing sales-us@backbase.com sales-eu@backbase.com
that Forrester included in its most recent Wave but also effective sales and marketing actions.”
for Omni-Channel Digital Banking software.
The Backbase Digital Banking Platform is listed Ovum Decision Matrix is emphasizing the importance of Regional Office London Regional Office Singapore
as leader and received the highest score in the developing an effective omni-channel banking strategy, 81 Farringdon Street 3 Church Street
Current Offering category. Being named a leader in selecting a future proof digital banking platform and London, EC4A 4BL Level 25 Samsung Hub
the Forrester Wave provides the market with further taking into account the emergence of new technologies United Kingdom Singapore 049483
validation of Backbase being at the forefront of digital - all in order to empower Banks to stay relevant to their Phone: +44 20 3735 8437 Email: sales-eu@backbase.com
Email: sales-eu@backbase.com
innovation. We are very happy with this recognition and customers, improve their customer banking experience
are energized to help our customers accelerate their and not lose out to digital challengers. The evaluation
digital transformation. Our software is used criteria for the Ovum Decision Matrix includes market
by leading banks around the world, and we are 100% impact, business functionality, and product execution Regional Office Cardiff Regional Office New York
committed to enabling them to create superior - across which Backbase scored exceptionally high. This Ground Floor, The Bounded Warehouse 1460 Broadway Suite 110005
digital customer experiences, any time, any place, is the second time in a row that Backbase is nominated Atlantic Wharf, Cardiff, CF10 4HE New York - NY 10036
United Kingdom United States
and on any device. within the Matrix as Market Leader.
Email: sales-eu@backbase.com Email: sales-us@backbase.com