The digital transformation market will reach $1,009.8 billion by 2025, up from 469.8 billion in 2020. Banking and financial services are among the main contributors to this growth. Over 30% of financial organizations are currently implementing a digital transformation strategy , while 40% are about to start the implementation.
Citibank, BBVA, and Bank of America are only a few digital transformation examples in banking. More organizations are expected to join them soon. Would you like to be one of them?
Read on to discover the benefits of digital transformation in banking and how to achieve it with fintech software development .
The problem with digital transformation in the banking sector and other industries is that this concept is still vague. Many view it as any software update or improvement. The 2021's Forbes review states that 20% of the institutions that deployed a digital transformation strategy in 2020 declared they were halfway in a year only. These numbers sound inspiring but may be far from reality, though.
Digital transformation in banking and financial services is about using innovative technologies (Blockchain, AI, robotic process automation, etc.) to minimize manual processes, improve existing products, and increase customer satisfaction. The main point is to change how you provide services and move from a standard outdated approach to a more efficient and customer-focused one. It's a long way to go through that takes time and effort.
Digitalization doesn't necessarily mean a complete transition from legacy systems to newly developed software. You can refactor the existing codebase, introduce a parallel system for smooth migration in the future, or do a complete replacement. The choice is up to you and depends on your capabilities. If you need help with the decision, you may hire a third-party software development company for consulting or tech support.
Digital transformation examples in banking are the best way to illustrate what digital transformation is. Leading financial organizations have already upgraded their services in many ways detailed below.
- Bank of America. In 2018, Bank of America launched an AI-driven virtual assistant called Erica. This solution helps users manage their finances, including cash flow, bills, balances, and transaction history. It allows the company to handle over 230 million requests annually through digital transformation in banking.
- Citibank. The company shifted from using mobile apps as a supplement to physical branches to mobile banking as a separate experience. They surveyed customers and focused on the most wanted features like digital payments and investing. The tech advances saved them $600 million in 2020 and keep bringing the benefits of digital transformation in banking now.
- BBVA. BBVA implemented self-service in 94% of its products, profoundly changing customer services. Now, people don't have to visit a physical branch and wait in line. Apart from enhanced customer experience, such transformation allowed BBVA to sell 42% more products per month and increase average cost-per-transaction by 31%.
The digital transformation has also revolutionized BBVA's software development approaches. The company has adopted the Single Development Agenda to optimize product delivery by four times. It takes them three days to build a team and six weeks to create a prototype only.
Some other big names that have already gone through digital transformation in banking and financial services are TD Bank, J.P. Morgan, Lloyds Bank, and Rabobank.
Now, we have approached another question. What is the point of investing in a digital transformation strategy if it's so complicated and expensive?
First of all, innovations are the only way to keep up with other businesses. Suppose your competitors use AI for tailored automated communications while you continue sending standard messages. Guess what? Quite soon your existing customers will leave for better services.
Here are other benefits of digital transformation in banking apart from the competitive advantage:
Easier customer acquisition and nurturing
The transition from branch services to web and mobile solutions increases your target audience. An individual only needs to download an app or open an account online to become a customer. It makes people more likely to choose your company and boosts acquisition.
Besides, AI and machine learning, commonly used for digital transformation in the banking sector, allow banks to streamline customer communications. Such solutions can automatically deliver tailored responses in online chats. Instant responses save people from waiting for customer support and improve satisfaction.
Enhanced customer retention rates
Millennials and Generation Z consumers are up to 28% likely to switch banks while being their primary target audience. If you want to retain them, you will need to improve your services and go through digital transformation.
A digital transformation strategy can help you implement the banking experience enhancements that will make at risk-consumers stay. Your retention rates will rise with software that imitates the human touch, enhances data security, and personalizes communications. The consumers' preferences published by Deloitte prove that.
Optimized business processes
Digital transformation in banking brings a lot of automation into routine processes. Software completes many tasks that used to be manual, like data processing, customer communications, and record-keeping. As a result, the employees of financial organizations become more productive and don't have to deal with repetitive routine tasks. It makes banks work faster and complete more operations within the same time.
Advanced data analytics
Digital transformation in banking involves big data processing and interoperability. Innovative software allows you to collect large data volumes from multiple teams and automatically analyze them for statistics and insights. Based on this data, you can evaluate customer behavior, financial trends, and other tendencies that show what happens in the market and within your organization.
Even though digital transformation in banking has many dimensions, some tech solutions are essential for fintech innovations. Here they are.
Customer-oriented mobile apps
Any bank aiming to bring its services to a new level will need a mobile app. It can repeat the web services or offer the most critical features in a convenient interface. Be sure to make it customer-centered and learn what users need. The capabilities, such as real-time problem resolution, advanced security, and online banking advisor, are essential.
Cloud technology enables banks to implement innovation more easily. Leading cloud providers, Microsoft Azure, Amazon Web Services, and Google Cloud, support all technologies and tools you might need for building advanced fintech software.
Cloud computing makes financial organizations more efficient, speeds up development, allows quick scaling, and brings top-notch security. All these strengths matter for digital transformation in banking and financial services.
AI makes consumers' digital interaction with business more humanized. By using AI in your banking applications, you can analyze each customer's behavior to personalize your response based on their needs and expectations. Your messages sound intelligent and empathetic – nothing like standard ready-made communications.
Besides interactions with customers, artificial intelligence can be used for predictive analytics, cyber security, and credit scoring.
Internet of Things
The main application of IoT in banking is data analytics and customer services. Smart ATMs are the most popular form of IoT in banking, along with wearables that support contactless payments. Besides, IoT technology, like biometric sensors, enhances security and reduces customer data risks.
Digital transformation in banking and financial services means an increased number of data operations that must be secure and transparent. Blockchain and distributed ledgers help with that. This technology secures data transactions and makes them easier to track. It brings trust into the collaboration between customers and financial institutions.
Worried about the cost of innovations, financial organizations often delay the transition to more advanced systems. As time goes by, digital debt only grows bigger.
Legacy software or from scratch development is not the either-or choice. You can use both but for different purposes. The good news is that if you have legacy systems, you can go step by step until you are ready for a larger investment.
Replatfrom and refactor existing solutions to modernize them without significant changes. If your legacy software is good enough, it will allow you to cut expenses and feel the impact of updates fast. Custom development of new solutions is better to save for more strategic goals or when there is no way to upgrade your current system. Its purpose is to change how you provide financial services and expand your market niche. Hardware Business Review states that core business improvements show positive business results in months, whereas transformational breakthroughs require 5 to 10 years to show a significant impact .
The innovation matrix provided by Deloitte illustrates the use of legacy solutions with innovations.
Innovation ambition matrix
We admit that decision-making may be challenging when it comes to technology since there are too many factors to count in. You need to balance your existing resources with the need for digital innovation. That's why we offer you our consulting and software development services.
Binariks is a software development company focusing on fintech solutions and multiple projects launched . We will run a business analysis for your organization to offer the best tech way to transform it. Our software engineers can migrate your legacy software, implement additional features, run optimization, or create a new custom solution.
Digital transformation in banking and financial services is not a universal solution. It's a path toward technology innovations and better customer services every organization chooses for itself. On this path, you will likely need cloud capabilities, custom mobile apps, Blockchain, AI, and other latest technologies. You may also need a reliable tech partner to guide you through the GT process and help with software implementation.
Learn more about Binariks services and get in touch to talk about your tech needs.