Digital Transformation In Banking. Custom Your CUSTOMERization

Quite often we can hear from our business contacts “It isn’t something I’d like to take part in right now.” Or “I’m too busy to think about innovations while covid.” Some people cannot simply become innovators in their companies as they are afraid to fail.

The proverb says: “The early bird catches the worm.” It’s never too early to become an adopter of digital transformation in banking and financial services in your company to bring new value to your clients.

The banking industry, perhaps, is one of the areas which has been most influenced by the digital revolution. From fintech startups to complex systems that monitor and analyze our financial health and well-being, digital banking nearly every aspect of financial institutions has been impacted. Evolution of technologies for digital transformation which guides the industry makes one thing certain. A lot of crucial changes are on the horizon. Let’s take a closer look at them.

Digital revolution through evolution

For a long time, innovation for banks has always meant cost reduction, efficiency, and workforce productivity. The accent has since shifted to customer experience, digital doorman function, seamless transactions, and data analytics for personalized engagement and recommendation.

Digital transformation in banking has already started, and now some changes like 24/7 online banking and instant transactions can be easily seen. 

Obviously, choosing not to adopt digital transformation may lead a bank to a competitive disadvantage or the risk of losing customers. On the contrary, embracing this dominating trend, a bank comes to a set of clear benefits:

  • Сustomer experience improvement through Self Service Channels, for instance.
  • Process optimization in order to meet tech-savvy customers’ expectations.
  • Operational cost reduction.
  • Creation of a forward-thinking profile for the bank.

Speaking about the financial industry, the MFI sector shouldn’t escape our attention too. As well as banks, MFIs have been impacted by the coronavirus pandemic. If you are interested in how, read our article “Can Debt Collection Software Shield MFIs Against The Crossfire.

Innovations for banks: inescapable new reality

Digital is not a channel — it’s a way to shorten the distance between what customers want and what they get. That means that one must invest in technology that unifies the customers’ experience along every step of their journey.

Ted SchadlerVice President and Principal Analyst at Forrester

The above quote by Ted Schadler highlights the fact that the scope of digital is much deeper than just design and user experience. Digitalization needs to be a means to access the customer’s mind and intelligence through shortening the distance between a bank and a customer. Digital technologies should provide customers with a means to utilize round-the-clock banking services on their fingertips.

Digital transformation in the banking sector allows creating a more coherent and personal digital customer journey. That said we mean taking steps of integrating everything into a single online platform so that a customer is handled through the same tools, sometimes by the same people, and with the same set of information throughout the process.

But the process in this sphere is quite slow. To begin a journey to digital transformation, financial institutions (FIs) should develop a detailed strategy to change their model of distribution, revise and upgrade value offers, and develop end-to-end customer-centered processes that can lead to growth and improvement of customers’ satisfaction as well.

Backbone technologies of digital transformation

Nowadays, there are quite a few technologies available that can help in the process of digital transformation in banking. Effective and smart digital transformation strategy has to include relevant technologies that bring more value and benefits both for a bank and its customers. 

Figure 1 shows the digital evolution of the banking industry:

The evolution of banking

Fig. 1. The digital evolution of the banking industry

Source: Cognizant

Among the trending technology solutions, we will center our attention at:

  • Artificial Intelligence (AI),
  • Blockchain,
  • Internet Of Things (IoT),
  • Cloud Computing.

When we take into consideration the challenges that have appeared in the new after-coronavirus normal, we should understand the importance of effective business planning. Some tips on the subject you can find in our article “Business planning development in coronavirus reality. Milestones of recovery“.

Artificial intelligence for banking

Artificial Intelligence in banking is represented by online assistants or chatbots. They help customers to deal with their issues by providing relevant information or executing different transactions. 

In addition, AI can be used for data analysis and security. For example, anti-money laundering through analyzing customer data within several seconds.

Blockchain for banking

Implementation of Blockchain for banking can result in a more convenient and user-friendly interface, more accuracy, and better security of data and transactions. 

Moreover, blockchain solutions make transactions and other operations more transparent and facilitate better collaboration with them. There is no need for third parties’ intermediation. 

Blockchain also influences cloud technologies by decentralizing cloud storage that results in higher data and funds protection.

All the above mentioned brings up the level of trust from the customers.

IoT in banking

IoT in banking is extremely helpful with real-time data analysis. It makes customer experience more personal and provides banks with opportunities to make individually-tailored offers to customers. 

Thanks to mobile devices, customers can easily and seamlessly make contactless payments. 

In addition, IoT is helpful with risk management and access to platforms. The process of authentication can be supported by biometric sensors that make access more protected and secure.

Cloud computing in banking

Cloud computing in banking is one more technology that can help banks improve their efficiency as well as increase productivity, enhance operations, and immediately deliver products and services. The technology makes many things easier like interoperability, secure storage, 24×7 uptime, etc. Cloud computing provides an opportunity for banks to connect with their clients directly and maintain customer relations anywhere and anytime.

Cloud computing allied with IoT helps in risk management and a secure environment creation for the customers and internal bank systems.

The brave new options

Digital transformation of the financial institutions brings a lot of new options and opportunities for the customers: individuals, small and medium businesses, and huge corporations, as well as for banks themselves. Smart strategies and constant improvements facilitate a number of advantages:

  • convenience,
  • 24/7 service,
  • time-saving,
  • automated transfers,
  • easier account management for customers.

Coronavirus outbreak has shown that distant work can successfully replace a regular office schedule. But security measures for remote staff need deep revision. Read our article “Remote work security compliance. Corporate “hygiene” is crucial” to get the idea of how corporate security compliance should change.

Hidden worm-holes, or What hides behind

Although the advantages are impressive, there are still some disadvantages that follow the process. The main ones are:

  • Security issues. Cybersecurity is one of the most critical issues that financial institutions are struggling to overcome. Even smart and sophisticated software that protects corporate data cannot completely protect accounts from phishing, scammers, and hacker attacks.
  • Services. Even now, not all banks can offer customers a wide range of online services. And there are some of them that require customers’ presence at a physical branch.
  • Transactions. Complex transactions may also require the presence at the bank office too. Some international transactions are not possible with all digital banks either.

Paul Donofrio, CFO of Bank of America still sees a need for physical branches, even in the transformative digital age.

We still have one million people coming to their branches every day who need that channel. And they need that channel. Some need it to transact, but a lot come in for advice and we want them to do that. So we need a certain footprint of financial centers.

Paul DonofrioCFO of Bank of America

Time to think, time to choose

The number of disadvantages is rather low, and it’s only a matter of time for them to vanish. Figure 2 depicts how consumer banking behavior changed during coronavirus pandemic.

Change in consumer banking engagement behavior

Fig. 2. Change in consumer banking engagement behavior

Source: McKinsey

It is clearly seen that customers incline to use more digital solutions instead of traditional banking tools. The advantages of digital transformation in their mind take over disadvantages. Customers prefer personal security. 

Moreover, the digitalization of banking makes daily operations much easier, reduces costs, saves customer’s time, and manages to provide services efficiently.

The Conclusion

Re-imagining core services rather than just ‘adding features’ is a risky way to some extent because of the inevitable backlash from customers who don’t like change. 

But banks’ leaders should understand that clients’ needs have changed and – from the perspective point of view – solutions needed complete overhauls for building something better and more effective.

I believe that banks can be successful by adopting the digital transformation technologies approach. Identification of a customer’s need is a place to start and figure out how to improve it all over the way. 

Digital elements could be a part of the solution but not the starting point. The digitalization of banking should not be an exercise to find out who can spend the most, have the largest team, or add as many features as possible. 

If the main aim is to reduce costs, it will require shifts of behavior. The shifts happen when you implement something to become better for the end-user but not cheaper for the provider.

If you want to know more about the process of digitization of the banking industry, read our article “Future of digital banking is inevitable“.

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