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Essential resources for banking executives:enter ‘Banking Reinvented’

What’s the difference between digital banking and Engagement Banking?

Explore the 3 key differences between these banking paradigms in this blog, direct from Backbase Founder/CEO Jouk Pleiter.

by Jouk Pleiter

5 mins read

Introduction

If you’ve been following along with this blog series, you’re now up-to-date about what Engagement Banking means and why it’s the new paradigm the financial sector desperately needs to embrace.

However, there’s one more thing I’d like to clear up — Engagement Banking and digital banking are not the same thing.

Of course, there’s some overlap between the two, hence the confusion, but there’s also a world of difference. Let’s take a look at the 3 key distinctions, which demonstrate the unique value of Engagement Banking.

1. Digital banking is channel-centric

Of course, we’re aware that digital banking is the more commonly used term in the market; so is omnichannel banking. But even with a real intention to improve the customer experience, thinking of things in terms of digital banking inherently reduces the issue to limiting binaries: physical vs. digital, mobile vs. web, etc. This ties your bank’s hands by making your thought process entirely channel-centric, and you’d be surprised at how much of a negative impact this can have on your business. Frankly, it’s dangerous to continue prioritizing your channels — especially with Capgemini research indicating that 75% of customers find your fintech challengers attractive.

Let’s compare that to the channel-agnostic approach of Engagement Banking. With this new paradigm, banks are able to re-architect around the customer, following the “North Star” of the user experience. It’s not just about creating the coolest onboarding app or cutting down on your bank’s physical branches — it’s about using a single platform to seamlessly orchestrate journeys across each and every step in the customer lifecycle. And thanks to this platform approach, you’re able to move fast and respond to customer demands, which brings me to the next point.

2. Digital banking is outdated

Of course, let’s not pretend digital banking is completely misguided. Customers are indeed migrating towards digital channels and banks that give them self-service capabilities — but never forget that they also want to keep the human touch. In fact, according to J.D. Power, 38% of customers still say branches are essential, and that means that going digital-only isn’t the killer strategy you may have initially thought.

Over the years, we’ve met with plenty of banks that fell into the “digitization trap,” where they kept their old systems and outdated ways of working but slapped a fresh coat of paint on things in the form of new digital banking channels. This was a huge trend 10-15 years ago — one that had a huge resurgence during the Covid-19-era — and it remains as flawed an approach as ever.

Digitization is yet another inside-out tactic where the bank decides what’s best for its customers and then pushes products at them. If there’s any consideration of the customer experience, it’s an afterthought, or at least far from fully realized. Make no mistake, customers can tell the difference between a bank that’s paying them lip service and one that’s fundamentally rethinking the best way to serve them, day after day — and I think it’s clear which bank you want to be.

Unfortunately, investing in more digital channels isn’t a solid banking strategy. That’s because replacing your old point solutions with new ones will make a bad situation worse, which brings us to the third difference.

3. Digital banking isn’t future-proof

The fact of the matter is that digital banking isn’t a sustainable ideology, in and of itself. That’s because it focuses on digital as the “be-all, end-all” goal that banks should strive for, which is simply not the truth.

At best, digital banking keeps you invested in your legacy tech, and at worst, it adds new tech on top. And believe me when I say this will continue to worsen the problems you’re probably already experiencing — tech debt, siloed systems, gradually rising maintenance costs, the list goes on.

Consider the tier-1 banks that brag about spending over $10 billion per year artificially preserving tech that cannot handle the demands of the future and you’ll begin to understand the depth and breadth of the problem. With this channel-centric, digital-only approach, new tech becomes a mere band-aid you’re slapping over your bank’s issues, not the game-changer you’re looking for.

Compare that to Engagement Banking. With a customer-centric platform approach, you’ll be able to eliminate your bank’s legacy burdens while also getting the most out of your existing investments. Better still, you’ll get the agility to respond quickly to changes in the market, as well as evolving customer demands. Thanks to a platform’s modular components and composable banking fabric, your bank will be able to make incremental updates, thoroughly and often. That will keep you marketable, year after year, even as the banking sector changes around you.

Engagement Banking: the next evolution

Engagement Banking is digital at its core, but more importantly, it’s customer-centric, modern, and forward-thinking. That’s the fundamental rift between this approach and digital banking, the umbrella term that, while common, means very little and offers even less, in the long run.

Now that we’ve cleared things up and explored exactly what Engagement Banking is (and isn’t), it’s time to see what the market is like out there. In the next blog in this series, I’ll explore the 9 top players in this space and give you some pros and cons to help guide your bank’s decision-making process.

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.