Home > blog > Role of Digital Transformation in the Banking Sector with its Importance, Future, and Benefits

In an increasing technology and data-driven landscape, banking faces a profound period of delivering differentiated client experience basis advanced digital technologies that eliminate pain points, provide new client values (like highly tailored predictive insights), and add value translated from the human relationship fabric.

Tectonic shifts accentuate Post-Covid, the importance of digital transformation in banking. The accelerating digital transformation is also surfacing new risks, and two, the continued market uncertainty shakes up forecasting, severely testing banking models and providers’ reputations. There is more by way of competition and the emerging market dynamics.

Competitive Landscape – The plot thickens

As the industry fragments and delayers (challenger banks bring in neo-normal, and big techs chip away at the value chain), banks must earnestly contend with market share and revenue leakages by shaping new business models finding radically new collaboration partners, and committing to purpose-filled innovation.

The role of digital transformation will be to factor in the following dynamics impacting ROI.

  • Client experience and the strong dependency on wallet share.
  • Institutional productivity that directly impacts bottom-line performance.
  • Talking a language of marketing and innovation that drives finer brand differentiation.

The future – Looking beyond 2022

Digital transformation in banking accelerates as declining branch traffic meets the rising consumer expectations are on the rise, competition from non-traditional players like Amazon and Google ramps, and escalating regulatory pressures compress margins. It is no surprise when the reputed financial company JP Morgan Chase spent $9B on its technology budget, employed 40,000 technologists, and its CFO declared they were a technology company.

After all, adopting digital ecosystems in Banks brings in faster team alignment, savvier customer service, and deeper transparency with speedier problem resolutions.

The Importance of Digital Transformation and its drivers 

While turning digital hinges on the imperatives of innovation and hence being collaborative, data-driven, and therefore becoming customer-centric, cloud-based, and thus turning adaptive; for profitability purposes, banks must clearly articulate their strategic priorities, prepare their culture for nimbler ways of working, and most importantly, be willing to take risks.

Begin by supplying the vision and empowering teams with learning programs, and investing in digital collaboration tools is part of a solid beginning. Still, actual gains accrue as new operating and business models are positioned to seize advantages of emerging tech (like IoT, AI, and ML).

Quite a bit of the above exhortation is like preaching to the choir. After all, a global Fujitsu study points out that finance companies are the most advanced when it comes to digitalization. Compared to the industry average of 67%, 89% of finance companies have started their digital journeys, and 29% deliver outcomes compared to the 24% industry average.

Benefits of Digital Transformation. 

Undoubtedly, the pandemic has accelerated digital transformation and brought in millions of additionally willing customers; the banking services have been preparing to diversify their offerings for years. Consider the following domains where banking functions continue to evolve dizzy.

From engagement banking (integrating services into people’s lives) to platform banking (plug-and-play functional services) to social banking (embedded banking that creates intermediary-free services) to High-Technology banking (capitalizing on the power of IoT, 5G, AI, and Robotics).

Digital Transformation in Banking – The accurate measures of success

Beyond technological upgrades, digital transformation must provoke cultural change that challenges conventional mindsets, nurtures innovation, and reshapes organizational stances around risk and reward.

Flowing from the top annual strategic goals, when these cultural rhythms permeate a Bank’s daily workflows, the actual benefits begin to emerge – compared to its competition, the banks start its leadership journey in the data and analytics space, customer experience, and NPS scores move northwards, and innovations in omnichannel offerings create more frequent customer aha’s.

Conclusion.

As more banks embrace digital transformation initiatives, driving differentiation will become essential. The focus would then shift to the different stages of customer interaction and how integrating digital services across—adoption, consideration, application, onboarding, and servicing—will make or break holistic customer engagement.

 

Article by

Banking Practice