Digital transformation has become a business necessity across industries, and the financial services sector is no exception. Close to 97% of all financial services companies are taking steps towards digital transformation and more than 20% list having a digital strategy as their top priority. Regardless of whether financial service firms are already implementing a digital strategy or are only now formulating one, the face of the financial industry is undergoing rapid transformation.
The changing customer preferences, the need to streamline financial processes, market competition, and intensified regulatory compliance complexities are driving the financial market’s resurgence. The paper system and physical banking days have been completely replaced by open banking and networked digital systems.
The digital transformation has spared no one – from 100-year-old banks to the newer fintech start-ups. The need to catch up is imperative – regardless of whether the business started during the digital boom or is only now warming up to technology.
According to an EY report published in 2019, the adoption of fintech services has seen an upswing from 16% in 2015 to 64% in 2019. Global adoption is growing faster than actually predicted. The 2019 rate of 64% far exceeded the 2017 prediction of 52% for 2019 by 12 points.
The Importance of Digital Transformation in the Finance Industry
While it is true that the global economy has shrunk considerably due to the pandemic, the crisis has managed to put digitization into an overdrive. Since the pandemic started, there has been a 72% increase in fintech apps in Europe. It has acted as a catalyst for accelerated adoption of digital technology in the financial industry, and these innovations are here to stay.
1. Faster Adoption of Digital Methods Driven by the Pandemic
Digitizing was a long-term goal even before the pandemic, but it has become almost obligatory now.
Consumers have responded to the digital crisis by exhibiting newer forms of digital behaviors since the pandemic. Consumers are three times more likely to say that 80% of their customer interactions are digital after the pandemic. The numbers of mobile logins, online payments and transfers, and digital interactions have increased due to the pandemic.
2. Increase in Digital Transactions
Many financial companies sped up their investments in their digital capabilities post-pandemic to cater to the market’s changing needs. Moreover, retailers also quickly created eCommerce space for their businesses to capture the market share. While the consumers shifted their spending to the online space, banks and financial institutions also kept pace through contactless payments and digital transactions.
The increase in digital wallets, bank payment apps, QR codes, and tap-to-pay systems have largely taken off, thanks to the pandemic. Mastercard, the credit card giant, reported a 40% increase in contactless payments during the first quarter of 2020.
3. The industry is Compelled to Ensure Remote Working of Workforce.
The financial industry didn’t seem cut out for the working-from-home system. However, this notion dramatically changed over the last two years. The Covid pandemic has pushed the financial services industries to look for ways to deliver services while building the remote working model.
To enable their employees WFH, Standard Chartered Bank provided its workforce with laptops and increased their VPN capacity to over 600%.
In 2020, CitiGroup said that nearly 80% of its global employees were doing their jobs from remote locations, while JP Morgan had 90% of its investment staff working from home during the pandemic.
4. Evolving Market Structure Driving Transformation of Industry Players
Middle-level financial companies could find the digital journey more complicated than others. They lack the bigger budgets of larger companies and do not possess the same flexibility as smaller start-ups. Since it is tough to predict the outcome of economic downturns, financial companies need to look towards technology to remain competitive in the evolving market structure.
Digitalization Trends in the Finance Industry
1. Fintech Technology
Fintech is the term used by financial institutions for financial services delivered using technology effectively. From the days of the ATM to IoT and blockchain, it has come a long way.
Along with machine learning and AI, fintech is dramatically changing the financial services ecosystem. Budgeting, financial planning, wealthbots, and chatbots are some of the tools used by financial services companies.
2. Big Data
Big data and machine learning are used to process large amounts of financial information to derive meaningful insights. It collates historical transaction data, payment records, call center interactions, and credit history to create a digitized library of consumers. This information can then be used to develop customized investment services for users.
3. Blockchain
Blockchain is another new technology showing great promise in streamlining loan processing, digital transactions, and regulatory processing. It can facilitate faster payments, lesser transaction fees, faster clearances, and enable real-time verification of information.
4. Digital Banking
Digital banking services – such as online payments, check deposits, fund transfers, and loan applications-are seamlessly done using mobile devices. The penetration of mobile phones and the availability of internet connectivity have increased the adoption of digital technology.
The pandemic has also forced customers to seek online banks rather than physical banks. On the other hand, banks are seeking the help of technology companies to guide in developing a mobile app to provide banking services to customers.
Additionally, access to 24/7 customer care, the convenience of being digitally connected to their banks, reduced waiting time has also pushed the adoption. This change in the fundamental functioning of the banks is expected to continue post-pandemic as well.
5. Artificial Intelligence
Artificial intelligence has touched almost every aspect of our lives. AI is now providing better customer experiences based on previous interactions and transactions. It is also helping in detecting fraud, money-laundering patterns, and making regulatory checks.
AI-powered automated wealth managers use complex algorithms to detect the best investment opportunities, savings strategies, and interest rates.
6. Internet of Things
The need for the financial service industry to focus on IoT product development is felt more urgently now than before. With the internet of things, it is possible to gather customer data in real-time, process and share it with relevant users. In addition to automating banking services like cashless payments also helps in automating financial requests, handling payments from any device, and offering personalized customer service.
How to Bring About a Successful Digital Transformation
Digital transformation is not the same across the board, and the benefits derived from it vary from company to company. However, there are a few best practices that can help companies get started.
Digital transformation is a strategy. It has to be clearly defined and articulated by the top management. It should be supported by the entire organizational workforce, with a dedicated budget, openness to take risks, and a willingness to stick to the whole process.
● Invest in Support and Learning Programs
A company-wide transformation can indeed fructify only when the senior leadership comes to terms with the new tools and techniques of banking. However, it is vital to bring the entire organization into the digital fold soon. Yet, it is tough to guide and train everyone at the same time.
Internal support and learning programs supporting digital transformation strategy experts, unit and department heads can ensure a smooth transition. Support systems can be developed internally from among promising employees or volunteers.
It is also crucial to have company-wide training programs to deal with the new processes. Investing in employee training programs can help in adapting to the changes.
● Invest in Technology Tools to Aid Transformation
In addition to providing support and learning programs, it is also equally important to invest in technologies and tools that can take knowledge management, sharing, and establish a collaborative digital workplace further. Tools like content management database, workflow management and document management help make data more searchable, accessible, and usable.
By having updated information readily available, employees can deliver higher levels of productivity and ensure customer satisfaction. Once all the tools are in place, you should make sure that all the databases and applications are interconnected to improve data analytics.
Wrapping Up
It is not only essential to embrace change but also lead the transformation from the front. Digital transformation will throw up challenges and bring to light all the inherent flaws in your existing system. If companies don’t ramp up their digital transformation efforts, they can risk becoming irrelevant in the industry or being outranked by the market.
Digital transformation is never easy – change can always be challenging. For some companies, digital transformation can be a part of their psyche, but it isn’t that easy for most others. They need planning and strategizing. They must let go of their rigid old habits, re-skill their employees, bring a pan-organization cultural change and revamp their technologies. To become a digital asset, they have to connect their digital strategy with their business plans.
