Banking: a Sector Poised to Capitalize on Digital Transformation  

Digital transformation is a force that is affecting all sectors, from healthcare to farming, and manufacturing to energy and utilities. It’s also far from a new concept in the world of banking and financial services. Recent data suggests that some 80% of middle market banks have a formal digital transformation strategy in place.  

Since the early 2000s, particularly as the tech giants began to encroach into every aspect of customers’ lives, banks have been forced to re-imagine their customer relationships to ensure they retain their hard-fought and previously unchallenged position of trust.  

Traditional Finance and Fintech: from Rivals to Allies  

From initially being forced into a defensive position, however, banks have since moved out front, seeking new ways of using tech and the data it generates to win new business. Often this involves embarking on strategic partnerships with the very fintech companies they previously viewed as competitors and finding opportunities to enhance customer experience and improve efficiency. Research by financial software provider Finastra indicates that 56% of banking leaders want to make use of a network of integrated fintech solutions.  

New Investment, New Regulation 

These trends have caught the attention of investors – with the fintech sector becoming a major draw for VCs. It is estimated that in 2021 VC firms invested over $130bn in fintech startups globally, attracted by its many success stories. And, in regions around the world, regulators, recognizing the potential of supporting transformation and innovation, are working hard to create a landscape that fosters innovation while protecting both consumers and the markets, through initiatives like regulatory sandboxes and innovation hubs, as well as through the adoption of new technology to enhance regulatory supervision.  

A Client-Focused Approach 

All this activity points to a banking market poised ready to capitalize on digital transformation – but only for those banks willing to break new ground and think innovatively about how they interact with their clients and customers. Failure to commit to a digital transformation plan or to implement it effectively could mean that some banks may find themselves running very hard only to stand still.  

Any effective bank growth strategy must have client needs at its core: research from 10x Banking shows that banks lose 20% of their customers due to poor user experience.  

The commercial value of innovation relies on its practical use – otherwise customers will migrate to competitors and investments will go to waste. Digital transformation presents an invaluable opportunity to deliver benefits to customers and gather data insights that can help banks refine their offering on an ongoing basis. Digitization can help retail banks deliver the tailored and personalized experience that customers value, both in terms of the type of content available and of the way in which this content is accessed. This digital customer interface (most likely via a mobile app) presents new opportunities for banks, acting both as a shop window to showcase products and services, and as a vehicle to capture data. For instance, biometrics can help banks refine their product development and marketing. These interfaces, coupled with AI tools are enhancing customer experience, and significantly reducing bank overheads.  

A Digital-Only Future?  

While mobile apps will increasingly become the tool of choice for day-to-day consumer needs, customers still expect some level of in-person human interactions with their banks. This is especially true of customers who are dealing with milestone life moments, customers who are unbanked and cash-dependent, or those looking to make a major investment.  

While the 2023 Global Payment Report by FIS highlights the dominance of digital wallets such as Alipay, PayPal and Apple Pay accounting for some $18 trillion in consumer spending, it also foresees that cash will continue to play an essential role in most economies, accounting for over $7.6 trillion in global consumer spending in 2022.  

At the same time, the IMF reports that over 100 countries are exploring retail Central Bank Digital Currency issuance.  

In a market where some customers are demanding access to the latest digital innovations while others are holding fast to traditional mechanisms, banks would be wise to avoid a “one-size-fits-all” mentality and instead aim to be adaptable in how they deliver their products and services.  

The temptation might be to implement digital innovations immediately, right across the board. This might bring benefits in time but delivering a wholesale overhaul while maintaining business continuity is often challenging.  

With research from Mobiquity reporting that 80% of banking digital features were virtually the same, banks may find it more effective to focus their digital transformation efforts on areas where they are most able to differentiate themselves from the competition and add real value. This will provide customers with further evidence that their banks are attentive to their needs and ensure that banks are better equipped to cement themselves in that central position of trust.  

At times when economic uncertainty puts pressure on households, businesses and large organizations, digital transformation has the potential to help banks strengthen ties with their customer base by demonstrating that they truly understand both their concerns and their aspirations.  

Successful Digital Transformation Requires Careful Planning  

Wholesale digital transformation is a major undertaking that requires careful planning to avoid business interruption and customer frustration. For many banks, the process will involve a migration from a core banking system to a cloud-native platform.  

If pursued in a structured manner, this can unlock significant opportunities for banks to harness digital innovation to improve internal operations. Automating back-end processing not only reduces overheads but brings with it client benefits such as rapid due diligence and quicker financing decisions. It also helps streamline the client profiling process for compliance or marketing purposes.  

Once migration is complete, cloud banking will give banks the freedom to explore and adopt the newest technologies seamlessly.  

The challenge for banks, as for any business scoping how transformation will enable them to innovate, improve efficiency and remain competitive, is knowing when the time is right, which tools are right, and how to resource the process with the requisite blend of internal technical expertise and specialist external support.  

Elev8 is the partner of choice for banks around the world embarking on their transformation journey. In Nigeria for example, we supported the country’s leading bank to develop the technical talent it needed around cyber security, infrastructure,  software engineering and data analytics. The result was a transformation of business processes, the creation of new revenue streams, better banking operations and increased personalization of their customer journey – in summary innovation and efficiency that has had a positive impact on the bottom line. 

If your bank is exploring how to source and develop the tech talent you need to power a successful digital transformation, speak to us for more information today.