According to BIM’s Information Center and quoting Digital Banking wiki (vol. one), in this article, while describing digital banking, its differences with internet banking are discussed.
The note also explains how the existence of an enterprise resource planning (ERP) system can play a role in establishing digital banking. In this regard, other concepts such as business model and business digitalization, including digitalization of banking businesses have also been mentioned.
In recent years, the term "digital banking" has gradually become popular in the banking industry literature as well as in the field of technology development. The government and the Ministry of Economic Affairs and Finance have also paid special attention to this issue since last year and moving towards digital banking has been introduced as one of the main challenges of the banking system. Since this phrase may be considered synonymous with other terms such as Internet banking, online banking, etc., it is necessary to explain their differences at the outset.
According to the author, Internet banking is the basic form of digital banking. Internet banking (e-banking) mainly focuses on the possibility of monetary transactions, paying bills and managing accounts online. Digital banking, on the other hand, involves the digitization of all programs and activities performed by a bank and its customers. In Internet banking, the main purpose of using the Internet is to perform the same traditional banking affairs quickly and remotely while in digital banking, the goal is to make smart and comprehensive interaction of the bank, stakeholders and customers digitally. Therefore, digital banking uses more data from the data warehouse and it especially employs machine learning.
Digital transformation in business refers to a set of measures that, through the adoption of digital technologies, cause changes in the organization of business affairs and accelerate and make production and service systems more flexible. Various studies have listed steps to create digital transformation in any business. In short, it is necessary to take the following steps to bring about digital transformation in any business: focus on staff, focus on customers, innovation, data-driven decision making, collaboration and synergy, open culture, technology-based thinking, maturity and flexibility.
As can be witnessed, the heart and main center of digital transformation are employees. At the same time, all levels of staff, from the lowest ranks to senior management and core business leaders, all need to evolve. In other words, digital transformation is not just the use of information technology, but all employees must be transformed based on information technology. To create a digital transformation in any business, the second step is paying attention to customer as the main basis and goal of any business. The third step is to focus on creating innovation. Businesses need to know that without innovation, they will soon be doomed to leave the market. The fourth step is to make all decisions based on data and information. Both past and future information (which can be the result of future studies, opinion polls, the use of expert opinion, etc.) should play a role in decision making. In fact, the period of interfering with the personal interests and desires of managers in decision making is over. The next step is the synergy of all elements of the business. Without teamwork, digital transformation cannot be achieved. The next step is to have an open culture. This step takes a lot of time. Businesses need to be run by people who are not biased. Technology-based thinking is the next step. This step is closely related to the data-based decision making step. The last step is maturity and flexibility. Not only must this be realized in the minds of employees, but all business processes must be redesigned based on flexibility and maturity.
Management experts believe that no business can succeed without a model. A business model is a plan for the successful running of a business, taking into account cost structure, revenue structure, type of production, how to communicate with customers, etc. One of the business models that has attracted a lot of attention in many fields is Osterwalder’s business model canvas. According to Osterwalder, all types of businesses from old ones to new, entrepreneurial ones and businesses looking for making fundamental changes can use this model.
Osterwalder’s business model consists of 9 main questions:
1- Customer segments: For whom do we create value?
2- Customer relationships: Who are our customers? What kind of relationships do each of them expect? How much do these relationships incur on us?
3- Distribution channel: What channels do we use to communicate with our customers?
4- Value proposition: What values do we create for our customers?
5- Key activities: What are the most important activities needed to provide our values for our customers?
6- Key resources: What are our most important resources for doing the main activities?
7- Key Partners: Who are our most important partners for our main resources as well as performing our main activities?
8- Cost structure: What are our main costs for providing the main resources and performing the main activities?
9- Revenue stream: How much are the customers willing to pay for the values we create for them?
From the above questions, it is clear that all the variables that can affect the successful management of a business are considered in this model.
For many years, the use of new technologies in various enterprises and institutions, especially financial and monetary institutions such as banks, insurance, stock exchanges and commodity exchanges has been common. Many financial services are provided by these institutions using such technologies. However, the use of new technologies does not necessarily mean the digital transformation of such institutions. Although the concept of digital transformation was briefly explained in the previous section, it is necessary to explain the characteristics of digital transformation in the banking system.
Inspired by the topics of the previous section, it can be said that digital transformation in the banking system means a change in the type of interaction with all stakeholders of the banking system based on digital changes. The main stakeholders of financial institutions, especially the banking system, include the public, government, regulatory institutions, customers, employees, partner institutions, consumers of financial analyses, Fintechs and Techfins.
Digital transformation in the banking system is a set of measures enabling interaction with the aforementioned nine stakeholders using new technologies. In fact, digital transformation creates maximum transparency in the banking system. Of course, this transformation has a spectrum, one side of which begins with processes based on paper documents (no change) and ends with doing all the affairs of the bank based on new technologies and without the use of paper documents.
In order not to deviate from the main purpose of this article, it is necessary to provide an explanation of ERP systems. ERP includes a wide range of activities leading to the improvement of organizational performance. In other words, it is a set of actions that manage various resources of the organization in line with its strategic goals.
Although often the definition of ERP is reduced to a comprehensive software, this type of planning is actually a kind of mindset that, of course, with the development of new technologies, it is possible to implement it more easily. The evolution of ERP since the 1960s is summarized as follows:
1960s: Inventory control packages
1970s: Material Needs Planning (MRP)
1980s: Material Resource Planning (MRP2)
1990s: Enterprise Resource Planning (ERP)
2000s: Extended ERP
As can be seen, over time, the development of management science with the advancement of technology has led to the formation and development of ERP. There are several companies in the world that produce and comprehensive ERP programs on the market. These applications typically include several other subapplications, each covering different departments of the organization.
It is now necessary to address the issue of ERP in the banking system. Based on the initial definition, banking system plays a role of monetary intermediaries between depositors and investors. In this intermediary role, each party can have a large volume of different demands that the banking system tries to generate more income (commission) as far as it can meet those demands. With these explanations, it can be said that the ERP of the banking system should include organization, education, welfare affairs, construction affairs, real estate, purchasing and procurement, logistics and properties, information and communication technology, public relations and customer affairs, security affairs, supervision and defense, contracts, finance and accounting, affiliates, process management, performance appraisal, reporting to the board, personnel affairs and attendance orders, and payroll.
These explanations include all the resources and processes of a bank (with an emphasis on Iranian banks). ERP of an Iranian bank should be able to control all the above mentioned issues based on new technologies and continuously submit key and decision-making reports to the bank's board of directors.
ERP in line with digital transformation
So far, the concepts of "ERP", "business model", "digital transformation in business model", "digital transformation in the banking system" and "ERP in the banking system" have been elaborated briefly. Now, combining all the provided explanations, it can be said that (ERP) in a bank on the way to establish digital banking should include the following features:
• Division of all the bank's business processes into process groups
• Consideration of the approaches and requirements of the digital banking ecosystem in designing (redesigning) all processes with regard to transparency, simplification and agility
• Production and development of services necessary for the operation of all users of all digital platforms
• Mutual interaction with stakeholders in order to continuously improve business processes and provide innovative services
• Creating intelligent and machine learning capabilities using data warehouses to enable the provision of consultation and analytical services
With these explanations, ERP and core banking system of the bank should be closely related in the digital ecosystem. All service delivery processes must have reached a level of maturity and agility that can meet the needs of all stakeholders quickly and easily by creating transparency. This requires huge investments in big data storage and the provision of big data analysis models in such a way that these analyses lead to an increase in organizational knowledge to create speed and agility in the processes of interaction with stakeholders.