Digital Banking, Challenges, Solutions
In this 5-part series, we will delve into the details of what it takes to set up a digital bank. Disruption in banking is one of the most exciting topics around at the moment, with innovative procedures and technologies reshaping our perceptions of what a bank can be. Join us as we explore what it takes to create a digital bank.
In this, the first episode, we define Digital Banking, as well as the emerging challenges and solutions. In episode #2, we will take a look more in-depth at general concepts and insights to help find your footing in the FinTech environment. Episode #3 is all about SDK.Finance — a platform that’s synonymous with digital banking and is a solid back-end foundation for any digital banking solution. In episode #4, we will discuss the MVP components of a banking application. The topic of episode #5 will be costs — what to expect and what approaches can be most beneficial to you.
Without further ado, here’s how to build a digital bank.
As the costs of services starts to vary very little between one provider or the other, it is often the user experience that plays the biggest factor in determining which provider to select. While banks have traditionally been associated with aging technologies and business models, this is starting to change. The cost of banking services is no longer a deciding factor when choosing a bank; instead, we choose our bank based on what is convenient.
Generally speaking, digital platforms are expected to work as intuitively as possible and as fast as possible at every step of the user journey: this means from the moment we sign up for an account, use a service, review our account, etc… every step of the way needs to be effortless and immediate. Digital banking services have already started to emerge with this principle in mind.
Digital banks offer immediate sign-ups and convenient methods for account validation. They offer the full banking experience without the need of visiting a branch or making appointments, and in most cases, their applications are easier to use and offer features that are not usually found in traditional banking applications. Additionally, they also manage to compete with traditional banks with lower service prices and currency exchange rates.
With a software-first approach, eliminating the huge costs of having to maintain multiple offices, branches, and an army of staff, digital banks can be agile and can constantly evolve to provide richer user experiences.
The simplest way to think of a digital bank account is to imagine a single entry in a database table containing our personal information and our balance. Of course, the reality is much more complex.
From a legal standpoint, that database record requires significant validation and acknowledgment before it can evolve from a database record into a bank account. Fortunately for Scandiweb, we are not a legal institution, and the legal formalities are beyond the scope of this article. So, technically speaking, is a single database record a viable technological solution for a digital bank? Of course not.
Even though an account can be as simple as a single record, for a financial institution to have any credibility, data security and data integrity need to be ensured. That would mean that the entire process of writing that single record to the database needs to comply with PCI DSS, and other ISO standards. The subject of security will be covered later, but, in short, meeting the required security standard introduces major overheads and major changes to the entire company’s ways of working.
To build a digital bank, we would need more than a single database record to ensure our success. Scalability and performance quickly become an issue as the user base expands. The solution needs to be able to handle hundreds of operations per second. Building on the principle of providing the best user experience possible, service interruptions and delayed operations are a sure way to lose existing and future customers. Especially when dealing with finances.
Building on the same principle, offering a service that only stores records is insufficient to constitute a rich user experience. We would need to offer a full end-to-end banking solution that offers a full range of banking operations that go beyond financial transactions. A solution that is built with high availability, high scalability, and high security standards. On top of that, the solution will require brilliant UX and UI.
The solution is required to be fault-free, and the applications are required to be multi-platform. Furthermore, to build a product, we should also consider the web components that fall under product information, marketing, community, and user support.
This article details the major components that would be part of the solution’s interface. The objective is to highlight the intricacies and the number of operations that a user expects to be able to perform in order to enjoy a good user experience. This is only the tip of the iceberg.
The other mega component is the back-end and infrastructure. The major components are a finance transaction engine which would allow for funds to be transferred between banks, cryptocurrency wallets, a currency exchange for fiat currencies and cryptocurrencies, identity validation and fraud detection, and of course, the server infrastructure that supports all of the above. Moreover, this all needs to be PCI compliant and highly scalable.
To avoid having to reinvent the wheel, SDK.finance offers a robust back-end and infrastructure with a myriad of APIs that would be suitable for a banking application. The following part contains additional information on the platform. After serious investigation and consideration, we are confident that the platform can constitute a major cornerstone of any FinTech solution and for our purposes can reduce the time and effort required in order to build a digital bank.
This leaves us with a focus on the interface layer which can be thought of as the tip of the iceberg. In a future part, we will discuss what this layer contains in order to understand the size of the layer.
The next part
In the next part of Building a Digital Bank, we turn to clarifying some general concepts, defining important terms and setting the foundation for a digital bank. We will touch on the topics of FinTech, PSD2, Open banking, technology, security and more.
Scandiweb is a full-stack digital agency with expertise in FinTech, digital marketing, and eCommerce. If you have a problem or a question, we’ll be happy to find you an answer, just drop us a line at [email protected]!