Banks and financial institutions have been using digital channels quiet for a while. This allows them to reach and engage new customers, reduce costs and improve their overall performance and services. But rapid technology development and growing customers’ demands require much bigger changes. The financial sector, in particular banks, understands that well and seems to be ready to play the big digital game.
The importance of digitalization in finance
Technology and online services continue to penetrate our lives, and the financial industry is no in any way immune to this trend. Whether it’s ApplePay, PayPal or banking applications, digital transformation is here to stay. Clients are getting used to the simplicity of the almost instantaneous digital service and providers are motivated to react fast.
According to the Hackett’s Group Digital Transformation Performance Study, it takes digital leaders about 2.5 years to change their strategy. Currently, more than 50% of finance organizations are redeveloping their approach. So it is no wonder at all, that the amount of the financial organizations that will develop a mature strategy in the next 2-3 years will double.
Yet, even the greatest strategy without the right amount of resources can be useless. The 2019 Key Issues Study shows that at this time those resources are only available to 24% of financial organizations. So it is no surprise, that according to the study, IT budgets for the transformation will rise in the next year. But what is exactly financial institutions are after? To name a few things: higher standardization, automated processes, improved performance, and customer experience.
Advantages of digitalization in business: banking sector
Digitalization is different for every industry, but it seems to be crucial for the banking industry because it is one of the most data-driven fields. As Gartner estimates, as many as 80% of traditional banks will go out of business by 2030. Others, according to analysts, will have to move fast to build digital platforms and find new niches. According to the new report from Accenture, retail and commercial banks have invested globally over $1 trillion in the past 3 years to transform their IT services.
And it doesn’t seem much of a stretch when you think about all the regulatory requirements that force banks to store transaction data for many years. Therefore, the challenge to make this information easily accessible and at the same time provide meaningful insights is so much bigger. But digital transformation can also contribute to the engaging and fulfilling customer and employee experience.
Going digital has really affected the workforce. Yes, automation can result in staff reductions, but it can also increase the demand for data scientists. That is why it is time to start educating the new generation of workforce and recruit new talent.
All of that will make possible further business transformation, adding technologies like AI and blockchain to the common instruments of the industry. The industry already uses mobile apps, IoT, card readers, and sensors that made real-time financing a reality. But the next step is at least as much important.
It is more obvious than ever that new business models and faster processing will become critical to the prosperous future of any bank. And digitalization, which can provide innovative capabilities, will speed up the implementation of the business-wide improvements. According to Boston Consulting Group, even a few key improvements can have a great impact on the overall performance and can potentially increase revenues up to 20%, while reducing costs by as much as 25%.
Digitalization of banking: Where do we stand now?
Banks all over the world spend billions of dollars each year to enhance their digital performance. More and more banks are starting to realize that their online presence is as important as their branches or ATMs, sometimes even more so.
According to Forrester, one of the most important trends in the industry is online banking, 73% of U.S. adults use this service at least once a month. More clients than ever rely on multiple channels. Around 20% of consumers visit a bank, use online service and banking apps each month. That is why for banks it is very important to consider the synchronization of user experience across all channels while developing a digital strategy.
Forrester’s report also found that 81% of banks understand that digital transformation needs to happen soon or their future success can be greatly compromised. But, despite the digital transformation trend being in the focus for years, less than 10% of banks really went through with it to achieve sustainable results. So the majority of banks are still working on and looking forward to the essential chances of the most important transformation of the current decade.
Challenges of digitalization in banks
The most difficult problem to overcome on the road to digitalization in banking is legacy systems and systems integration challenges. In reality, even some of the largest banks are still using systems that were built 35 years ago.
According to the 2018 Retail Banking Trends and Predictions report, 69 percent of banks are unable to innovate due to this problem. So this undeniably is the key factor that is standing in the way of successful digital transformation for every bank. But it is far from being the only one.
The banking industry is also subject to high-security risks due to personal information and transaction records, while the necessity to meet the compliance requirements makes it even harder to implement any changes.
The fourth most-cited problem of digitalization in banking is culture. As many as 63% of organizations say that they are struggling to overcome this as much as the other problems.
Digital transformation is not a project with a deadline, but an ongoing journey of change. Hopefully in the near future banks will be able to overcome the challenges, shape new business models with the help of IT, and get one step closer into the new robust digital tomorrow.
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