How to Successfully Implement Digital Transformation in Banking

The banking industry is undergoing radical change. The use of artificial intelligence and machine learning, combined with increased customer expectations and self-service options, is driving major digital transformation in banking. Customers want to access their banks online and through digital touchpoints like web services or a mobile application, rather than calling or visiting a brick-and-mortar bank. Organizations who do not embrace this change may face negative consequences. While managing and embracing digital transformation is not simple, the benefits are worth it.

Digital Transformation in Banking Example

There are three key drivers of digitization in the banking industry:

  1. Accelerated innovation and customer experience on the cloud
  2. Resilient, secure, and compliant operations
  3. Operational efficiency

If an organization approaches digitization with a logical and well-thought-out plan, then the outcomes can be hugely beneficial. Banks that implement digital transformation can expect increases in their customer base, a decrease in costs, and larger profit margins—all while making customers happier.

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1. Accelerate innovation and customer experience on the cloud

In the US, the way people manage their finances is changing. Ten years ago, the bricks-and-mortar banks were important for daily transactions. Now, they are becoming relics of an old-fashioned world with the addition of smartphones.

Customers are demanding full functionality, 24/7, regardless of where they are. Banking customers want to access their bank accounts, make transfers immediately, send money overseas, check loan balances, pay off lump sums, and pay their bills with only a touch of a digital button.

If banks do not offer these services, they will struggle to attract or retain customers. Cash is used less, and the digital revolution happened a long time ago. America lags behind other countries too, lacking fully-integrated online systems, instant payments between banks, and complete cloud-based systems that offer full operability for individuals and businesses.

In other industries, technology has transformed customer experiences, increasing satisfaction and boosting growth. Digitization gives banks a chance to deepen engagement, improve customer service, and optimize customer experience.

Challenges to Cloud Adoption

The banking system faces some challenges in the adoption of cloud based technologies:

  • Legacy systems
  • High costs

Legacy systems and infrastructure: There are huge challenges in ensuring old legacy software not only integrates with new software but does so securely and consistently.

High costs as a barrier to entry: The integration of old and new software can incur debilitating costs and place huge demands on hardware. Alongside that, traditional pricing B2B models of high product purchase from customers at first can be a barrier.

Cloud-based systems are often pay-as-you-go and consumption-based, allowing banks to experiment with offerings before rolling them out, as well as being easily scalable as needed, with no extra investment.

2. Build resilient, secure, and compliant operations

One of the biggest challenges to digitization is safety. Keeping customer financial and personal information safe, along with sensitive organizational information, is important for banks to avoid non-compliance.

Security and Digitization in Banking

One of the biggest challenges globally is creating secure software systems. There are two possible issues: fraud and hacking.

Hacking can happen when a bank has an insecure system that allows hackers to illegally gain access to systems, steal money, or take the organization hostage. Many digital fraud losses can be attributed to account takeovers.

Each year there are billions of dollars worth of fraud in the financial industry. Mobile fraud losses alone result in billions. This is an enormous amount of money lost each year that can be reduced through good controls, machine learning, and secure computer systems.

Compliance, Governance and Managing Risk

Banks must remain compliant with the many laws and legislation around privacy and security, such as with new GDPR requirements in Europe. These regulatory requirements are growing rapidly, requiring constant changes in complexity and scope.

Resilience in Operating Systems and Processes

Resilience is another facet of digitization that is vital to get right. When a completely digital system fails, it erodes the customer’s trust in the brand and can create massive problems for business and customers alike. Stable systems with planned backups are vital for any online industry.

3. Drive Operational Efficiencies

Banks are struggling to keep up with new neobanks and fintech services. People expect more from their banks now than just standard offerings and a basic online system. A successful digital system must cover the entirety of business operations, from the minute someone clicks on the website, through to mortgage applications or online international transactions. With heavy competition, piecemeal productivity gains and ad-hoc plugins are not enough to retain customers.

Banks have to balance cost savings for customers and the increased services expected. However, using automation, advanced analytics, and even personalized marketing can all contribute to tangible benefits for customers—and a far more streamlined, low-cost system for banks.

To apply smart workflow tools to every system within a bank may take years but is worth the gain in productivity. There are five steps to driving operational efficiencies:

1. Ascertain Where the Costs Are Now

Forensically, go through operations and pinpoint costs and key demand drivers. Think about every process: mortgage applications, opening a bank account, changes of address. It soon becomes clear that 20 percent of the processes take 80 percent of the effort, making it a lot easier to identify what to address first.

2. Identify the Steps in the Process

Create a comprehensive list of all the steps in this task along with dependencies and highlight the critical path. Include any existing automated processes or platforms as well as manual processes and procedures.

3. Imagine a Perfect World Scenario

Without any constraints or legacy systems, what could this process look like? Think about your customer. What do they want? For instance, if an address-changing process is the task being automated or streamlined, the customer wants to call once, be able to provide their evidence, and immediately have all information redirected.

4. Plan What is Wanted

Then, be realistic. Based on current legacy systems and processes, cost of technology and the barriers, how can this happen? For an address change, ideally changing the address in one location will trigger changes throughout the system, with no data silos left unchanged. How can this realistically happen?

5. Plan the Approach

The biggest benefits always come from 10-20 commonly-used customer-centric operations. The goal is to digitize and automate these processes, resolve customer pain points, and make it easier for everyone.

Examples of processes that can be improved can include:

  • Automated day-to-day processes such as address changes, international transfers and payments, payments to other people, tax department, or bill pay. Automating makes this easier for customers and removes the risk of human error.
  • Mortgage or loan applications can use machine learning to assess credit risk in real-time, allowing immediate approval or rejection.
  • Marketing is targeted to individuals and tailored to their needs. Using artificial intelligence, offerings can be tailored to the unique needs of the customer and the method of delivery can be personalized too.
  • An artificial intelligence chatbot can make everything easier for customers. Using predictive analytics, the bot can predict customer behavior and make suggestions. As more users interact with the chatbot, using machine learning, the bot can gather intelligence, make better predictions, and provide superior assistance.
  • Contactless payments and mobile wallets are being used more by all age groups.
  • Public Open API is used by external partners and developers to build innovative apps and products that advance financial service delivery for both internal and external stakeholders.
  • Partner/B2B API is used by business partners (including suppliers, resellers, and others) for better partner integration and data sharing.
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The Future of Banking is Digital

With rapidly changing expectations from customers, the pandemic pushing the need for change faster, and the development of technology, the time for digitization was years ago. The challenges from fintech services mean that traditional banks have to move fast to embrace change. Utilization of the cloud, multiple smart technologies, and customer demand will drive banks to embrace full digital functionality in order to remain relevant and competitive.