Digital transformation in the finance industry can help provide better security, improve customer experience, meet regulatory compliances, and speed up processes.
If you ask anyone associated with the consulting landscape about a sector that has really come into its own in the last five years, they will not hesitate to mention ‘Fintech’.
The past few years have seen financial institutions leverage technology to improve their products, services, and customer experiences. Whether using Mobile Banking or facilitating cross-border payments at a lightning pace with low commissions, fintech companies are the current rage in the market.
It should be pointed out that the digital transformation of the financial sector has helped it become-
- More accessible
- Customer-centric
- Safe and secure
- Regulation compliant
- Amazingly fast
- Innovative and ingenuine
- Competitive
There is no denying the fact that the financial services industry is on the brink of a digital transformation. To remain competitive in a market that enjoys cut-throat competition, arming your business with the latest technologies and processes is a sure-shot approach to success.
The Scope of Digital Transformation in the Finance Industry
In this section, we are going to list down five possibilities or scopes that digital transformation can bring to the financial services industry-
Improved Flexibility and Agility to take on challenges
You always have to be on your toes in the financial sector. This means that it is an industry that is dominated by responses to problems and crises. With digital transformation, businesses in this sector are better informed in terms of taking decisions. Using and leveraging data can help take stock of past experiences and events and follow through with an adequate response. Digital transformation helps with actionable insights.
Taking Calculated Risks and Taking Favorable Decisions
There is a reason why the financial sector is one of the most regulated industries in the world. The number of risks that financial industries face is tremendous. From customer data issues to online hacks and cybersecurity problems, the risk calculations and assessments are on another level. Digital transformation can help strengthen the core security frameworks. Cloud computing, firewalls, app security, and data analytics can help financial businesses.
Boosts Collaboration and Productivity
We all know that leading financial services have offices in different cities, countries, and continents. In most instances, they need to work with their colleagues and counterparts and take instant decisions or process payments, whatever the case might be. With digital transformation, financial businesses can improve cross-border collaborations, evolve operational models, and work through smart contracts to boost customer experiences.
While traditional banking services like loans, payments, investments, and deposits have largely remained unchanged for the last several decades, the way they are processed or managed has changed quite drastically thanks to emerging technologies.
Importance of Digital Transformation in the Financial Sector
We all know that the Coronavirus Pandemic stunted worldwide economic growth. The World Bank said in its Economic Global Prospects that the “Global Economy will contract by over 5% in 2020 due to the COVID-19 pandemic.”
Sitting in 2022, we know that the figure was far higher. Yet, the digital transformation helped financial institutions and customers bear the adverse impact of the pandemic to a considerable extent.
Customers were forced to explore online and mobile payment channels
The pandemic resulted in physical lockdowns and social distancing norms. This accelerated the demand for mobile payments, banking, and wallets. Mobile and wallet transactions skyrocketed through the roof.
This allowed easy access for customers and businesses to do away with the problems of handling cash. The payments were connected directly to bank accounts.
Digital payments spiked as customers started using mobile phones
The growth of smartphone technology and internet penetration has indeed proved to be a decisive factor in the development of the financial services industry. You do not need to carry your wallet anymore, or your cards for that matter.
All that you need is your smartphone to do all your financial transactions. The best part is that you no longer depend on physical bank timings. You can do whatever you want to on a 24×7 basis.
The emergence of remote working for finance professionals
Given the structures that banks and financial institutions operate with, it was hard to imagine there was any scope for them to work remotely. While it has not been a breeze, digital transformation strategies have allowed them to work just fine.
Issues around network security and other cybersecurity risks have been taken care of by strengthening and improving the existing network infrastructure. Remember, cybersecurity risks are most associated with this sector.
Changing market structures, pressures and challenges
Processing millions of payments, loan solutions, assessing risks, and analyzing backgrounds required significant technological intervention. The change in market dynamics needed fintech to grow, innovate and prosper immediately.
Fluctuating rates pushed forth by central banks and governments and the need to adjust to the same at a moment’s notice would not have been possible. The instantaneous nature you associate with the financial industry today is because of digital transformation.
The Future of Digital Transformation in the Financial Industry
The future of digital transformation in the financial services industry looks brighter than ever before. This is primarily to the emerging role and importance of two new technologies- Artificial Intelligence and Blockchain Technology.
According to leading experts, AI and Blockchain have the potential to revolutionize the financial services industry in three major ways-
- Boosting credibility and trust in financial transactions
- Eliminating friction and doubts when multiple players are involved in transactions
- Improving the speed of financial transactions (especially international payments)
Let us try to explain this with a real-world example. Think about what a financial institution must go through every time someone applies for a loan. There are tons of paperwork involved, personal documentation, self-attestations, and so on.
Now imagine everything; all details are already stored on the Blockchain. The bank or financial institution can use an AI program to run the documentation stored on the Blockchain. The AI can suggest whether or not the approval should go through and at what risks.
This can help in faster responses from the banks to the customers. You get speedier onboarding, swift disbursal, and a significantly improved customer experience. This is what the future of digital transformation in the financial sector holds.
The Final Word
Every bank and financial institution in the world has started engaging with new and emerging digital technologies as we speak. There is no alternative if you want to succeed in a highly competitive environment. Digital transformation in the financial services industry is here to stay.
In fact, in the coming years, you are going to see a whole lot of new technologies and software changing the landscape. Not only is this great news for individual customers but for businesses as well. If you have any questions on the interplay of digital transformation in the financial sector, please let us know in the comments section below.
