Digital transformation in banking is not just a change; it is far beyond just moving from the traditional to a digital world. The entire concept of digital transformation strategy in banking is a vital process of how banks and financial institutions analyze, interact, and satisfy their customers.
The basic approach of digitization in banking and fintech begins with understanding customer behavior, preferences, and demands. As a result, the banking sector has transformed from product-centric to customer-centric.
As per a report by MarketsandMarkets, the global digital banking platform market size is expected to grow from USD 8.2 billion in 2021 to USD 13.9 billion in 2026 at a CAGR of 11.3%. The report suggests that this expansion is due to the increasing demand among banks to deliver the best customer experience and the growing adoption of cloud technologies in banking institutes.
As for the customers using digital banking, a study by Statista predicts 2.5 billion individuals to utilize online banking services by the year 2024. A few examples of digital banking transformation are online banking applications, data encryption software, virtual assistants, KYC system software, website optimization, etc.
This raises a ton of questions around digitization in modern banks and similar business institutes. Let’s start with analyzing how the digital process in banking started, considering the shift from a traditional to a digital approach.
The shift from traditional to digital banking
Most banks began their digital banking journey years ago with a clear strategy, even though there were major challenges along the way. The trend of digital banking started when the financial leaders realized a majority of their users are on digital channels.
With the top-down implementation of digital strategies, the banking sector has become more client-inclusive and tech-savvy. What does the evolving shift from traditional to digital platforms look like? Let’s take a look at the highlights of this journey.
In particular, as more customers used their mobile applications and websites to perform transactions, omni-channel took hold in financial services. Hence, mobile banking became a crucial part of the digital banking journey.
To keep up with the ever-changing market, traditional banks had to adapt to new technologies and operating models that could keep them in the loop throughout the entire customer’s journey.
At the same time, the growth and rising demand for Artificial Intelligence (AI), blockchain, and the Internet of Things (IoT) accelerated the process of modernizing the banking industry.
As of today, the banks are highly dependent on the omni-channel strategy, breaking data silos from every channel to renovate the customer experience.
This digital banking transition has helped financial service providers improve efficiency, generating growth and convenience with the opportunity to bring more prospective customers. This brings us to our next point of discussion, the key factors that make digital transformation in banking and financial services possible.
Key factors driving digital transformation in banking
Increasing usage of smart devices, increased connectivity, and demand for high end-user experience are the key drivers of the digital transformation trend, taking banking solutions to customers’ doorstep. Along with these aspects, six essential factors highly impact the success of digital banking.
Importance of customers
Why would banks migrate to digital platforms? Because that’s where their customers are. The digital approach is all about ensuring the needs and expectations of its customers. Banks are now delivering personalized product experience, seamless query disintegration, transparency, and security standing at the core of customer satisfaction with modern solutions. In short, the transformation has made it imperative to adopt a “customer approach,” bringing engagement at its best.
Operating model
Today, customers are in need of a hybrid experience, a combination of speed and convenience with personal attachment with the product. This is why the transforming banking sector follows three different operating models.
Digital as a business – This is generally at the management level.
Digital as the new line of business – This includes working at the next level as a separate digital division to take care of digital activities.
Digital Native – This involves a new setup with the business of their own technology stack that focuses directly on consumers.
Modernized infrastructure
As mentioned above, achieving digital transformation is not just about implementing modern technologies. Today, the digital transformation in financial services has enhanced due to underlying infrastructure that facilitates data to the front-end operations. Therefore, modernizing the legacy infrastructure has played the most critical factor in driving digital transformation in banking.
The power of data
Banking and financial institutions are well aware of the power that consumer data attains. This means implementing more data analytics practices to analyze and monitor customer patterns. This has helped the banking sector produce more relevant products and services aligned with customer needs. This is probably why major fintech enterprises outsource data analytics requirements to development companies.
Complete digitally-driven market
We cannot forget how not just banking but every sector such as industrial, eCommerce, agriculture, IT, etc., are moving ahead with digital capabilities. This includes business culture, technologies, strategies, and skills that contribute to a digital transformation journey. Hence, the entire consumer market is on the edge of transforming digitally, which is one of the driving reasons for digital banking transformation.
So far, we have been talking about digital whereabouts in banking and similar financial institutions. However, we are yet to discover what technologies lead to this transformation in banking. Let’s take a broader look at some of the major tools and technologies used by banks to improve digital lending and enhance customer experience.
Digital technologies utilized by modern banks
When the concept of digital transformation in financial services was initiated, the banks started with developing a detailed strategy to revamp their operation models, enhance customer offers and create an end-to-end customer-centric process. For this process to succeed, the banking sector embraced digital transformation technologies to generate value for both banks and their customers.
Below are some of the most used tools and technologies utilized by the digital banking sector.
Artificial intelligence (AI) and machine learning (ML)
AI in banking is leveraged by online assistants and chatbots that resolve customer issues by providing necessary information. Along with this, artificial intelligence is used for the purpose of data analysis and management, data security, and enhancing customer experience.
For instance, AI can detect repetitive patterns by analyzing consumer data within seconds.
Machine learning is another companion for banks that has the potential to gather, store and compare user data in real-time. One of the biggest advantages of using Machine learning in the banking sector is fraud detection. It is easier to detect any change in the user action and take a timely preventive measure with machine learning.
Internet of Things (IoT)
IoT is super helpful with real-time data analysis, making the customer experience more personal and tailored. Thanks to IoT and its smart connectivity among devices, customers can seamlessly make contactless payments within seconds. Besides, the Internet of things has transformed the financial ecosystem by introducing risk management, authorization processes (biometric sensors), and access to multip
