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A Snapshot on Digital Transformation in Banking 2023
A Snapshot on Digital Transformation in Banking 2023

Even though banks were equipped with technologies and gradually embracing Digital Transformation in Banking, the pandemic revealed the urgency to transform digitally by exposing how the current BAU model is inefficient and incomplete to acquire, manage, and retain customers.

Majority of the banking processes can be done online, employee productivity will increase, TAT will reduce, and customer service should improve. New age technologies have been successful in accelerating Digital Transformation in Banking.

Digital Transformation in Banking - Stats and Findings

The Digital Banking Platform Market is expecting growth at CAGR of 11.2% from 2021 to 2026. Significant factors driving this growth is the rapid evolution of digital strategies in the banking industry and the increasing demand of digital banking services among consumers.

A recent report projects the global FinTech market will reach a valuation of around $305 Billion by 2025 due to increased investments in new technologies and infrastructure. This is indicative due to the expansion and transformational tech innovations which banking sector has observed in past decade. Let’s look at some of these innovations which have revolutionized banking drastically:

Analysis of Digital Transformation in Banking

  1. Digital only banking (Neobanks)

    Neobanks are observing a higher market-share growth rate and are serving customers at around one-third of the cost of traditional banks. There are several ways Neobanks have revamped face of traditional banking:

    • Hyper-Enhanced Customer Experience:

      Neobanks function on lean business models and superior technologies to provide highly personalized experiences to their customers. It helps them to provide:

      • Ease and Efficacy in terms of services
      • Much faster real-time cross-border payments using blockchain technology
      • 24x7 chatbot customer service including Contextual & Conversational AI (Read more about data-driven customer experience in our other insight article)
    • Transparency with real-time notifications:

      Neobanks ensure transparency by providing real-time notifications and explanations of charges incurred by the customer. This way, the customer has the entire authentic record of every expense. Transparency leads to trust factor and is one of the biggest driving factors for Millennials and GenZ to adopt any specific brand.

    • Smart reporting with in-depth insights:

      Neobanks strive to provide excellent customer service through intuitive user-interface. All of your transactions and payments appear on your app and you are able to access this info in few clicks. Dashboard solutions at Neobanks have high-functioning interfaces that are easy to understand. They provide clear, deep and actionable insights on services like:

      Such insights help banking and financial institutions to reduce operating expenditure while boosting the revenue generation on account of better customer experience.

      • Payments
      • Payables and Receivables
      • Bank Statements
    • Seamless payments with hassle-free transactions:

      Neobanks make it easier for consumers to enable or disable features through their app as opposed to reaching out to the dreaded IVR enabled customer service. For example, if you want to use your Debit card for international spends, you will have to reach out to the customer service.

  1. Contact-less Security Systems

    Security is a central element of trust, which, in turn, is the foundation of any digital environment. Banks are responsible for end-end security of their platforms. The increasing number of cashless transactions in emerging economies is positively impacting growth in the smart card market and is seen as an indicator of level of digital transformation in banking industry. Findings and Survey says, the global smart card market is expected to exceed $65 billion by 2025. Some of ways banking and financial institutions have leveraged technologies to provide impeccable customer experiences are:

    The demand for faster, more convenient, safe, and cleaner ways to pay has driven the transition to contactless and this will only continue to grow. Contactless is the present and future of in-person payments.

    • Contact-less payment cards and financial cards
    • Contact-less smart access systems
    • Viable replacement of biometric security
  2. Open Banking

    One of the primary driving forces for digital transformation in banking is customer-centricity. With customers exploring different ways to bank as per their preference and convenience, there has been observed radical developments in the open banking space. APIs are about speed, agility, and personalization and API banking is already accelerating processing times, reducing go-to-market cycles, and improving decision-making and responsiveness. Open Banking is a strong driver within the financial world, and it has the potential to enable communities and individuals to make informed financial choices.

    • Fintech as Collaborators and Accelerators:

      Collaborations with Fintech companies have helped banks in expanding their capabilities and the reach. Deeper Collaboration with Partner ecosystem help banks to bring innovative services to their customers. Fintech companies have transformed the way organizations can leverage technology to reach out to the target market and ensure better end user experience and the impact has been profound across several financial services, ranging from payments to mortgage. When banks partnered with fintech companies, they have witnessed the higher levels of trust that consumers, especially Millennials and GenZ, have in them. Some of the benefits which banks have observed with this partnership is:

      • Increased awareness of customer data security: Data is important in the banking world, and privacy is even more important. In response to data breaches, banks have placed an emphasis on improving security and protecting data.
      • More personalized online service: The evolution of the way people manage banking and financial services also highlights one of the reasons why FinTech’s and banks work together. Online banking is definitely more convenient, as it can take place at any time. Some banks also offer consumers special perks to get them to use online services.
      • Customer Retention: Focus of the partnership between Banks and Fintech’s is on providing value either through ease of use, personalized recommendations, better interest rates etc. or all of the above. This helps with customer retention.
      • Reduced costs: It is less expensive for a bank to partner with a fintech firm on acquiring new customers as opposed to the traditional way of pumping in just marketing dollars.

Key Technologies enabling Digital Transformation in Banking

Banks have harnessed potential of new-gen technologies to shift from simply offering their customers with current products to adopting more sophisticated ways of enhancing the customer experience, driving loyalty and alleviate consumers’ security concerns:

  1. Cognitive Analytics

    Since banking sector is a data goldmine, it is the perfect ground for Cognitive Analytics. Cognitive systems generate valuable insights from unstructured data (company data, industry reports, financial news, etc.) using a mix of Predictive Analytics, Machine Learning, and Deep Learning.

    • Augmented reality (AR), virtual reality (VR) and mixed reality along with voice response allow banks to bridge the digital and physical. These technologies offer multiple touchpoints so that customers are followed by an invisible army of “digital advisors” that guide their daily financial decision-making
    • Machine learning, deep learning (DL), natural language processing (NLP) has created new opportunities to provide value-added services for customers
  2. Blockchain

    Blockchain is already creating ripples of change in the banking sector. According to the global bank Santander, by 2022, Blockchain-based systems will be in a position to help banks save US$ 15-20 billion yearly. One such example of creating difference in providing real-time cross border money transfers is utilizing Blockchain technology. BofA (Bank of America) partnered with Ripple & uses RippleNet technology to enable real-time cross border money transfers. Many proponents believe that blockchain technologies will be at the crux of next revolution of digital transformation in banking. 

  3. AI-based technologies

    Companies dealing in RegTech digital products promise to disrupt the regulatory landscape by providing better solutions to the ever-increasing demands of compliance within the banking and financial industry. AI technologies bridges the gap between the intent of Big Data and the reality of actionable decision-making.

    • Multi-factor authentication (MFA) helps in secure authentication and authorization, therefore secured access of accounts and information
    • Artificial intelligence (AI) and machine learning (ML) systems helps in analyzing data and payment histories and help with fraud detection
    • RPA bots help banks in running background, credit & fraud detection checks quickly and efficiently, flagging any indicators of risk. Also, helping banks in mitigating payment frauds with advanced security features like device binding, risk-based authentication, behavioral biometrics and more

Future Trends of Digital Transformation in Banking

Banks have witnessed breakneck speed transformation over the past 18 months. It’s time to look ahead and be ready for what’s next. Some of the areas where banks will have to focus their attention for the rest of this year, 2022 and beyond are:

  1. Generation Z is too valuable to ignore

    It’s time for banks now to invest marketing dollars in Gen Z (individuals born after 1996). It has been observed that GenZ is actively involved in making financial decisions for a more secured future. To connect with them, banks must think on matters which are important to GenZ like, the global and socioeconomic issues. Also, this reach requires new tactics - gamification, influencers, etc., and do not forget they are glued to their mobile.

  2. Customer data platform (CDP) implementations

    Bank marketers struggle to leverage integrated customer data. Here, CDPs make real-time data accessible and actionable, which offers marketing teams the ability to resolve issues and personalize product recommendations, so they are looking at ways to continuously deliver value.

  3. Self-service will continue to increase

    Customer willingness to accept self-service is an indicator digital maturity in a bank. Self-service Survey stats that in 2022, the number of consumers accessing US digital banks will surpass 200 million. Banks must invest in self-service capabilities now if they haven’t already. Banking leaders have to ensure that they are all equipped to serve customers across all platforms.

Honorable Mention – Trendsetter

  1. Artificial intelligence is not the future -- it’s the present

    Banks have to start identifying their pain areas and must identify investment-worthy use cases for accelerating technology evolution. Man financial institutions have realized that AI is a good area to kickstart Digital Transformation in Banking.

    Erica - Bank of America's virtual financial assistant is one such example.

Digital Transformation in Banking - Way forward!

The pandemic brought everyone on their toes in anticipation of what could go wrong with their business. The pandemic might result in increased convenience among consumers which might grow the demand in the long run. The accelerated demand for digital services caused the banking industry’s significant shift to digitalization across all its LoBs, and possibly for a very long time even after the pandemic is over.

Looking to set up an agile banking ecosystem? Or need assistance in developing a roadmap for Digital transformation in your bank?

Schedule a discussion with Q’s team of technocrats to understand what this shift means for you. Reach out to our team with questions