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Essential resources for banking executives:enter ‘Banking Reinvented’

What is Engagement Banking?

What is Engagement Banking? Discover the top 3 principles in this blog direct from Backbase Founder/CEO Jouk Pleiter.

by Jouk Pleiter

5 mins read

Introduction

These days, the banking industry can’t stop talking about Engagement Banking. But what does that term actually mean, in the modern banking context? Here’s a hint: it’s not about creating a fancy new app or simply digitizing your bank’s old ways of working — far from it, in fact. That’s what we call “putting lipstick on a pig,” and no one wants that.

To clear things up, let’s take a look at the top 3 principles of Engagement Banking.

1. Engagement Banking is customer-centric

When Backbase coined the term “Engagement Banking,” there was a lot of talk around omnichannel operating models, and there’s some considerable overlap there, of course. However, after considerable thought, we decided this latter approach was still far too channel-centric.

Instead, we took the initiative to create an entirely new paradigm, one that’s architected around the thing that should matter most to your bank — its customers.

The fact of the matter is that customers gravitate towards banks that care about their needs and use every interaction as an opportunity to meet or exceed expectations. That’s a huge shift from the old, inside-out approach of pushing banking products, and it understandably has a massive impact on customer engagement, not to mention satisfaction and retention. In fact, according to McKinsey, satisfied customers are six times more likely to say they'll remain with a bank than dissatisfied customers. And with the steep cost of acquisition, you need to keep your customers happy.

That’s why Engagement Banking uses the customer experience as its North Star. Then, it all becomes about how you can easily and effectively orchestrate customer journeys, making that your leading concern. Unfortunately, due to the burdens of legacy tech, point solutions, and silos, it’s impossible for many traditional banks to pull this off, which brings us to the next principle.

2. Engagement Banking is platform-based

When we created this new paradigm, we were inspired by the world of ecommerce. When you think of companies like Uber, Netflix, and AirBNB, these industry-disrupting players are famous for orchestrating holistic, end-to-end, customer-centric journeys with the power of a single unified platform. There’s no notion of channels; above all, they focus on giving customers what they want, when they want it, and on the touchpoint of their choice.

And that’s where banking is already headed: using platforms to continually and consistently generate customer and business value. Without a platform, you’ll never be able to make this happen. Even with the best of intentions, it’s impossible to remain competitive with a channel-centric approach. With all of your tech components working in isolation, there’s a ton of logic duplication, making it expensive to maintain — and even more expensive to update. And it’s not getting easier anytime soon. According to an IDC study, global banks are on track to spend $57.1 billion on legacy payments tech by 2028, compared to the $36.7 billion they spent in 2022, and that’s only the tip of the iceberg.

So yes, to answer the question you’re asking, Engagement Banking is a significant investment, but compare that to the cost you’re paying simply “keeping the lights on,” so to speak. And luckily, there’s a way to spread out your spend and maximize your existing investments, which brings us to our next point.

3. Engagement Banking is a marathon, not a sprint

To be clear, Engagement Banking is not a small technical project, and it certainly doesn’t happen overnight. That may make it a bit daunting for you, but keep in mind that it requires going back to the drawing board to fundamentally rethink your bank’s value and how you can use it to remain competitive. That means a long-haul journey of 3-5 years, but don’t let that number concern you, as you’ll feel the impact of Engagement Banking much sooner than that.

Thanks to the power of progressive banking modernization, you can significantly accelerate your bank’s digital transformation by doing things one journey at a time, allowing you to address the most critical aspects of your business and then move on to the rest. I encourage you to read our guide on the topic or — if you’re pressed for time — our blog, but here’s the basics.

Progressive modernization is all about making incremental improvements to remove the constraints imposed by your outdated systems, adopting new-gen tech and processes while discarding outdated or disjointed ones. By gradually hollowing out your core, you’ll be able to construct a modern digital banking architecture around your customers and employees, and that’s what it takes to succeed in modern banking.

Where do I begin?

Now that you know a bit more about Engagement Banking, you may be wondering how to take the first step. First of all, you absolutely need to work alongside a trusted platform provider, because it’s simply not advisable to pursue Engagement Banking alone. Your systems don’t exist in isolation, so why should your bank?

Sure, you may have the resources to custom-build everything from the top down, but surely you don’t want to waste several years doing so. I’ve heard that story before, and I’ve dealt with the aftermath of many digital transformations gone wrong.

But maybe you’re not yet ready to take the leap to Engagement Banking. That’s natural at this early stage in your digital transformation, and that’s why I’ve written this three-part blog series — to give you the information you need to take the leap. In the next chapter, you’ll learn the distinction between Engagement Banking and digital banking and why your bank needs to prioritize the former in order to make the biggest impact in the shortest amount of time.

For more information, check out episode 1 of our Banking Reinvented podcast, where I dissect this topic alongside my colleague, Tim Rutten. And stay tuned, as we chat about everything from progressive modernization to decomposing your bank’s complexity.