Digital Transformation in Banking

Digital Transformation is a strategic imperative for financial institutions that hope to remain relevant.

May 31, 2018
Insights

At the moment, digital disruption is happening at every level in the banking industry. From new technologies to increased competition, banks failing to keep up are getting out of touch.

Artificial intelligence, block chain, the Internet of Things, open banking APIs and robotic process automation will rock the banking ecosystem down to its very core. These technologies have the potential to increase efficiency, decrease costs and offer a better customer experience for the “always-on” consumer.

Early adopters of new technologies will be winning the battle of the “bank of the future”. It’s a now or never type of dilemma for most financial institutions. The faster an institution makes the digital switch the more time they have to test, implement and improve upon the new technologies offered.

Digital Disruption and the banking ROE

According to McKinsey, the banking industry is facing various threats from new digital competitors. That’s why it is crucial for financial institutions to address these risks promptly and appropriately, otherwise they could suffer big blows to their balance sheets.

If a bank becomes fully digitized this could add $350 billion to the banking industry’s bottom line by 2023. In addition, if the banking industry could find ways to compete effectively with tech giants like Amazon and Alibaba, an ROE between 9% and 14% is possible by 2025. 

Alternatively, if retail and corporate customers switch their banking to digital companies at the same pace with which people have been adopting new technologies in the past, the industry’s ROE could fall by 5.2% by 2025. 

The new customers

The proliferation of technology and the growing familiarization of consumers with digital, have changed the way that customers buy financial services. Consumers are now expecting new services and an enhanced experience across all channels, both offline and online. Becoming a digital bank means delivering relevant customer experience through an open, integrated and fully flexible architecture. In plain terms, it means offering:

  • Anytime, anyplace, any channel banking, exactly when the customers needs you
  • Banking without any borders; Making use of data to eventually become a trusted, go-to virtual advisor
  • Using customer insights and advanced analytics to proactively provide personalized solutions that make life decisions easier for your customers
6 reasons why banks need to make the switch
 
“Banks no longer have a choice but to transform if they want to become more responsive to today’s and tomorrow’s markets,” says Jerry Silva, director, Global Retail Banking at IDC Financial Insights. End-to-end Digital Transformation might be a challenging process but the benefits can be multiple:
  • More automated processes resulting in faster customer onboarding
  • Reduced operation costs up to 40%
  • Enhanced levels of customer engagement 
  • More empowered to compete against non-traditional banks
  • Smaller branch footprint; a minimum number of actual staff will be required in physical banks
  • Concentrating banking/business specialists in a single center, available to clients digitally

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