Banks considering establishing a digital-only subsidiary have to balance the various approaches to create a right-field solution. But whether it be a single approach or a hybrid approach – the goal is to create a startup with heritage that complements the internal capabilities and aligns with the overall business objectives.

Select elements from one or more approaches for mix-and-match options

The three-dimensional process fortifies the foundation of digital-only entities. Banks start with the planning stage, in which they define their target (audience, market, product). Next they develop a robust foundation (modern infrastructure, collaboration capabilities, and talent). Finally, in the operating stage, they drive their business towards long-term, sustainable growth.

Deploy a three-dimensional process to build a digital-bank

Banks running a digital-subsidiary need to be mindful of certain factors:

• – Stand out from the crowd by clearly defining a niche
• – Offer parental support in terms of finance, marketing, and leadership
• – Accept strategic cannibalization for long-term value
• – Avoid culture clash
• – Continuously evolve your minimum viable product.

Operating a digital-only bank involves a variety of hurdles

Customer centricity is critical, so banks are starting to strategize their future roles. An emerging hub-and-spoke banking model offers a success formula. In this model, banks continue to modernize their middle- and back offices behind the scenes while creating multiple digital-only entities in different markets to serve specific customer segments.

With a robust support structure (the hub), the parent bank can share its varied expertise and resources to build numerous specialized digital-only banks (the spokes) to gain flexibility on who, where, and how to serve.

Become a Bank of the Future