Seven-second credit scoring and innovation at the core: reflection on the future of legacy banks

The disruption of the banking industry started a while ago, with more and more challenger banks serving both private customers and SMEs.

Everything from current accounts to money transfers to credit scoring is increasingly streamlined with AI and machine learning algorithms; it's mostly done by new companies, though, while traditional banks in many cases are too busy doing things the old way. There's a trick to it, though, which lies in understanding that banking in its traditional meaning and mobile banking as it's perceived today are two entirely different things, which need to be treated as such.

Banking customers inevitably flock towards the innovators. It's not about innovation for the innovation's sake, mind you, but about giving people what they want the way they want it.

After almost ten years of working in the banking space and six years in mobile banking in three countries (Ukraine, Russia, Belarus), I've come up with a simple ideation framework for new customer-facing solutions: try to think about what your clients would want without actually listening to what the customers are saying.

"If I had asked people what they wanted, they would have said faster horses." There's actually no evidence that Henry Ford ever said this phrase, but it's definitely true for banking innovation.

Take customer loans for example. The normal procedure of getting a loan from the bank is long and ridiculous. If you're not a client of the bank you want to borrow from, you'd need to put together a ton of documents, bring them to the bank's office, and wait for anywhere from a couple of days to a couple of weeks, depending on the country.

Even the "instant decision" loan sharks take a few minutes before giving you an answer (and possibly making away with a lot of your money). So I thought, how about we make the experience as easy as taking a selfie and aim at giving the client a decision within a few seconds after the fill out a loan application?

Long story short, this approach has worked; after six months of work of a team of 30+ people, we have launched a "video loan" mobile app, first of its kind in our country of operations, Belarus. The processing of the applications only takes seven seconds, and for the customer, the whole process looks simple and straightforward.

The main difficulty of building the system is not in the R&D, though. I can't praise the technical team enough for developing the solution but it seems that integrating it into a legacy bank framework and making it necessary in the first place could be a much harder task. It takes re-thinking a traditional bank from the ground up to come to the right mindset of thinking in terms of the customers' needs instead of the bank's capabilities. In mobile banking, the customer buys a process rather than a product—that's why we pay a lot of attention to the digital transformation from inside.

In my experience, the cornerstone of this process was the position that mobile banking had in the organisational structure. Unlike some other banks with decades or even hundreds of years of history, we clearly separated mobile banking from everything else. It's not part of any other department, but a standalone business with a separate P&L, team, and understanding how things need to be done.

In the competition with challenger banks and innovative fintech startups, the traditional banks have little to offer to private customers as it stands. And it won't change until we treat the innovative parts of our business as a nice-to-have addition to the "core" offering. Turns out it's the other way around.