The focus of the banking industry is online. The marriage of the financial sector with the technology sector has led to phenomenal expansion of non-traditional financial services startups.
The digital trends in banking are seen in the growth of fintech companies. In 2017, only 25 fintech firms boasted a valuation of $1 billion. Just five years later, in September of 2022, there were over 270 billion-dollar companies.
Understanding the Banking Digital Transformation Landscape
The traditional banking industry is scrambling to catch up with smaller fintech companies. Old banking firms have lost much of the aura and mystic they carried for generations. They’re also losing revenue.
Younger people aren’t impressed by the bank’s name or legacy. What matters to them is customer service. That reality has banking institutions trying to implement the digital tools of the modern age to capture an audience that demands a comfortable and convenient online experience.
Key Drivers of the Banking Digital Conversion
For generations traditional brick-and-mortar banks chose how to conduct business with little to any input from the outside. In contrast, today’s banking industry finds itself influenced by a variety of external factors.
Customer Expectation
The public is used to having around-the-clock access to personal accounts. And those accounts are expected to be accurate and up-to-date. These demands have forced slow-to-change banks to provide an online presence that offers digital reports on a moment’s notice.
Customers also expect personalized service. They want any offers appearing on their screens to be relevant to them. This requires data capturing and analysis.
No one wants to wait until standard business hours to have their questions answered. They expect a full library of frequently asked questions available on the website.
And they look for a chat option when their questions are particularly complex. Chatbots rely on artificial intelligence and machine learning. That’s two more digital tools banks need today.
The Rise of Fintech
The financial institutions born online look nothing like old-school banks. They have no physical presence, existing solely on the internet. Their digital-only existence gives them advantages over their traditional rivals.
Digital banks require fewer employees which represents an immediate savings. A large proportion of their staff may even work from home, which further enhances the bottom line.
Fintech companies are typically digital from day one of their initial startup. They don’t undergo the discomfort of having to transition from one way of doing business to an entirely new way.
Such advantages make fintechs formidable competition for bigger, older banks that are still in the midst of transforming to digital. Fintechs are pushing traditional banks into the future.
Cost-Cutting Efficiency
One of the biggest lessons older banks have learned from younger fintech companies is how to make money with as little outlay of expenses as possible. Banks have seen how financial technology can decrease staff size by automating repetitive activities formerly done by humans.
Technology also allows banks to deliver a level of service that would have been impractical years ago. For example, chatbots can answer questions 24/7 from customers in any time zone in a variety of languages. Staffing a call center to match that type of service would be a massive expenditure.
Emerging Technologies Shaping the Future of Banking
Examples of digital banking of the future include state-sponsored digital currency and the integration of online services. As the general population becomes more comfortable with digital currencies, countries around the world are considering issuing their own.
But whether customers are dealing with digital currency or another financial product, they will always require their online experience to be multifaceted and frictionless.
Central Bank Digital Currencies
The idea of a central bank issuing a digital currency was a novel idea that never seemed to take off. Finland experimented with a forerunner of the idea as far back as the early 1990s. But the program failed to establish a global trend.
Things have changed in recent years. Now most central banks are taking a hard look at digital currency. Over 100 countries either have central bank digital currencies (CBDC) or are seriously investigating the possibility.
The possible emergence of a U.S.-based CBDC would mean additional competition for commercial financial institutions. Consumers could be attracted to the idea of having digital currency that’s backed directly by the U.S. Federal Reserve.
Commercial banks and private sector fintech companies would have to create additional incentives to lure customers to their sites. The competition could open the door to more digital innovation in banking.
Complex Financing Made Simple
If you want to buy a house, you’re going to have to deal with a long list of professionals. There are three in particular, the real estate company, the bank, and the insurance company.
For anyone, but especially, a first-time home buyer the process can be overwhelming. Customers like simplicity. The future of banking will have to find a way to merge the related services that a home buyer needs into a seamless online process.
Similar platforms could exist for such experiences as purchasing a vehicle or getting a start-up business loan.
Real-World Implementation of Digital Transformation in Banking
Customers look for seamless integration of services. Not only do customers love it but so do service providers. That’s why Lifeworks Advisors asked financial software development services and IT consultants to consolidate its many systems into one cohesive whole.
The financial advisors at Lifeworks routinely collected data from customers, created financial goals, and set up investment accounts. They were using separate systems to perform each step. And they were using yet other tools for monitoring their clients’ investments.
The consultants designed a platform that could accommodate all the advisors’ needs. Advisors now only need to enter data once to make it available across the network. Before the consolidation, advisors were entering data multiple times which allowed for human error.
Advisors can now view customer data, design a financial game plan, create accounts, and monitor investment activity without switching back and forth between independent programs.
The result is a more efficient use of time for the advisors. They can also be confident that the data they’re viewing is up-to-date. For the customer, the improvement means smoother, more responsive customer service.
The Customer and the Future of Digital Banking
The customer rules. That should be the motto of this historic digital transformation for banking.
To succeed, companies will have to design their platforms with the customer in mind. User interfaces will have to be simple to navigate and offer as many services as possible in one location.
Competition will be fierce which works to the public’s advantage. With an abundance of companies from which to choose, customers will simply select the one that uses digital technology in a way that makes their life easier.
