What is digital twin technology?

As banks make incremental progress toward full digital transformation, there are still many hurdles to clear. Community banks must address challenges including the cost and time to upgrade existing technology platforms, the need for internal cross-functional collaboration and the effort to balance the customer experience with ever-evolving consumer expectations.

Could digital twins, a form of technology that is already changing the game in other industries, provide a path to efficient and profitable digital transformation for banks?

Q: What is digital twin technology?
A: According to Capgemini Research Institute, a digital twin is “a virtual replica of a physical system that can model, simulate, monitor, analyze and constantly optimize the physical world.” Digital twins not only help an organization assess how existing systems are performing; they also enable the organization to anticipate how these systems, products or even people could behave in different scenarios.

Q: How does digital twin technology work?
A: A digital twin is an exact copy of a real-world process or product that provides critical data at each stage of the life cycle of that process or product. Generated by software, digital twin technology allows organizations to bridge the gap between physical and virtual worlds. Real-time data is applied to a virtual model to simulate potential scenarios, use machine learning and discover possible outcomes from these scenarios.

This sharing of information between physical products or processes and digital models builds a closed feedback loop fed by compounding information: The real-world process sends data, the digital twin evaluates and provides feedback, the analysis is tested, the process is improved and the cycle begins all over again. This creates a virtuous circle of continuous enhancement driven by data that is constantly being expanded and refined.

A digital twin example in banking could take the form of optimizing a business continuity plan or compliance process; analyzing customer behavior; or planning out the design, location and construction of a new branch.

Using information gathered from the digital twin process can accelerate product development, improve operational efficiency, meet sustainability goals and improve customer experiences in a way that minimizes risk and cost.

Q: What are some digital twin applications for community banks?
A: Utilities, life sciences, consumer products and manufacturing are just a few of the major industries already reaping the benefits of this technology. A recent research study conducted by Capgemini found that more than 1,000 organizations in various global industries “realized a 13% decrease in costs, on average, across the various use cases of digital twins and a 15% increase in operational efficiency” through utilizing digital twin technology.

Here are three key areas where digital twins could help banks:

1. Increased profitability and growth.
As online options proliferate, traditional banks are often up against tools and platforms that are faster, cheaper and easier for consumers to use. To avoid the commoditization of the products and services they provide, many banks have placed an emphasis on personalization and high-touch service.

Digital twins of customers are already occurring in a way, as consumers continue to live their lives online through social media. Combined with bank data, a financial institution can paint a fairly full picture of customer behavior and needs. By collating that information into a model, banks could beat a faster path to profitability. They can quickly bring to market new products and services, using the digital twin to tailor the offering, test out messaging and deliver to the right channels.

2. Sustainability goals.
ESG (environmental, social and governance) frameworks are hot topics, but actually instituting processes to meet ESG goals is another matter. Digital twinning offers a way to assess the potential for sustainability, providing banks with a tool to make informed decisions and evaluate environmental impact. For example, a digital twin could generate comparative data to help plan out branch locations. It could help banks measure the environmental impacts and associated costs of building a new branch, versus repurposing and retrofitting an existing building.

3. Operational efficiency.
Good resource management is a constant organizational goal for any business, and current and impending economic conditions are making it more important than ever for banks to do more with less.

Creating a digital twin to mirror complex processes can provide valuable data that could supercharge the risk management process for banks, generating information to create efficiencies in the following areas:

• Compliance: Streamline repeatable processes and manual work; formulate potential responses to regulatory changes

• Business continuity: Develop and conduct tabletop exercises virtually to gain data before testing in a real-world environment; analyze business continuity plan results in various scenarios

• Cybersecurity: Mimic hacker behavior and collect data that can help predict criminal tactics; rehearse cyberattacks to refine incident response plans

• Resource management: Simulate and compare workforce models, such as on-site, hybrid or fully remote, to visualize how they would work in terms of costs, communication and productivity

Q: How can a digital twin simulation help banks in their digital transformation?
A: Digital twin technology could be especially valuable for community banks for two key reasons. First, the ability to gather data to improve the customer experience is a perfect fit for one of the pillars of the community banking mission: personal attention.

At the same time, digital twins reduce the need for manual processes and hands-on interaction, allowing community banks to ease the pressure on resources and budgets that are already stretched.

It’s early days for this technology, but if a bank wants to make the leap from digital transformation to intelligent industry, digital twins could provide the needed uplift. Anticipating the organization-wide effects of changes in process and behavior before implementing them in real life, plus faster, more strategic decision-making, could equip banks with a crucial edge in an increasingly competitive industry.

Along the way, preparing your environment for successful technological transformation (such as improved infrastructure, secure connectivity, standardized data management, strengthened collaborative skills, enhanced UX/UI) can also accelerate the conditions that will enable your organization to scale and grow.