The pandemic was influential in changing the banking ecosystem. Fintechs and banks were forced to address the urgent needs of people in a fully online and secure environment. The digital transformation in 2020 was rapid, but it did not meet all our needs.
While banks were facing the exact same challenges as other businesses – remote teams and economic uncertainty – their development and launch of services were relatively rapid. However, customer expectations outstrip the rate of technological advancement.
A 2021 study found that financial institutions ranked themselves lower in digital transformation maturity in 2020 than in 2019, while innovation and data/analytics maturity in the banking industry also declined. Banks must understand how to meet customer needs regardless of the reasons for this lag.
Data indicates that customers want speed and simplicity from digital access. Customers don’t need more technology, but better application of systems. Banks must leverage their data to meet customer expectations. They need to understand a global digital environment allowing secure online access options.
Banks must improve digital customer experiences, internal processes, infrastructure, products, and customer service. Customers have made it very clear what they expect from their financial providers, and these expectations must be met in the coming years as a looming economic crisis further threatens people’s financial security.
So what are the seven core areas of digital transformation that banks need to focus on to deliver exceptional products and services in the coming years that will meet demand and remain relevant?
Open Banking
Open APIs give customers access to all their banking data on one dashboard. It makes sense for customers but could be threatening to banks. According to Juniper Research, the number of open banking users doubled from 18 million in 2019 to more than 40 million. The system can be capitalized on by institutions that see the limitless opportunities that open banking platforms provide for improved customer service and access to a whole new audience looking for innovative solutions that anticipate customer needs.
“The API economy is an enabler for turning a business or organization into a platform. Platforms multiply value creation because they enable business ecosystems inside and outside the enterprise to consummate matches among users and facilitate the creation and/or exchange of goods, services, and social currency so that all participants can capture value,” said Gartner in a report.
Digital Banking Experiences
Digital functionality must be simple and fast to be effective. As a result, banking institutions must focus on improving internal processes, procedures, and data flow to meet rising customer demands set by big tech organizations that can often process banking requests in less than 1 minute.
Some financial institutions are exploring new site architecture. By separating their external presentation layer from their back-office data layer, the goal is to create enhanced digital consumer experiences. The service should provide seamless and personalized digital engagement on a user-friendly interface.
The customer journey has been undergoing significant upgrades over the past ten years, with the introduction of apps and platforms that answer customer demands. However, those organizations that maintain legacy systems rather than integrate with newer solutions could find that digital technology outstrips their performance, and their business will suffer.
According to Forrester, “Organizations will work to determine what really matters to their customers, identify projects to improve important experiences, prioritize the efforts with the biggest potential upside for customers and the business, and then train their employees (and give them new tools) so that they can deliver the right experiences consistently.”
Automation
Robotic Process Automation (RPA) promises to increase efficiency by providing a cost-effective substitute for in-house and outsourced human resources.
Automation reduces costs, increases efficiency, improves accuracy, offers seamless flexibility, and can enhance the customer experience. External providers who provide scalable solutions at a reasonable cost to organizations are seeing the benefits of the years they have spent learning from trial and error of such technology.
The global Robotic Process Automation (RPA) market size was US$2,322 billion in 2022 and is expected to register a revenue CAGR of 39.9% over the forecast period, according to the latest report by Reports and Data.
Ongoing economic pressures are likely to see larger institutions’ rapid uptake of RPA.
Predictive Personalization
The pandemic pushed all businesses to improve their online services and better communicate with customers. Within financial institutions, this meant catering to those more familiar with in-person transactions and limited online account management. Often these are the same people most impacted by the pandemic; the elderly and the underprivileged. However, adjusting services so that the needs of these people could be met took some time and was not always easy for customers.
Advanced analytics promises to provide predictive personalization. In addition, AI and machine learning capabilities will see interfaces tailored for customers, real-time financial recommendations, and heightened test and learn capabilities.
However, it is the general public’s perception that such advances should have been made years ago. Accenture found that nearly half (48%) of consumers abandoned a purchase process when the website did not personalize the experience, with almost all consumers (91%) saying they are more likely to do business with brands that respond to customers’ individual needs.
The Digital Banking Report found that 75% of financial institutions considered themselves ‘not adept’ at using data and analytics to determine the ‘next best action’ to answer customer needs. Predictive personalization will be a key digital transformation trend in the coming year, and financial institutions should be looking to retailers for keys on how to adapt the technology to fit their needs.
The Future of Work
The pandemic changed the banking ecosystem in ways that benefit customers. After many years of asking for changes to efficiency, speed, adaptability, collaboration, and flexibility, it has been the pandemic that forced the hand of larger organizations holding onto tired legacy systems that are unable to keep up with the pace of change and determined to dictate to customers the changes that would be introduced and when despite fintechs offering far superior support for many years now.
Banks have been exposed as a significant skills gap caused by the explosive shift of consumer engagement to digital channels proving what many already knew; banks are slow-moving dinosaurs regarding tech adoption.
As the world has reopened, many people seem to want to return to a more social workplace with in-person services. The belief that people would shut off the world and work remotely forever has been dismissed as the workforce pushes for greater work-life balance and more flexible hours.
Cloud Computing
The banking industry’s movement to cloud computing has been slower than anticipated. Security concerns plague the industry, with preventable massive data breaches occurring regularly. However, as processing large amounts of data as quickly as possible and maintaining pace with preferred fintech options pushes banks to make changes, hybrid cloud infrastructures are anticipated to escalate significantly.
Increased investment in scalable and industry-specific capabilities by IBM and other providers will see the expansion of services. These solutions address privacy, security, and compliance while minimizing set-up costs.
Privacy and Security Investment
Privacy and security are serious concerns for online banks and the fintech sector. People expect that their data is private, used only in ways permissible by the customer, and that all policies about usage and sharing are transparent. Customers want instant personalized access to services. It is a tricky balance; only investment in improved technology and resources can deliver an answer.
Many financial institutions and fintech organizations use cybersecurity and data privacy as unique selling propositions. Right now, The transition required is balancing identity possession and rights with access and security.
Consumers should have the power to manage access to their data residing on applications, the web, and other digital channels, with the burden of complying with regulations being the responsibility of banks.
Takeaways
Digital transformation requires a commitment of C-suite executives to the entire transformative process. Without such commitment, customers will continue to find solutions elsewhere, with few strings attached and more customer-focused attitudes.
Data, analytics, and technology are at the core of the changes we expect to see in the coming years, but the human element must be addressed.
People will need to upskill, legacy solutions will need to be relinquished, and an overhaul of the financial institution systems will need to be addressed to meet the expectations of customers who have been online their entire lives and who are going to start new businesses, take out loans and make investments, all in an online world where they don’t need the dinosaurs of 20th-century banking.