What is Digital Transformation in Banking?
Digital transformation practices enable
industries,
businesses, and
individuals to
digitize their
products,
services, and communication channels.
Digitization has impacted a wide range of
industries, including the financial sector. However, while consumers demand
digital-first
services that are personalized and instant, many
banking institutions are struggling to balance
data protection requirements with consumer demands and FinTech disruptions.
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- What is digital transformation in banking?
- Advantages And Disadvantages Of Digital Transformation In Banking
- Advantages
- Disadvantages
- Technologies for Digital Transformation
- Artificial Intelligence
- Blockchain
- Internet of Things
- Cloud Computing
- The Pillars of Digital Transformation
- Reinvent the consumer journey
- Leverage the power of data
- Redefine the operating model
Advantages and Disadvantages Of Digital Transformation in Banking
Digital transformation enables
banks to simplify management tasks for both
employees and
customers and offer 24/7/365
service. However, not all banking
services are available online due to
security concerns.
Here are key advantages of
digital transformation in banking:
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- Easier management—digital transformation enables banking institutions staff and customers to easily and simply manage bank accounts, online and offline. Instead of handling paper records, customers can directly transmit information or quickly get assistance from online representatives. Additionally, since all information remains within the systems, there aren’t duplicate entries of data.
- 24/7 services—digital transformation enables banking institutions to offer 24/7/365 services. Online services significantly reduce wait lines in brick and mortar offices and ensure a positive customer experience. It also enables banks to open offices for certain operations and increase employee productivity.
- Convenience—when bank accounts are made available online, customers of the private and business variety can gain access at any time, from any device and any physical location with an Internet connection. Customers can then better keep track of their financial transactions and also easily manage their information, without having to go to the bank just to change an email address.
Here are key disadvantages of
digital transformation in banking:
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- Security issues—all businesses are required to properly secure their digital assets and ecosystem, whether for the sake of their own assets and their customers or because the company needs to meet compliance requirements. However, financial institutions need to enforce tighter security measures in order to safeguard the data and money of their customers.
- Transactions—banks are often required to perform complex transactions for customers, which might require customers to be physically present in the bank, to ensure validation and other security concerns. For example, not all banks offer digital transactions of international transfers.
Technologies For Digital Transformation
Digital transformation
strategies for
banks should leverage technologies that add the most value. However, not all technologies suit all purposes. Below are key technologies that can help
banks successfully implement
digital transformation:
Artificial intelligence (AI)
There are many ways to leverage
AI technologies. Chatbots, in particular, can help
banks provide online
services for
customers. For example, when the
bank is closed, a chatbot can answer the
information needed to perform certain transactions, until a human representative is available.
AI can also help automate
processes, analyze data and
security activities,
identify fraud and violations, and provide insights for improvement.
Blockchain
Blockchain technologies can help improve the
security of online transactions. Initially used for
security Bitcoin transactions, blockchain is now implemented in a wide range of sectors, including FinTech. Blockchain technologies can help add transparency into transactions and facilitate collaboration.
The hope is that blockchain will remove mediators that cause bottlenecks and create a smoother transaction pipeline. In addition, since blockchain essentially decentralizes transactions, it can ensure a higher level of
security, protecting the data and funds of
banking institutions.
Internet of Things (IoT)
IoT technologies can perform real-time data processing and analysis and then deliver personalized content quickly and efficiently. The result is often a positive user
experience. In addition, wearable IoT devices enable
customers to make contactless payments. To ensure the
security of financial transactions, IoT can be enhanced with sensors for
biometric authentication.
Cloud computing
Moving banking to the cloud enables
financial institutions to leverage a wider scope of technologies. On the basic level, cloud-based banking can ensure
customers and staff gain access to
services from any location, enabling remote transactions and remote work, without the overhead typically associated with on-premise data centers.
Banks can also leverage cloud vendor resources like
eSignature,
ID Verification,
AI, IoT,
security, management, blockchain, and more.
The Pillars of Digital Transformation in Banking
Reinvent the Consumer Journey
Like any other
business,
banks need to assess the
customer journey,
identify the most critical points, and continually improve the user
experience. However, while some
banks digitize only certain
services, it is possible to
digitize the entire
customer journey. The more
services are
digital, the more data a
bank can collect and analyze. This data enables
banks to constantly reinvent the
customer journey and better serve
customers.
Leverage the Power of Data
Data analytics practices and tools enable
banks to leverage data to improve potentially any aspect of the
business. Data analysis can help ensure secure transactions, prevent fraud,
identify business opportunities, increase productivity, and reduce overhead.
Banks can leverage data analytics to predict behaviors, anticipate needs for loan defaults, assess risks, prioritize leads, establish connections between clients, and more.
Redefine the Operating Model
Today’s consumers want not only fast and seamless
digital experiences but also human assistance when they need answers to complex issues.
Here are key
digital operating models, which were discovered by the
Boston Consulting Group and are implemented by many
financial institutions:
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- Digital as Business as Usual Plus—this model prioritizes gradual improvement, letting the management team stay in place. The benefit of this model is that it can yield quick wins. However, it is difficult to implement changes to siloed teams and legacy systems often cause issues.
- Digital as a New Line of Business—this model enables a bank institute or credit union to create a new business entity with a head of digital. This model can be easier to scale but can lead to more complex management workflows. It also puts the responsibility for digital operation, including IT, in the hands of other business units.
- Digital Native—this model means the bank creates a new, digital-first bank with its own technology stack, and doesn’t need to deal with legacy systems. This bank entity typically prioritizes acquiring new customers, which means the bank can gain new economies and capabilities with quick impact. The disadvantage of this model is that the bank needs to work hard to encourage existing customers to make the move.
It is possible to implement all three models for different locations,
industries, and markets.
Digital Banking Transformation with Lightico
Lightico can help bring about a better, more robust
digital transformation through its
customer-facing suite of
digital interaction tools. Through
Lightico,
banks can leave the paperwork behind and transition to a
digital platform based on
eSignatures,
eForms,
digital document collection, and automated
ID verification.
Lightico’s platform is intuitive for both the agent and end-user. Project managers can configure
workflows based on conditional logic so
customers glide seamlessly through their banking tasks, whether it’s onboarding or servicing. To learn more about how Lightico can expedite a
digital banking transformation,
try the interactive video here.