The financial services industry has evolved over the last few years thanks to several technological enhancements. Traditional methods of in-person banking in branches, manual processes for services like loans and investments, and limited access to information regarding investment options and market analysis are becoming obsolete. The modern age has created an ecosystem where consumers can conduct transactions anytime and anywhere, access real-time data to make informed financial decisions, and instantly communicate with institutions through various digital channels.
With 8 out of 10 consumers now preferring a full digital banking experience, financial service institutions that fail to innovate risk losing their competitive edge and getting left behind by those who adapt to market trends and modern consumer expectations. This has created the need for a fundamental shift in how companies operate and adopt technology throughout their business, referred to as a Digital Transformation.
Digital Transformation is the process of incorporating the use of technology throughout an organization to create and improve products, services, operations, and customer experiences that respond to shifts in the marketplace and consumer demands.
Although considered a fairly new term, the concept of Digital Transformation has been around since the late 1990s, when companies first began establishing computer-assisted processes, and then the internet facilitated further enhancement within the digital landscape. There are several building blocks that an organization needs to piece together to facilitate a wholesome Digital Transformation strategy.
While people may tend to focus on the broader outcome of what gets delivered as a result of the Digital Transformation strategy, the day-to-day internal operations that facilitate these projects are just as important. Part of a successful Digital Transformation is to have digitalized internal operations where manual processes are automated to increase productivity and as a result, the release of new products and features.
Adopting practices such as DevOps can enhance the operational workflow between software development and IT teams to facilitate a shorter life cycle of releases, helping you deliver better solutions, quicker. With a recent survey showing that 61% of respondents attribute DevOps to producing higher-quality deliverables, the importance of having enhanced operational efficiency for an optimal Digital Transformation is made clear in terms of delivering more solutions for your customers efficiently.
Technology serves as a key foundation of your Digital Transformation strategy. This involves adopting a Technology-First approach where companies start adopting the latest and most suitable technology that will create the most business value. It's important to implement the correct tools during your transformation, as the right technology can put you ahead of the market and increase customer engagement.
For financial services, this can involve developing mobile applications to facilitate 24/7 customer access to your digital banking services or using AI to facilitate personalized customer services and fraud detection. Adopting the right technology doesn’t only apply to what the customer sees on the front end, but can also refer to an architectural shift in how your applications and systems are designed, adopting approaches such as micro services that create loosely coupled applications that create a more robust and scalable backend.
The digital age has resulted in a new benchmark for consumer expectations. With 70% of consumers now expecting personalized advice from their banks, and only 26% feeling satisfied with the level of personalisation they currently receive, this has created a new opportunity for financial service firms that a willing to focus on customer experience as part of their Digital Transformation strategy to stand out and boost customer loyalty. By understanding consumer preferences through the relevant data analytics technology and tailoring your solutions accordingly, financial entities can put themselves in the best position to meet modern customer expectations.
With consumers demanding more control and security of their financial data, Initiatives such as open banking will provide a customer experience where they feel empowered and can securely share their financial data to access a wider variety of services.
With poor leadership costing an organisation up to 7% of total revenue, for major initiatives such as Digital Transformation, financial services can’t afford to have leadership that is unable to drive and support Digital Transformation initiatives. The leadership will play a critical role in defining the vision and direction for the company's Digital Transformation. As this is a complete organisational shift, they’ll also need to propagate a mindset of innovation and experimentation towards other employees to facilitate a wholesome and successful Digital Transformation. They’ll also need to allocate sufficient resources, investing in the correct technology and talent that can facilitate a Digital Transformation that provides valuable deliverables to it’s customers.
It’s no secret that the financial services industry often lags behind when it comes to innovation. With obstacles such as regulatory constraints, legacy technology, and organisational structures that have created a resistance to change, it’s evident why this is the case. However, with consumer expectations rising higher than ever, and legacy technology set to cost banks $57.1bn by 2028 according to FinTech Global, Digital Transformation initiatives will provide financial service companies with the infrastructure and technology needed to satisfy modern consumer demands whilst reducing costs.
Another important factor to consider is that the digital age has now levelled the playing field regarding competition, with more FinTech companies emerging with new and innovative ideas. Financial service institutions that may have relied on traditional approaches and methodologies to maintain their strength in the market no longer have the same capabilities. A successful Digital Transformation will help traditional institutions maintain their competitive edge, and when coupled with their established brand, increase customer customer loyalty, further solidifying their position in the market.
From an operational perspective, Digital Transformation will facilitate more automated and streamlined workflows which will provide the infrastructure to release new features faster and more smoothly. This will give traditional financial service organisations with the agility they need to respond to evolving market trends. These improved processes will also save resources that can be invested into further innovation initiatives.
With the financial services industry being the second most impacted industry by data breaches, where companies are now spending $6.8 million a year to deal with them, and 9 in 10 customers believing that most important thing a bank can do is keep their data safe, a Digital Transformation goes beyond simply providing a better user interface but giving genuine peace of mind to consumers in that their data is in safe hands. From a business perspective this will also give them the ability to innovate further without having security concerns.
Where providing innovative solutions may have been a smaller R&D investment in the past, it has now become a necessity in the modern age. With increased competition, higher consumer expectations, and security risks, how financial institutions approach Digital Transformations can determine whether they can compete or get left behind.
With emerging technologies in the financial service industries such as AI, Cloud Technologies and the Internet of things (IOT), discussions on Digital Transformation must take place among company leadership to ensure success in the digital age.
