Massachusetts Institute of Technology (MIT) has released a new paper that outlines the key features, benefits, and strategic imperative of the Digital Bank of the Future (DBF).

The paper, “Digital Banking Manifesto: The End of Banks?”, is part of MIT’s financial technology innovation series and discusses the key requirements for a digital bank from three perspectives: customer, investor, and the bank itself.

• From customers’ perspective, MIT says that DBF should be able to provide holistic and customizable experience, mobile e-payment solutions, fully digital experience, seamless and inexpensive foreign exchange services, biometric technology, e-credit card, and access to p2p world.
   
• From investors’ perspective, the paper says that digital bank is an exciting investment opportunity and inevitable business step as legacy banks are no longer able to adequately service their customers' needs in the digital age. It lists several ways through which digital banks can generate value such as digital payments, digital wallet, multichanneling, smart big data and others.
   
• From bank’s perspective, it says that a digital bank has to be a cross between a Fintech company and a bank, adding that while a digital bank, similarly to a conventional one, can be organized into five divisions: Retail Banking, Private and Business Banking, Analytics and IT, Finance Management and Operations, and Risk Management.

Digital Banking and Digital Currencies

The paper highlighted the importance of digital currencies in digital banking saying: “Digital banking of the future is unimaginable without using digital currency”. To that end, it notes the current efforts by both central (PBOC, BoE and Bank of Russia) and private banks.

It says that the best known non-bank digital currency is Bitcoin, adding that it is not suited for high volume transactions because of its low transactions per second (TPS) capacity. MIT expects that other digital currencies based on consensus achievable by means other than proof-of-work will be used in digital banking.

Speaking of underlying blockchain technology, the paper says that distributed ledger reduces financial transaction costs, improves resilience of the system as a whole, and mitigates operational risks.

“Without doubt, distributed ledger will become intertwined with operational procedures of a digital bank and its interactions with other digital, legacy and central banks”, it added.