Digital Transformation in Financial Services: All You Need to Know

The finance field belongs to the top digital business strategy adopters with a 93% rate . The increasing popularity of tech solutions stems from the ongoing digital transformation in financial services. Banks, payment providers, insurers, and other market players invest in comprehensive automation, machine learning, AI, and blockchain to become more efficient.

There are many ways to implement digital transformation in banking and financial services, so every company needs a custom approach. The Binariks fintech software development company can help you develop a personalized implementation roadmap and follow it. We provide consulting and software development services to facilitate digital transformation in banking.

In this article, Binariks experts explain how digital transformation in finance looks, its benefits, roadmap, and other crucial details.

Digital banking transformation demand after COVID-19

The lockdown caused a 72% increase in fintech app use in Europe. The interest in digital solutions for remote payments and finance management remained strong when the pandemic wave subsided. Even though people still need physical branches for some services, they can do many operations with digital apps. In 2021-2022, 22% of customers claimed to bank more online compared to the pre-pandemic time. The global fintech market, valued at $110.57 billion in 2020, will reach 8.48 billion in 2030 .

Allied Market Research

These numbers mean several things. First, although people initially shifted to digital services because they didn't have a choice, they liked it. Many consumers will keep using apps despite the world returning to normal. Second, many financial providers have realized the importance of fintech apps as a fallback option. Thus, they willingly digitize their services and financial operations even after COVID-19.

Trends for digital transformation in financial services

Digital transformation is a broad term encompassing many tech innovations. Still, some are more popular among financial organizations and have proven to be highly effective.

Automation

Automation is at the core of digital transformation in finance as it allows replacing human effort with software. This way, you increase efficiency, reduce the likelihood of errors, and optimize expenses. Most importantly, you become competitive since many leading market players have already adopted robotic process automation for repetitive transactions.

Mobile apps

All large finance and banking companies launch custom mobile apps to reach smartphone users and make their services more accessible online. There are also independent mobile banking providers with millions of users, including Alipay (1,607.7 million), Apple Pay (808.3), Google Pay (757.5) and PayPal (458.3). These payment software solutions enable customers to manage finances independently, support online chats, collect valuable user data, and offer advanced personalization.

Statista

Transition to cloud

Even though cloud software isn't innovative, it's an essential element of digital transformation in banking. Transition to the cloud allows outsourcing data storage and building advanced applications. You can quickly scale without purchasing on-premise storage and expensive hardware.

The table below illustrates how to make migration to the cloud truly effective for in-depth digital transformation:

McKinsey & Company

Artificial intelligence and ML

Approximately one third of fintech players have already fully incorporated AI technologies in their business as of 2021. AI and ML are about smart chatbots, sophisticated predictive analysis, fraud prevention, and increased security. These technologies also enable providers to select more suitable services for every customer based on real-time analytics.

Blockchain

Blockchain structures data in blocks, encrypts it, and applies decentralization for ultimate security. It makes this technology the top choice for building more secure banking software systems . It also speeds up transactions and reduces the number of intermediary banks.

Big data

As more people convert to online banking, the data volume financial organizations process grows exponentially. Successful digital transformation is about using this data wisely. In particular, companies can rely on big data for market research or personalized financial services.

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Finance digital transformation case studies

These case study examples show how other banking and financial services have undergone digital transformation. A use case analysis may give you a better idea of what you can do in your company.

Lloyds Bank

Lloyds Bank has adopted public cloud, machine learning, and advanced analytics, spending £3 billion on digital transformation. The move to the cloud allows them to reduce the time required to deliver new features by 30%. Besides, ML tech now enables over 50% of customer transactions, freeing the staff for more critical tasks.

The bank keeps putting money into technology adoption, planning to broaden self-service capabilities through digitization and simplify legacy IT estate.

"We have the largest digital bank in the UK…We have been able to effectively respond to changing customer preferences and we believe that the key component of our competitive advantage is our differentiated multi-brands, multi-channel model, supporting our segmentation strategy, alongside the largest branch network in the UK. The growth in our digital channel also provides the Group with capabilities to effectively compete with new digital-only challengers with a marginal cost to serve of just £15 for those customers who opt for a digital-only offering (CEO Antonio Horta-Osario)."

Bank of America

Bank of America has invested in digitalization for the last decade, launching automated mobile check deposits and digital lending applications, Erica, Life Plan, Zella, and CashPro. This has led to outstanding achievements. In 2020, customers made 84% of deposits through the company's automated channels. The AI-driven virtual financial assistant Erica helped customers with over 230 million requests. With Zelle's digital payments network, users sent and received over 517 million transactions, equal to $141 billion.

"This past year digital capabilities were more important than ever to our clients. Our investments in mobile and online channels over the last 10 years, along with new and enhanced capabilities introduced throughout last year, enabled us to deliver more personalized experiences for each client through a balance of digital and in-person tools and services across their entire relationship with us (Head of Digital, David Tyrie)."

Benefits of digital transformation in banking

Digital transformation in the banking industry improves the lives of both consumers and financial institutions. Services become faster and more sophisticated. Many things customers could not solve online now become easily accessible without in-person help from bank workers. For instance, what previously required a bank visit can now be covered by embedded finance or a custom payment gateway development in a solution.

Here are the core benefits of digital transformation in banking:

Optimized banking process

Technology enables teams to automate administrative tasks and customize workflows to focus on more complex operations. The software can complete 90% of the work accountants using spreadsheets do. Thanks to such optimization, all teams work faster and more synchronized.

Increased customer base

Finance transformation technology enables organizations to serve more people tailoring services to each one. As the quality of banking improves, the customer base grows as well.

More revenue

Automation-driven expense optimization allows financial organizations to cut expenses and increase revenue. According to estimates , the global operational cost savings from using chatbots in the banking field will reach $7.3 billion by 2023. And chatbots are only one digital transformation strategy for financial services.

Enhanced adaptability and flexibility

When technology handles many routine banking processes, an organization can quickly adapt to changing market conditions. For example, it can connect additional capabilities to serve more people during peak times, integrate a new feature to meet customers' needs, etc.

Data-driven decisions

Technology allows you to collect valuable customer information and generate detailed profiles to tailor your services. You also get reliable data to evaluate risks when granting a loan to a specific applicant.

Automated reporting and compliance

Real-time consolidated data helps banks handle reporting and reach 6 PCI DSS compliance . The finance industry digital transformation may also involve banking blockchain adoption that brings ultimate security and data processing transparency. Which only raises the bar for fintech companies that want to match the mobile banking compliance requirements .

Finance digital transformation roadmap

Digital transformation in the banking industry is a time-consuming process. You will need to estimate your financial capabilities, evaluate goals, choose the right technology, and go step by step to implement changes. Here is a standard financial business transformation roadmap explained.

Step #1. Evaluate your current state.

Analyze your organization's current work to detect weaknesses. You must also understand how much you can spend on digital transformation now and in the future. Besides, it is helpful to look at competitors. Competitor analysis shows how others go through digital transformation to draw some ideas. Below is the statistic on the main priorities of financial companies going through digitalization:

EY

2. Envision where you want to be in 5-10 years

Digital transformation is a long-term investment, so you must specify your goals. For example, you may expect to substitute 85% of human claim processing with automated analytics software in five years.

3. Conduct a gap analysis

Once you know your goals, it's time to analyze the gap between what you have now and what you strive for. It will give you a clearer understanding of the practical aspect of digital transformation.

4. Decide how technology can bridge the gap

Evaluate the software you currently use to figure out how you can upgrade it to meet the set goals. You may need to implement new functionality, integrate third-party solutions, or develop a platform from scratch. At this point, it's worth consulting a software development provider with relevant experience.

5. Build a detailed implementation plan

Create a plan mapping the adoption of innovations. It must start with the changes you can make in the nearest future and gradually evolve to more profound upgrades. Add deadlines, budget estimates, industry analysis, and other crucial details. Remember that IT transformation may take years and cannot happen all at once.

6. Start marking changes

Hire software engineers from a third-party company or use in-house resources to initiate software development. Be open to modifications as you go since the fintech market is pretty unstable.

Read Also: How to Create a Product Roadmap Using Agile Methods

What aspects drive successful digital transformation in financial services?

Based on our previous projects , we can name several factors that are particularly critical when going through digital transformation.

Customer-centricity

Design products with convenient UX/UI and seamless end-user experience both for customers and financial teams.

Minimum time-to-value

Develop an innovation delivery pipeline that allows you to make a tangible impact within the shortest time. It's life-critical in the rapidly changing market that demands continuous improvement.

Modernization of core systems

While innovations can improve your operations, they still depend on on-premise data and information flow across legacy systems. Thus, you need to upgrade your existing software as well.

Employee training

Prepare employees for new applications to maximize the benefits of innovations. The human factor has an enormous impact on the success of the digital transformation.

These simple hacks should help you launch solutions that are not only innovative but also relevant. They will be perfectly tailored to your business and customers.

9 questions to ask your IT team before finance digital transformation

Whether you have an in-house engineering team or a dedicated remote team, you must ensure they realize the business goals of digital transformation. You can check it with these questions.

Final thoughts

The finance industry transformation is challenging to complete without a third-party tech partner. You need someone experienced to guide you through the process. Consider outsourcing fintech software development to a company that has the necessary skills and human resources to implement the required changes.

Binariks is a fintech software development company that can assist banks and financial services with digital transformation. We are proficient in mobile app development, cloud solutions, AI and ML, blockchain, big data analytics, and other leading technology. Contact us for consulting or hiring software engineers dedicated to your project.