The Impact of Digital Transformation on Banking

August 14, 2018 by Stefanini

As mobile banking continues to eclipse physical services, adapting for digital has become a matter of survival. Read our trends blog about the impact of digital transformation in banking. 

Alongside global economic changes, credit unions and banking institutions face a number of massive disruptions informed the push for digital. Industries in every sector are expected to rapidly take on digital capabilities if they haven’t already. This shift has affected every business sector, and failing to design and implement a digital transformation strategy may be the difference between a business’s survival and demise.

In 2015, research suggested that companies did not effectively move forward with a digital transformation strategy within three to five years could possibly lose 35 percent profit, whereas banking institutions that are up to speed with evolving technologies could gain 40 percent or more. More recent projections have only confirmed this, as digital transformation is forecasted to bring in 2.3 trillion (USD) in market revenue worldwide. However, according to Forbes only about a quarter of banks and credit unions had embarked on a digital transformation strategy prior to 2019, and that 45% hadn’t launched a strategy prior to this year.

If you want to learn more about the digital transformation in banking, read on.

What is Digital Transformation in Banking?

With the rise of digital capabilities, the customer journey has evolved and mobile services have overtaken visits to physical branch locations as the primary means of banking. Customers demand faster, more efficient ways of making transactions and banks simply can’t afford to fall behind.

For banking institutions the digital transformation can broadly be understood as a shift to digitizing their products and services as well as their communication channels to enable mobile customer action. Making these digital services viable requires a massive number of backend changes to present mobile applications that allow services to conform to security and regulation standards.

While the impact of the COVID-19 pandemic has not been as severe as the as the 2008 financial crisis, the banking industry is still navigating the sudden overhaul of digital transformation strategy. As consumer expectations changed, competition increased and the need to quickly adapt to digital services has become the norm. Digital transformation has become a matter of survival.

Additionally, millennials, the largest demographic in the world, serve as the driving force behind this transformation. For millennials, traditional banking is obsolete. As a matter of fact, 71 percent of millennials would rather go to the dentist than talk to a bank teller (FirstData, 2015). However, they’re far more open about money, with 75 percent of millennial couples discussing it at least once a week, according to a CNBC articleDr. Jane Greer, a psychotherapist and relationship expert, says “Young people are very up front about the fact that they’re carrying debts, even credit card debts.”

Customer expectations are higher than ever before. It’s in banking institutions’ best interest to adapt to these changes if they want to survive the next generation. There’s no use in trying to revive traditional ways of banking. Millennials are enjoying the convenience of digital banking and generations before are embracing it. It’s time for the banking industry to move forward with digital transformation, because the change is happening now.

Addressing Customer Experience with a Digital Transformation Strategy

Where many financial institutions fail to reap the benefits of digital transformation is when they implement new technologies in piecemeal fashion to meet current customer demands. Instead, institutions should design a transformation strategy that addresses how advanced capabilities align with long term business goals.

Addressing the needs of a digital customer journey requires taking steps that integrate all services into a single online platform. Increasingly, building customer satisfaction means offering both a speedy digital experience for convenience and a human experience for matters that require more planning such as mortgages or a critical issue. Financial institutions must have a broad overview of when and where pain points in the customer journey occur and merge those strategies with a roadmap for implementation of new digital tech.

Ideally, customer service concerns are handled through the same processes, employees, and with the same information they would in physical experiences. To this end, it is helpful to consider how changing the business’s operational model, changing how teams are organized, integrating technical talent into sales teams can contribute to creating a seamless customer experience.

Digital Technologies That are Changing the Face of Banking

While there are many technologies that can have an impact of a bank’s operational model, there are a few that have become standard for achieving digital transformation:

Cloud computing

Moving to the cloud enables banking institutions to utilize a broad range of technologies allowing financial institutions of any size to upgrade legacy systems piecemeal or all at once. Cloud-based banking lets both customers and staff gain access to services from any location, enabling remote transactions and remote work, effectively providing staff with the tools to meet customer service needs with agility.

This system allows of data collection from across many devices while increasing the security and capacity for information processing.  Banks can also leverage cloud resources like, AI, IoT, cybersecurity mesh, eSignature, ID Verification, blockchain, and more.

Artificial intelligence (AI)

AI technologies offer a diverse range of functionality that serve to automate and optimize business processes. AI can also help automate Analytics processes, data monitoring and security activities, identifying fraud and violations, all while providing insights that drive improvement. Instead of exhaustively finding areas where AI can be implemented, it is more useful to identify how this technology can bolster existing goals.

Chatbots, perhaps the most obvious application of AI, help banks to provide meaningful online services for customers after business hours. Similarly, chatbots can provide omnichannel customer service support, identifying customer tickets through external platforms like social media and can connect the ticket with client records or an email address so that staff are prepared to resolve concerns swiftly.

Banks can leverage data analytics to predict behaviors such as when a customer displays interest in a loan, when a loan is about to default, when customers are preparing to leave, assess risks, prioritize leads, establish connections between clients and more. This data, in turn, allows banks to offer highly personalized offers and solutions, either through a representative or as an automated offer or solution inside an app or online portal.

Blockchain

Originally designed to strengthen the security Bitcoin transactions, blockchain has been applied in a wide range of sectors, including FinTech. Blockchain technologies can help improve the security of online transactions by utilizing cryptography to provide safe transparent transaction history. 

Since blockchain fundamentally decentralizes transactions, it can ensure a higher level of security, protecting the data and funds of banking institutions. There is still some concern about the speed of the transaction pipeline, and many hope that mediators will remove bottlenecks to these systems to create more efficiency.

Enacting Digital Transformation in Banking with Stefanini

For Financial institutions today, creating a comprehensive roadmap for digital transformation is necessary for survival. Stefanini stands at the forefront of digital technology and boasts 30 years of experience with banking clients. Our team of experts are uniquely positioned to assist financial institutions in implementing digital transformation.

We take a customer-first approach to everything we do, analyzing your pain points and business objectives to co-create a solution custom fit for you. Ready to bring your financial institution into the future? Give us a call today!

Ready to bring your financial institution into the future? Give us a call today!

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