Digital transformation in finance has grown to be a significant trend amidst the pandemic-induced economic uncertainties. Finance companies are testing the digital waters, eager to modernize their IT structure. It’s no surprise that Gen-Z and millennials want their banking experience to be technology-driven with competitive digital solutions.
Digital and mobile channels are now critical for customer satisfaction and acquisition. The dependency on e-payments has increased worldwide. The global m-payment market is expected to be over $590B by 2032 at a CAGR of 30% for the period 2022-32. The US expects a market valuation of $ 42B by the end of 2022, with contactless payments growing by 150% in 2020.
Banks now have the urge to transform their IT infrastructure with technologies to bring about organizational, operational, and cultural change. They are looking for improvisation in 4 distinct areas: technology, process, organizational, and data change. The focus is on building an ecosystem that promotes personal, cohesive, and automated customer journeys.
Successful digital transformation in finance
As banks get ready for the ‘ next normal’, they have started resetting their digital agenda. They are shifting focus towards digital channels to address reliability and scalability concerns while catering to the growing needs of the customer.
Every digital transformation project for banking should work towards:
- Client engagement with tailor-made experiences and solutions
- Employee empowerment with technology and tools to enable holistic, accessible information
- Internal operation optimization with automated, synchronized processes
- Connected ecosystem creation
- Faster time to market for the product
- Cost-saving ways to scale
- Digital competitiveness with capabilities like real-time payments and open banking
- Future readiness with agile and remote solutions
- Lower risks with greater security and regulatory compliance
- Better services to enhance customer satisfaction and product innovation
- More business value with cognitive automation and data insights
- Greater efficiency and productivity
Technologies and use cases for banking Infrastructure modernization
Robotic Process Automation (RPA) – The operational activities in financial companies involve many standardized processes. Robotic Process Automation ensures optimal data processing where rule-based and repetitive tasks are done efficiently and quickly. It minimizes human workload, reduces errors, and enhances cost reductions. It also helps in fraud prevention in a big way.
Big Data, Artificial intelligence & machine learning (AI/ML) – Finance companies leverage powerful technologies like AI/ML and Big Data to transform the user experience with safe transactions and seamless services. They help prevent and detect payment fraud. They also offer a 360-degree view of the customers and reduce delinquency rates by around 76%.
Artificial Intelligence can be applied for various banking infrastructure use cases such as fraud detection, risk assessment, credit intermediation, asset management, client onboarding & KYC, process automation, and algorithmic trading.
While AI/ML help increase the accuracy and efficiency of workflows, feeding AI/ML models with big data helps decision-making around portfolio allocation, making underwriting decisions, and assessing creditworthiness.
Blockchain Technology– Blockchain has secured a place in a world of digital currencies like Ethereum and Bitcoin. It enables you to store cryptographic encryption in a block. The blocks have a unique value across the network. It is impossible to manipulate it in any manner. Thus, data integrity is an essential aspect of blockchain though they are more popular for transparency and speed.
They enable transactions almost in real-time and save changes instantly, facilitating the exchange of massive data within the shortest time. The transactions are traceable, unchangeable, and protected from money laundering. The smart contracts on a blockchain help in the execution of an agreement between participants without any involvement of an intermediary.
Cloud computing – Finance companies now work with external data centers to help manage their workloads. Cloud computing technology has become a vital aspect of payment services and mobile banking. It also plays a significant role in customer relationship management, trading, and evaluation processes.
As per a recent survey, 40% of banks have already deployed cloud technology, while 30% have deployed APIs (Application Programming Interfaces ). Adoption of Cloud computing technology improves speed to market with new capabilities.
Primary steps in creating sustainable outcomes
Navigating through the chaos, even despite economic uncertainties, is made easier by building core strengths and tweaking the existing business models. Here’s what you should do.
Grow an ecosystem
Banks have depended on various tried and tested methods of ensuring growth for a long. They have introduced new and relevant products to existing customers. But some banks like ING and Ideabank have gone beyond their traditional realms to build robust customer engagement with a comprehensive view of customer data.
They provide other services like accounts-receivable management and cash flow analysis now too small and medium enterprise (SME) customers. Even Post Bank has gone another step further to capture market share in nonbanking domains. It is now the biggest provider of mobile phone services in Italy, with its already robust franchises to provide new services to existing customers.
Addressing multiple needs of customers with a financial supermarket
A mix of different third-party offerings helps customers manage their financial needs within a single integrated channel.
This is how aggregators sell over 60% of the auto insurance policies in the UK. Bank Bazar in India caters to around 23 M customers without having proprietary offerings.
Offering value throughout the customer journey
Financial companies and banks can grow if they decide to increase the scope of their services in order to add more significance at the various stages of the customer journey.
CBA (Commonwealth Bank in Australia) created an augmented reality app to aid customers in using their phone cameras to see the sales and price history of the properties that they were interested in. The app with financial tools like a mortgage calculator allowed CBA to extend its role in the home buyer’s journey.
Monetizing data with analytics
You can use customer data (lifestyle preferences, location, gender, age, etc.) to gather more insights to help anticipate customer needs. Some of the largest banks in Canada have associated with Toronto-based SecureKey to aid customers in accessing the online services offered by the federal government using their bank credentials. Banks now rely on the data they have to verify identities before allowing access.
Credit card companies also have access to the data of customers and merchants. The data collected helps them foster new partnerships and also gain access to new potential customers.
Developing a product portfolio
Financial companies should consider leveraging back-end assets to create more value for their smaller businesses. These businesses usually lack the required reach or resources for core banking services and products. This makes an opportunity for financial companies to develop and sell products through third parties.
ING has collaborated with Kabbage, a US-based startup, to provide value-added services in Europe. ING brought to the table its reservoir of capital and relationships with SMEs. At the same time, Kabbage leveraged its easy-to-use interface and risk-management algorithms to offer quick decisions on loan applications.
Modernize your banking infrastructure
Regardless of the technologies you choose or the digital routes, you wish to pursue, a good view of your capabilities is critical to ensure infrastructure modernization. We have extensive experience in helping financial companies achieve digital transformation goals. Our services and solutions are designed to help them at different junctures in their digital journeys to boost their digital capabilities.
We drive IT modernization projects for the BFSI sector to make it agile while taking care of the complex regulatory and compliance requirements.