Finance and Accounting

Online banking and the digital transformation of banks

The COVID pandemic period highlighted strengths and weaknesses of almost every service industry, including banking. To stay ahead of future disruptions and to keep up with the times, the banking industry must accelerate its digital transformation and align technology with business goals. With customer expectations always increasing, financial institutions need to modernise their applications and optimise all available big data to automate Banking business processes and reduce operational costs along the way. A complete transformation can be achieved by adopting advanced technologies, including IoT, blockchain and cloud computing.

Digital transformation in the financial industry involves technology-driven changes at the operational, organisational and cultural levels. Transitioning to online customer service is the most basic form of digital transformation but a complete transformation would involve digitisation of other areas too, such as process automation, all financial offerings, data integration, marketing, sales, and organisational flexibility. When a bank’s digital transformation strategy is executed successfully, the bank is able to successfully compete in a crowded financial market. 

As per a Gartner report, 69 per cent of boards of directors agree that the pandemic accelerated digital initiatives but the financial services industry still has some way to go before it is at par with other industries on the digital platform. In fact, although technology has been reshaping the banking industry, only 27 percent of banks in the US launched a digital transformation roadmap in 2021.

Why major banks are digitally NOT at par with online-only banks

  1. Here are a few key reasons why traditional banks find it difficult to be completely digitised: 
  2. They use legacy technology platforms that are incompatible with new technology. Processes are long and painfully slow and usually cannot be completed without human intervention. While financially strong institutions have tried to keep pace with new technology, the changes have been slow.
  3. Banks are large and have high overheads. Huge workforces and buildings at many locations make such banks slow and expensive to operate.
  4. Modern cybersecurity measures keep pace with new threats. This leaves the old clunky systems of large banks vulnerable to cyber threats.
  5. Traditional banks have always offered many products and services and that makes it difficult to specialise in a niche area. While trying to serve as large a clientele as possible, large banks find it difficult to focus on any one audience. However, such broad approaches are not as effective now as they were earlier.
  6. Young tech-savvy workers prefer to work at technologically innovative organisations and avoid organisations functioning with outdated technology. Consequently, large banks often miss out on both technology and technically smart workers. Employees working on legacy systems have reached retirement age and new employees are not sufficiently trained.
  7. Traditional banks cannot respond as quickly as smaller online banks to market and technological changes. Large banks sometimes try to acquire smaller and more agile digitised banks but such M&As don’t always translate to success. Besides, there is always another new online bank popping up. 

How to achieve digital transformation

Technology for the banking sector is changing at a very quick pace. Banks and their parent organisations must keep pace with technology and use new and innovative technologies in the form of artificial intelligence (AI), cloud computing, big data and blockchain technology.

A few steps that can help banks transform digitally include:

Set expectations: The organisation must first be specific about what it hopes to achieve. In banking, digital transformation must be customer centric. Customer needs must be understood and fulfilled by adopting technology. The customer journey must become personal, cohesive, and automated within an ecosystem. For example, a mobile application is a single platform that can be used to transfer funds, pay bills, apply for loans and to receive timely information.  

Prepare for the transformation: The organisation must next chart out the expected volume of investments that would help achieve the target. Undoubtedly technology would drive the process but the success of the transformation would depend on how the organisation uses the technologies available. Transformation naturally comes with a certain price tag. Any process that is backed by technology involves the cost of innovation. To stay competitive and to offer the best services possible, the organisation must be ready to spend as and when necessary.

 Identify risks and their solutions: Digital transformation naturally involves certain risks, such as data breaches, data leaks and risks related to cybersecurity. Risks must be correctly assessed, and security gaps identified. Digital solutions to eliminate the identified risks must be set up. Existing infrastructure and business processes must be assessed and compared against future needs. 

Pay attention to employee mindset: A critical aspect that cannot be neglected is the human factor. Employees must be encouraged to innovate and be accepting of technological advances. Training must be given topmost priority such that work process automation does not trigger radical changes in employee behaviour.

Expected results: The convenience of having access to easy-to-use services and mobile applications would be highly appreciated by customers. Further, the ability to have information and carry out transactions at any hour of the day is an added bonus. Today it is not only the millennials and gen-Z who expect their banks to be driven by technology, it is almost everyone who does business with a bank. Finally, steps taken to improve user experience in banking is a surefire way to increase trust and loyalty among customers, both old and new.

Even traditional players realise the need to adopt digital solutions in order to survive and succeed in the long term. True, complete digital transformation reduces direct interaction between bank personnel and customers, which may be seen as a fault by some, but the step introduces agile and powerful banking products and systems. The IT and marketing divisions of a bank can align their goals and deliver marketing products digitally too.

The purpose of digital transformation is to increase productivity while lowering operational costs, boost teamwork and organisational transparency, reduce paperwork and increase revenue, and reduce risks in core activities by implementing sufficient digital checks. Large banks are already reaping the benefits of digital transformation.

It is a misconception that traditional financial institutions will fade once they begin implementing digital transformation processes. Instead, such a step will only make banks more focussed on customers and be driven by innovation.

* For organizations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed on organizational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like a living organism, will be imperative for business excellence going forward. A comprehensive, yet modular suite of services is doing exactly that. Equipping organizations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organizations that are innovating collaboratively for the future.

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