Banking on quality engineering

Evolving technology trends and global consumer movements have changed how banks do business.

These changes have required the leadership teams of banks to continuously innovate their business models, modernize their technology platforms, and join the digital ecosystem. The demand for superior customer experience and high-quality services decides the growth and even the existence of financial organizations today. With fewer human interactions needed to provide services, it is the usefulness and efficiency of the digital channels that sway customer experience, retain the customer base, and earn service providers the trust of their clients.

It is in this mix that quality engineering (QE) plays a pivotal role, from ensuring the quality of products and improving customer experience to certifying the safety and security of user interfaces and other interacting applications. Consequently, the QE function has catapulted from its typical enabler and support purpose to a key imperative for chief executive officers in the banking and financial services sector.

We explore how QE is key to the growth, reliability, and security of digital banking.

The need for quality engineering in banking

The banking industry has always been one of the earliest adopters of information technology (IT).

This allowed them to develop innovative products and to customize their services. By leveraging IT, the traditional banks went beyond their physical branches and began offering a variety of services through various digital channels, such as internet banking, automated teller machines (ATMs), mobile banking applications, interactive voice response (IVR) channels, phone banking systems, artificial intelligence-powered chatbots, and so on. These digital banking services helped traditional banks enhance customer experience and retain customer loyalty in the highly competitive banking landscape.

Figure 1: Digitalization across traditional, neo, and digital banks

In the traditional banking setting, digitalization got a further push due to the cost pressures resulting from the 2007-2009 financial crisis. The crisis resulted in more regulations and compliance measures, such as the need to ensure higher reserves. This obligation was coupled with a lengthy period of low credit growth and low interest rates.

The banks were also encumbered by an increase in labor costs and the high price of maintaining legacy technological platforms, which made it difficult for banks to spread their physical branch footprint. So, banks responded by improving digital channels and offering digital-only banks, aided by the latest technology. These innovations enabled conventional banks to respond flexibly to demands, adopt agile working methods, and reduce operating costs. Through their newly implemented digital channels, traditional banks were also able to attract new-age customers and improve the user experience. Effective QE processes ensured both the user experience and the banks’ reputation and contributed to securing customer trust.

During the same period, governments worldwide directed banks to improve financial inclusion. This called for providing affordable financial services to poor populations, immigrants, and student segments and making loans to micro, small, and medium enterprises (MSMEs). The expansion resulted in a demand and supply gap that traditional banks could not bridge because of additional banking regulations combined with the extra cost of providing services to more people.

The solution to enabling financial inclusion came from neo banks, which exist only online. These new players were highly driven by analytics and offered personalized services and enhanced customer experience. They built their platforms on the latest technology, reducing maintenance costs. Their flexible and economical operating models enabled them to provide banking services to untapped customer groups.

However, as neo banking has developed and grown, the banks must boost their investment in QE processes to improve customer confidence and user experience as well as to attract assorted customer segments.

For the new-age digital banks, the digital arms of traditional banks, and neo banks, striving to improve customer satisfaction and create personalized offerings, technology is the key enabler to stay ahead of the competition. To match the success and growth of the digital-only channels of traditional banks, neo banks must look closely at the effectiveness of their customer experience efforts and in-built safety and security standards. This is possible only through end-to-end QE across all neo-bank products and services.

Embedding QE in the digital banking architecture

The key features of a successful digital bank are speed, customer-centricity, and agility.

Digital banks achieve these objectives through a platform architecture designed to support rapid change and continual transformation with minimal risks. Specifically, during the design phase, business functions, and data are segregated and supported by an ecosystem accessed using application programming interfaces (APIs) and microservices. The efficiency of this architecture is augmented by a robust QE process.

The architecture of a digital bank is three-tiered, with the front end presenting the customer-facing applications. The back end consists of applications for core banking, client data, and other back-office processes. The middleware is the intermediate layer orchestrating information throughout the presentation, product, and API layers. The middleware layer also contains a sub-layer termed the API layer, which manages all the connections to external or third-party and fintech applications.

QE processes are designed to cut across all the layers of architecture to ensure product excellence. QE accomplishes this task through functional testing—by improving user experience in the front-end layers through usability, performance, accessibility, and customer-experience testing; by guaranteeing efficient business functionalities through integration testing throughout the middleware and back end; and by providing overall security for all the digital channels through vigorous security testing.

Figure 2: Digital banking architecture embedded with QE

QE must be sufficiently comprehensive to validate across the three-tier architecture and other components of the digital banking ecosystem. Key support functions like data and environment can be included when formulating the approach. Comprehensive QE and architecture are critical in ensuring a bank’s sustainability and promoting growth.

Overcoming challenges

Digital banks face three main challenges.

These are establishing customers’ trust, embracing the right technology for effective and efficient services, and providing transparency. QE is the common and critical component that can address these challenges.

To overcome these challenges, digital banks need to focus on six aspects: 1) emerging technology; 2) new business models; 3) partner integrations; 4) security, consent, and privacy; 5) business operations; and 6) new customer segments.

Security, consent, and privacy: Combating bank fraud is an especially compelling reason to establish efficient QE practices. Fraud is one of the biggest challenges facing the financial sector. According to a study by research firm Javelin Strategy & Research, the losses from identity fraud scams amounted to $43 billion in 2020 alone.

But fraud exerts not only extra financial costs but also results in reputational damage, customer dissatisfaction, and permanent loss of business. Effective security testing methods will help banks prevent financial crimes and increase customer satisfaction and trust, as well as attract conservative customer segments concerned about the security and safety of their assets. The proper use of QE guards against security vulnerabilities, which helps digital banks maintain customer trust and uphold their reliability.

Simplified lending processes, personalization of loans, tenure, payback periods, and reduced paperwork all contribute to a smooth digital banking customer experience. But for digital banks in digital-only channels to present an effective, trustworthy, highly satisfying customer experience, they must also demonstrate great efficiency and impeccable accountability in every customer transaction. Accessibility testing is essential for supporting positive user encounters with front-end digital channels, and it is a critical element of the QE process. Good user accessibility and satisfying user front-end experience directly affect a bank’s ability to retain current customers and attract new customer segments to increase market share.

New customer segments: In a hyper-connected society, the evolution of banks will depend on their ability to participate in the digital ecosystem. Banks must effectively integrate their products and services with third-party applications. API layers offer this seamless integration. Integration assurance is the element that provides a top-class omnichannel experience to customers, fosters new customer segments, and increases customer confidence.

Business operations: To offset competition from a growing number of contenders, including both fintech and non-financial players, digital banks need agility and speed to stay ahead. Cloud platforms equip banks to achieve this edge and to build scale and implement innovations quickly. The cloud also enables banks to lower costs by reducing or even eliminating significant hardware and software investments while still having the ability to develop and launch products quickly and meet customer demands. Deciding whether or not to use a cloud platform is a function of QE to determine how to offer services widely and keep costs down.

Digital banks are increasingly regulated by the countries where they operate. Compliance with regulations is key for the requisite credibility banks must maintain with investors and the market to grow and keep customer confidence. Thus, regulatory compliance is among the most important components of the QE process because it helps establish a bank’s reputation and assures customers of the safety of their deposits.

Partner integrations: Digital bank application architecture is developed to interface with multiple applications and third-party systems in order to participate in digital ecosystems. Integration into these ecosystems helps banks generate new customer segments and increase customer confidence, satisfaction, and appreciation. Setting up this application architecture involves many repeat instances of cross-movement of data; therefore, end-to-end data testing embedded in the QE process is necessary to gauge the performance of the architecture’s functionality.

Emerging technology: Banks generally are burdened with time-consuming, manual, repetitive back-office business processes. Digital banks can eliminate this issue by employing robotic process automation (RPA) in the QE process. This will help improve productivity, reduce costs, increase agility, and enhance the customer experience.

The success and growth of digital banks hinge on an organizational strategy that incorporates the tenets of QE. Leadership teams in banks can guarantee first-rate and reliable banking experiences by taking the following preliminary steps to initiate QE processes and practices in all banking operations:

• Gain an initial understanding of the test function in the digital banking landscape and its criticality to business and customer experience, and then define the test requirements.
• Assess the current maturity of the test function and baseline values.
• Define the target maturity levels and objectives with QE readiness.
• Identify business key performance indicators (KPIs) and develop an approach to meet them through QE.
• Identify focus areas and initiatives that can be rolled out to improve quality.
• Leverage ongoing transformation initiatives to drive QE and make testing an integral part of those initiatives.
• Focus on executive commitment and change management by driving change in stakeholder behavior and attitude toward QE.