What Drives Digital Transformation In Banking?

by Elisha Moskel Talent Management Services

Today’s world is becoming increasingly digitally driven with technologies gradually reshaping multiple industries, including the financial domain. From humble beginnings of online banking in the late 1990s to the possibility of, say, taking out a loan using a smartphone, those of us in the industry are lucky to witness the conversion toward a new era in finance. Digital transformation is becoming an integral feature of the financial sector, but what is this transformation exactly? In brief, digital transformation introduces technology to the business processes, products and services of a bank.

Ultimately, digitalization leads to the creation of new business models and the development of an open ecosystem involving all the players in the market. It is important to emphasize that digital transformation shouldn’t be seen as a strategy based on technology. In other words, you don’t go digital just because you can. Instead, it’s all about creating a business strategy that allows financial institutions to promptly respond to market needs.

To some extent, the trend that drives the transformation is the shift toward millennials — a demographic group that is focused on finding products and services digitally. One-third of this group believes they do not need banks at all, while 73% were more interested in financial services from Google and Amazon. However, millennials or not, it’s hard to imagine the modern world without technology and innovations in place. The banking sphere is no exception. Thus, the main reason is technological convergence that facilitates a wider adoption of technological advances in banking.

The key components of the digital banking concept are the customer-centric approach, personalization of the offer and mobility. Those three elements optimize the infrastructure of a bank, making it ready for digital communications and a rapid change in approach when needed. Currently, there’s a high intensity of the innovation race in regards to new services and products. Being the “first one” in the market offers a great deal of business opportunity — and banks know it. To keep up with an innovative pace, banks turn to agile-esque flexibility in the development of fintech solutions.

Large banks tend to develop their digital expertise on their own. To do so, they create internal digital teams that combine business, IT and marketing competencies. But guess what? No matter how paradoxical (and unfair) it sounds, banks that have been developing their IT platforms for years are the most vulnerable to modern challenges. Despite their best intentions, their systems are often built using outdated technological solutions. Plagued by a motley set of functionalities, interfaces and custom improvements implemented over the years, those legacy systems lag behind in a dynamically changing competitive environment.

The larger banks get, the more difficult it is for them to innovate. Accordingly, many banks and financial institutions accelerate through strategic partnerships and alliances with fintechs. That makes sense: While banks have a deeper understanding of the industry, fintechs are more experienced in the implementation of technologies.

Alternatively, it’s common for banks to buy fintech projects and support development through investments. At the same time, fintech companies are driving a change that translates business models into a digital form to provide better customer experiences via Banking as a Service (BaaS). In this context, banks are transforming from classical financial institutions to digital organizations in their own right.

Can’t argue with that: Digital transformation takes a lot of effort, and it is costly. Perhaps those partnerships make sense only for banks with a developed IT department, with professionals who are able to explain the economic effect of digital transformation to budget holders.

More and more banks are migrating online. In the U.S. alone, the number of branches decreased by 9% in the past 10 years. Familiar banking products are turning into flexible services available 24/7 from anywhere in the world. This availability has proved vital during the coronavirus pandemic. A study released by Boston Consulting Group claims there’s been a drastic change in the way customers connect with their banks, with 24% of respondents saying they planned to use branches less or stop visiting them at all.

Above all, the main benefits of digital transformation in banking are standardization and automation that lead to increased productivity, reduced costs and improved interaction with both customers and employees. Again, to make it work, one needs a detailed strategy that combines digital systems, applications, customer experience platforms and the whole infrastructure. Building a digital bank requires streamlining processes, a new organizational culture and flexible IT solutions that support speed-to-market and offer personalization.

Digital transformation opens up new opportunities and gives a new competitive edge, but at the same time, it introduces new risks in the domain of security and stability of the financial system. However, it’s the topic for another article. One thing is certain anyway: Digital transformation in the banking sector is inevitable, and I see it as a mechanism that is forming a new financial reality of tomorrow.

This Article Source is From : https://www.forbes.com/sites/forbesfinancecouncil/2020/09/29/what-drives-digital-transformation-in-banking/#bec4a3a7dc52