Entering the world of digitla banking services
  • article
21/05/2024

Digital Transformation in Banking: Revolutionizing Financial Services

To deliver the digital convenience their clients expect, modern banks must embrace transformative tech and pursue innovative solutions to craft seamless, frictionless customer experiences.

Alia Shkurdoda

Content Specialist

The banking industry is undergoing a paradigm shift driven by the relentless march of digitalization and the rising prominence of tech-savvy competitors. As customers increasingly embrace online shopping, mobile apps, and the convenience of digital services, traditional banks are compelled to adapt their operating models to survive and thrive in this disruptive landscape. 

This article will explore the importance of digital transformation in banking, highlighting the transition from traditional to online banking models. It will examine the key factors driving its adoption and the challenges banks face in their digital journey and provide insights into the latest technologies and strategies shaping the future of the banking industry.

Digital disruption in banking: From traditional to online banks

The need for digital transformation in the banking sector has never been more pressing. Traditional banks are facing intense competition from fintech companies and challenger banks that are redefining the customer experience. As consumer preferences rapidly evolve, with the majority favoring online and mobile banking channels, traditional banks risk becoming obsolete if they fail to adapt.

Gone are the days of long queues at brick-and-mortar branches; today, customers demand the convenience and efficiency of managing their finances at their fingertips. From making online payments to applying for credit and settling bills, banking clients expect a comprehensive suite of services that cater to their diverse financial needs.

Recognizing this imperative, banks worldwide prioritize digital initiatives, with nearly half of them making the transition to mobile banking their top priority. This strategic focus is not only a response to current trends but also a proactive effort to future-proof their businesses in an increasingly digital world.

The number of digital banking users is expected to reach 3.6 billion by the end of 2024. Meanwhile, the global digital banking platform market is projected to grow to $13.9 billion by 2026. By transitioning from traditional to online banking models, banks can tap into this vast market and attract a new generation of digitally savvy customers.

Digital transformation 101: Understanding the core principles

Digital transformation in banking refers to integrating innovative technologies into banking operations to create an efficient customer experience, streamline processes, and unlock new targeted opportunities. By embracing digital adoption and fostering a culture of innovation, banks can stay ahead of the curve, continuously refining their offerings to maintain a competitive edge.

Digital finance transformation goes beyond simply completing a series of digital activities. It requires a strategic, holistic approach centered around the customer, investing in the right technologies and talent, and fostering a culture of continuous improvement. This way, digital transformation can yield numerous benefits and enable banks to achieve strategic goals.

Digital banking transformation: Key drivers

Streamlined operational efficiency

Digital transformation empowers banks to automate manual processes, reduce paperwork, and streamline operations, driving cost savings and productivity gains. Furthermore, it reveals new ways to enhance efficiency by delivering precise interactions at scale, cultivating relationships to eliminate customer attrition, and identifying personalized cross-sell/up-sell opportunities.

Better customer experience

Banks receive a wealth of data daily, which can help them form a comprehensive 360-degree view of their clients, develop a customer-focused business architecture, and spot new opportunities for service improvement. This data offers enterprise-wide insights, empowering financial institutions to create tailored services and deliver relevant consumer experiences across all channels.

Recognizing the value of client satisfaction, banks are investing in solutions that drive efficiency, better serve customers, and reduce expenses. As a result, 46% of banking executives indicate that their organizations’ customer experience budgets will increase in the next 12 months. 

Enhanced personalization

Today’s banking customers expect faster, more personalized services. Digital transformation allows banks to connect the dots between information from different sources and better understand clients’ needs, goals, and life events. Armed with all that data, banks can create highly personalized, omnichannel experiences that meet customer expectations. This can increase customer lifetime value, generate 5-15% more revenue, and reduce customer acquisition costs by up to 50%.

Advanced security measures

As digitalization is gaining momentum, cybersecurity has become a top priority for banks to protect customer data, ensure regulatory compliance, and maintain trust in their systems. With the average cost of a data breach across the financial sector amounting to $5.9 million, investing in robust safety solutions, such as encryption, multi-factor authentication, and real-time monitoring, is essential for safeguarding against cyber threats and data breaches.

Embracing technology as the foundation for banking success

Technology is the driving force behind digital transformation in the banking sector. It provides the foundational infrastructure, tools, and solutions required to modernize operations, optimize processes, and unlock new revenue streams. It empowers banks to reimagine and reinvent their business models, product offerings, and service delivery channels to meet the needs of today’s digital-savvy customers.

Customer expectations are constantly evolving with tech advancements and increased usage of online services. Without robust technological capabilities, banks would struggle to keep pace with rapidly shifting customer demands, market dynamics, and competitive pressures.

Here are some of the key technologies and solutions driving financial digital transformation:

Cloud 

Cloud computing is becoming essential to digital banking infrastructure, providing powerful, on-demand resources for integrating software solutions across various locations. By leveraging cloud technologies, banks can rapidly deploy new services, ensure continuous delivery, and eliminate silos across their business ecosystem.

APIs

Application programming interfaces (APIs) are software intermediaries that define the rules and protocols for how different software components interact. By using this technology, banks can integrate with external applications, enabling new digital services and functionalities for their customers. APIs act as secure gateways, allowing seamless data sharing between banks, fintech companies, and other third-party providers. 

Artificial intelligence

Artificial intelligence (AI) is disrupting the banking industry, opening the door to more innovations and new operating models. Implementing AI capabilities can create new value for the banks, amounting to $200-$340 billion annually, which translates to 9-15% of operating profits.

The value of AI for digital banking transformation

The banking sector already leverages this transformative technology to streamline processes, enhance security, and deliver superior customer services. Some AI applications in banking include:

  • Chatbots. AI-powered chatbots with natural language processing provide 24/7 customer support, handle inquiries, open new accounts, and route complaints seamlessly.
  • Fraud detection and prevention. By analyzing vast datasets, AI can identify suspicious patterns, data anomalies, and relationships between entities, enhancing fraud prevention capabilities.
  • Customer relationship management. AI helps analyze customer preferences, perform segmentation, and deliver targeted marketing campaigns, improving customer experiences.
  • Credit risk management. AI leverages data to predict a borrower’s probability of default, enabling insight-driven lending decisions that minimize credit losses and human errors for financial institutions.

Robotic Process Automation

Robotic Process Automation (RPA) is a game-changer in automating manual processes, such as data entry, customer service communications, and trade processing. By implementing RPA, banks can significantly reduce processing costs, improve employee productivity, and minimize human errors. 

Blockchain

Thanks to its distributed data storage across multiple nodes, coupled with robust consensus mechanisms and encryption, blockchain helps to fortify the security of banking data and accounts. This technology provides a transparent, immutable, and decentralized ledger for tracking transaction records across the network, enabling the detection of suspicious activity. Apart from anti-fraud solutions, blockchain can also be used to enable smart contracts – secure, automated execution of financial agreements.

Internet of Things

The Internet of Things (IoT) revolutionizes banking by enabling seamless integration between financial services and smart devices. It allows banks to embed smart technology into their infrastructure and customer touchpoints, creating a unified, digitally enhanced experience driven by connected devices. Popular applications of IoT in banking include:

  • mobile wallets for effortless payments without debit/credit cards;
  • NFC-enabled tap-to-pay feature for contactless transactions;
  • smart ATMs that monitor customer activity using environmental data like temperature, lighting, and motion sensors;
  • biometric authentication through fingerprints, Face ID, retinal scanning, or voice recognition for secure user verification.

Common challenges hindering digital transformation in banking

Despite its numerous benefits and opportunities, banks must navigate various hurdles to successfully embrace digital transformation. By addressing these challenges head-on, banking enterprises can position themselves for long-term success in the digital era and remain competitive in an ever-evolving financial landscape.

Challenges of digital transformation in finance

Underestimated costs

One of the common pitfalls of digital transformation in banking is the tendency to underestimate the true cost and complexity of such projects. Executives often misjudge the resources required, leading to project delays, budget overruns, and disruption of operations. A digital strategy may commence with a well-calculated business case, but when transformation initiatives exceed the initially projected timeline, the increase in cost often surpasses the expected value.

Outdated infrastructure

Many banks still rely on legacy systems and outdated technology stacks, which can be a significant barrier to digital transformation in finance. Addressing technical debt, including old-school applications, redundant infrastructure, and systems not designed for modern digital solutions, is often overlooked in initial project scopes. Integrating contemporary digital technologies with these legacy systems can be intricate, time-intensive, and capital-intensive.

Lack of expertise

Digital transformation for banks requires specific skills and expertise that may be lacking within traditional finance organizations. The talent gap, encompassing areas like data analytics, cloud computing, and artificial intelligence, is one of the top barriers that prevent organizations from achieving their transformational goals.

Siloed data

Each business unit within banks, such as retail banking, wealth management, and corporate banking, often operates as a separate entity, leading to massive amounts of information being accumulated across separate databases or disconnected systems. The siloed nature of data and processes hinders banks from gaining a holistic understanding of their customers’ needs, limiting their ability to deliver seamless, tailored services across all channels and touchpoints.

Maintaining security standards

Ensuring robust data security and privacy is a critical challenge for banks undergoing digital transformation. With increased reliance on digital channels, banks face heightened risks of cyber-attacks and data breaches, which can erode customer trust and regulatory compliance. Implementing a multi-layered security approach, including encryption, multi-factor authentication, and secure processes, is crucial to safeguarding sensitive customer data and maintaining digital trust.

Navigating the digital shift: Transformation roadmap

Digital transformation in banking is an ongoing process that entails continuous adaptation, innovation, and a customer-centric approach. Embarking on this journey requires careful planning, execution, and a holistic approach that encompasses organizational culture, talent management, and strategic partnerships, in addition to tech adoption.

By following these steps, banks can navigate the complexities of digital transformation and position themselves for long-term success in the technology era.

Step-be-step process of digital transformation in financial services

Setting the course

The first step is clearly outlining the objectives and desired outcomes of the digital transformation initiative. Banking executives must analyze their current state, evaluate existing systems, processes, and infrastructure, identify any technology or skill gaps, and define their vision for the future. They should set their targets and goals, be it enforcing a digital-first mindset, retaining customers through digital services, or improving operational efficiency.

Defining criteria for success

The financial services industry is the epitome of precision and results. Digital banking transformation efforts should also be measurable and amount to something. Banks need to be able to track their progress along the way and, therefore, establish specific, achievable, relevant, and time-bound key performance indicators (KPIs). 

These KPIs could include metrics such as revenue growth generated through digital channels, task completion to measure the rate at which the bank delivers the requested service to clients, and digital adoption to see how customers interact with the bank via different touchpoints and identify areas for improvement in terms of user experience and customer satisfaction.

Understanding customer needs

Before implementing any new features, it’s crucial to conduct thorough customer journey mapping. This can help gain valuable insights into customer behavior, preferences, and pain points. A comprehensive analysis of this information enables financial institutions to develop digital products and services that align with customer needs and provide personalized, omnichannel experiences.

Creating a holistic transformation roadmap

Digital transformation in financial services should be approached as an incremental process rather than a radical redesign. To effectively prepare and pave the road for a smooth transition into the digital world, organizations should develop a comprehensive roadmap that outlines the steps, timelines, budgets, and resource requirements for implementing changes. They should prioritize the most pressing tasks, identify quick wins, and plan for a gradual introduction of new technologies and features.

Changing organizational culture

Banks must mobilize their entire organization to fully realize the benefits of digital transformation. This requires company-wide commitment and cross-functional collaboration from executives to frontline staff. Every team member should understand that digital transformation is not only about tech adoption; it’s a fundamental shift in banking operations, starting from internal processes to customer-facing interactions.

Finding the right tech talent

Successful digital transformation in banking requires a skilled workforce capable of leveraging emerging technologies to build the foundation for the new operational model. By fostering an innovative culture, offering competitive compensation, and providing growth opportunities, banks can source top talent for driving digital initiatives. 

Another way businesses can fill skill gaps and rapidly scale their digital transformation initiatives is by partnering with IT staff augmentation providers. These companies offer banks access to specialized tech talent with the expertise required to integrate digital solutions across the banking ecosystem.

Embracing the change

Setting the transformation plan in motion is not the end of the journey. Banks should continuously monitor and analyze the impact of their IT modernization efforts. This process involves collecting feedback from customers, employees, and partners, as well as using data-driven insights to identify areas for improvement. Based on this information, banks can adjust and refine their processes to successfully transition to a new business model.

Digital transformation in action: Success stories

Leading banks harness the power of emerging technologies, data analytics, and customer-centric strategies to reimagine their products, services, and operations. By embracing digital transformation, these institutions enhance customer experiences, drive operational excellence, and fortify their competitive positioning. 

The following examples showcase how banks, guided by Neontri, leverage digital transformation to redefine the landscape and usher in innovation and growth within financial services:

mSzafir

mSzafir is a mobile app that allows bank customers to digitally sign documents using a secure, legally binding, qualified electronic signature directly from their smartphones. This transformational solution enables banks to go paperless and streamline documentation processes efficiently.

With mSzafir, customers can conveniently upload documents, authorize them with a PIN, and receive the final signed copies bearing their qualified digital signature. The app also generates one-time tokens for signature verification across the bank’s services, upholding stringent security standards akin to two-factor authentication.

IKO app

The PKO Bank embarked on a comprehensive digital transformation journey, recognizing the need to provide customers with a seamless, convenient, and feature-rich mobile banking experience. They invested in developing the IKO mobile app, leveraging cutting-edge technologies and a customer-centric approach. To enhance its digital efforts, the bank deployed several advanced features into the app, such as:

  • secure and user-friendly mobile payments and transfers;
  • personal finance management tools for better money management;
  • integration with third-party services and platforms through APIs.

Additionally, the bank adopted agile development methodologies, allowing for continuous improvement and rapid deployment of new features based on customer feedback and usage analytics.

Digital transformation in banking: Unlocking new horizons

From leveraging cutting-edge technologies like AI, blockchain, and IoT to adopting customer-centric strategies and data-driven decision-making, banks are reimagining their products, services, and operations to thrive in the digital era.

Neontri is at the forefront of this transformation, guiding leading banks through their digital journeys. With a deep understanding of the financial sector and a team of seasoned experts, our company delivers tailored solutions that seamlessly integrate into existing systems, empowering banks to unlock new revenue streams, streamline processes, and cultivate digital trust.

Partner with Neontri today and embark on a transformative journey to position your bank as a trailblazer in the financial services landscape. Get in touch to explore the game-changing possibilities of digital technologies in banking.

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Agata Tomasik
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Head of Outsourcing
agata.tomasik@neontri.com

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