How Digital Transformation Is Ushering In A New Era For Banking & Finance?

It’s fair to say that global digitalization has hit every sector in the last decade. With some embracing the idea of outsourced help desk Services to third parties, it comes as no surprise that the banking and finance sector embrace the digital transformation.

Although numerous industries have struggled to adapt to this digital revolution, banks and financial institutions have significantly invested in it. And as a result, many of these institutions are recording growth and increased profitability.

On that note, here’s a full rundown of the impact of digital transformation on the banking and finance industry.

Simply put, digital transformation is the use of digital technologies to improve existing processes. It introduces new ways of carrying out commercial activities, which enhances customer experience and leads to larger profit margins for the company.

Apart from redefining business processes, digital transformation deals with four core areas for rebuilding operations, customer relationships, and procedures. These core areas are process, technology, data, and organizational change.

Digital transformation of banking requires integrating information technology into all areas of the bank’s services. This integration means banks must leverage modern technologies, retrain their workforce, and upgrade system processes.

The covid-19 pandemic forced everyone to go digital, as they could not conduct most transactions in person. This meant that banks saw an increased demand for digital processes as information technology didn’t cater to just the youth anymore.

One of the ways banks integrated digitalization was through mobile banking. Mobile banking gives customers advanced self-service capabilities helping them make instant payments for an overall banking experience in which they have significant control over the processes.

This development means that banks have had to employ an Application Programming Interface (API). This third-party platform helps them interface with customers and conduct processes such as receiving money or grant transaction requests.

With growing competition in the financial industry from fintech and BigTech companies, banks have also had to incorporate cloud computing. Cloud computing aids in the sharing of digital information and makes processes and transactions more straightforward and quicker.

Similarly, banks have had to become prominent in the data and analytics field as customers now expect that organizations will use their information to personalize their experience and proffer distinct solutions.

Also, banks and financial institutions have incorporated biometric technology into authentication processes. Gone are the days when a customer had to visit their branch to provide their signature on every transaction, thanks to biometric technology.

Furthermore, the incorporation of automated innovations such as chatbots speeds up customer relation processes cutting down long response times as well as the need for numerous call centers and customer representatives who have limited working hours.

Automation processes are likewise playing crucial roles in core banking operations
especially in compliance, customer onboarding, and credit card operations.

Without a doubt, the future of banking is digital, and so is the present. The digitalization of banking primarily involves moving from in-branch operations to online and mobile services. Today, most bank operations, such as depositing money or applying for credit cards, can be done online.

Over the last decade, digitalization has fundamentally altered the direction of the banking industry. Traditional banking systems require a significant amount of time and human resources. Banking and wealth management processes must evolve to remain relevant.

The implementation of digital strategies is now paramount to the success of financial institutions, especially with the emergence of neo-banks, which are entirely online with little to no physical presence. Already, analysts project that by 2025 19% of adult citizens in the US will be Neobank customers.

Likewise, the evolution of various payment methods and financial tokens has increased the need for banks to be technologically savvy and digitally relevant. Just as banks want customers to enjoy visits to their branches, their digital experience is becoming increasingly important.

Banks now require customers in the same way that customers need them. As a result, they must constantly improve the value of their services while also enhancing the customer experience, which is now primarily digital.

However, the digitalization of banking goes beyond implementing automation processes and developing software applications. It also involves transforming company culture and structure to accommodate these new processes.

The digitalization of the banking industry has numerous advantages.

The primary benefit is an increased customer base due to a more efficient banking system. Automated bill payments, electronic signature systems, and the ability to make deposits or conduct transactions via mobile apps make banking processes more efficient and appealing to a broader range of customers.

Digitalization also lowers operating costs, making financial institutions more profitable over time as artificial intelligence and automation processes, among other things, have reduced the need for a large workforce.

Other vital benefits of digitalization include increased flexibility and adaptability because banks can capitalize on innovations to provide a broader range of services. Customers, for example, can use shopping portals with their banks without fear of incompatibility.

A digital banking system’s predictability is another significant advantage. Banks can forecast potential growth or losses using data and analytics, allowing them to make better and more informed decisions to better respond to changes in market trends.

Furthermore, digitalization improves the customer experience significantly. In addition to having 24/7 access to their finances, customers can make instant payments at lower fees, expect faster response times, and have their experience tailored to their preferences.

Lastly, digitalization provides automated compliance monitoring features, which save banks a lot of resources. With the help of data from legacy applications, every stage of the data handling and processing system is more secure, earning customer trust and eliminating the risk associated with manual transactions.

Digitalization in any sector is not all reward without risk, and the same applies to the banking industry. Digitized financial institutions are prone to a few disruptions.

Firstly, financial crimes have proven to be a disruption in the digitalization of banking. People with malicious intentions, like cyber criminals, can exploit loopholes created by conducting transactions remotely, such as hacking into online banking platforms to steal sensitive customer data.

Credit cards are especially susceptible to security breaches as criminals can launch phishing attacks to deceptively obtain credit card information for fraudulent purposes. As such, customers must take extra precautions after applying for credit cards to guard their data.

Implementing digital systems into banking services also comes at a considerable cost. This is because digital systems require regular maintenance, some of which are costly. Banks must also hire highly skilled personnel to operate these systems or significantly invest in training the existing workforce.

Also, these systems are only sometimes reliable. Financial institutions may experience downtime due to technical issues from faulty servers and devices, restricting customers’ access to their finances.