Crucial Elements of Digital Transformation in Banking

Almost any big industry today feels the benefits of digital transformation. It is a hot topic everywhere, but when it comes to banks and banking, it is something more: a gamechanger.

Some people see digital transformation of banking services as a simple addition of several digital features to an existing business. Get your clients round-the-clock account access, set up an online banking solution with alerts and notifications and you’re good to go. However, it’s far from a real transformation.

Real digital transformation comes as a process of deep changes, touching every aspect of your business.

In this article, we’re going to take a look at key elements of digital transformation and the benefits it can bring to your business. But first, let’s get the basics sorted out.

What is digital transformation in banking exactly?

Digital transformation is the process of improving banking products and services using digital technologies, such as AI, automation of processes, or blockchain. By itself, digital transformation doesn’t mean, that an enterprise’s systems and processes will be completely replaced, as there are several ways to conduct it:

Factor shift — an upgrade of the bank’s fundamental codebase. The behavior principles in place will remain the same. 

Platform change is more of a minor upgrade, it encompasses improvements to the current banking system and minor tweaks to existing functions, without any drastic changes.

Expanding involves creating an additional core system for the bank. The goal here is to introduce additional functionality not provided by the traditional system and prepare the base for a future complete migration when all the preparations are done. 

Complete replacement is what the name implies — the legacy system is removed at once, and new digital banking solutions are introduced in its place. 

There is more to the process of digital transformation in banking than plain technological upgrades though. At the core of this process lie fundamental changes to the ways the enterprise operates, from treating its customers to general workflow.

Let’s take a more detailed look at key elements of digital transformation. 

Key elements of digital banking transformation

To successfully conduct the transformation, an enterprise must take care of several important aspects; the list below is by no means exhaustive, but it encompasses the most crucial ones.

A fundamental shift in customer relationship management

The perception of digital banking technology by consumers all over the world has shifted significantly over the last decades. The COVID-19 pandemic has accelerated this shift even further — the McKinsey 2020 research shows that customers are getting more and more aware of digital solutions and growing more and more ready to accept technological novelties in the financial sphere.

What’s even more important, this shift has created the possibility for customers to get the desired products and services incredibly fast. All that has led to the need for changing the customer relationship model in business.

In the new digital world, some factors that were determined in the past just don’t matter as much anymore, age, for example. The times when digital technologies were the preference of the young are beyond us.

To stay relevant, banking institutions need to conduct some fundamental changes to their operations, which need to include:

  • Changing the role structure of branches following new customer requirements
  • Optimization of the branch footprint
  • Reworking the sales model as well as service providing system
  • Rediscovering the client’s journey, which has changed significantly
  • Upgrading marketing communications

Introduction of modern technologies to business processes

The technological progress is a rapidly accelerating process, and banking business is fast to adopt its achievements, such as:

Cloud computing. The global improvement of internet connectivity over the last decades has created strong prerequisites for the cloud computing boom we see today. Moving to the cloud improves the processing of data on all levels and makes it accessible to banking institutions of all sizes.

Artificial intelligence and automation. The industry keeps inventing new ways to automate more and more activities within banking institutions with AI or robotics. The most accepted one, perhaps, is using it in customer care: the bank uses a plethora of analytic tools and automated systems to process the accrued data and generate responses to clients’ requests.

Internet of Things (IoT). Ever made a contactless payment with your phone or credit card? It’s only a single example of the incredible value that IoT systems can bring to the financial world. The full potential for interconnected devices as digital innovation in banking is far from being unleashed.

Voice technologies. The possibility to conduct financial operations with voice commands is a booming trend right now. Customers have already accepted voice-controlled personal assistants such as Alexa or Siri as a part of their life, and now they are eagerly discovering the possibilities for their use in banking. 

Okay, but what benefits does this digital revolution bring? Let’s find out.

Main benefits of digital transformation

Digital transformation offers the following benefits to financial institutions:

  • Improved safety of operations. The encryption of data makes it much harder for hackers to access important information inside the bank. 
  • Increase in operation speed. Waiting was never a strong side of customers. Big Data processing systems make digital transactions fast.
  • Improved risk management systems. This comes in two aspects — improvement of fraud detection measures, and enhancement of transaction processing, which drastically reduces the number of mistakes in business processes. 
  • Better predictive capacity. Improved analytical systems that come with digital transformation allow for greater accuracy in business scenario predictions, making it easier to foresee possible problems and opportunities. 
  • Customization. If banks’ offers are tailored to customers’ needs and requests, they will be way more successful. 
  • Automation of repetitive work. The use of automated software to do this part of business operations will cut the costs and reduce the human factor greatly. 

Some final thoughts on the matter

Despite being a global trend, the digital transformation is far from being achieved in the majority of banking institutions, according to Forbes.

While planning the digital transformation of a banking institution, it is important to not get too infatuated with the technological side of it, and keep in mind the global changes that need to happen to all business processes at the same time.

The main key to successful digital transformation is maintaining harmony between all facets of this complex task. With that achieved, success is only a matter of time.