For many industries, the emergence of technology has changed the rules of the game, but the financial services sector has been particularly affected. The Covid-19 pandemic outbreak, however, made clear that relying on technology for both customers and employees only helped to underline the significance of digitalization.
The banking industry is only one area where the effects of the digital revolution are still being felt. Banks and other conventional financial organizations are no longer the sole things that come to mind when the financial industry is mentioned nowadays.
The market was introduced to new financial institution types that did not previously exist as a result of digitization. Many of them even influence the entire business.
On the other hand, to remain competitive, banks and other traditional financial institutions must keep up with the pace of this digital change.
The Process of going digital
Digitalization is defined as “the use of digital technology to modify a company model and generate new revenue and value-producing opportunities; it is the process of shifting to a digital business” in a glossary created by the international research and advisory organization Gartner.
Digitalization has changed the business models of numerous organizations working in all facets of the financial services industry. At the same time, numerous new companies, most notably fintech start-ups, have succeeded in disrupting the established financial players and penetrating the financial services sector.
There are many trends and breakthroughs to watch as the sector travels a long path of digital transformation.
The shift to online and mobile banking
Since the turn of the century, digital banking has become more and more common. Its appeal was previously primarily limited to younger, tech-savvy customers, but the Covid-19 pandemic has increased usage among people of all ages globally.
This is partly because phone banking services were frequently overburdened with calls and understaffed, while trips to physical bank locations were not an option during lockdowns.
Digital payments have thus become the fastest, safest, and most practical choice for financial services because they can be completed quickly on a laptop or a mobile device with no hygiene risks.
The shift from traditional banks to challengers
Customers have been using online and mobile-only banks more and more over the past few years, in addition to shifting more toward online and mobile banking services offered by their traditional lenders.
A 2019 study by management consulting firm A.T. According to research by experts, 32% of millennials and 21% of Filipino consumers said their primary banking relationship was with a challenger bank.
With the exception of Metro Bank, one significant distinction between challenger banks and traditional lenders is that the former lack physical branches in an effort to reduce costs and offer better deals to their consumers.
The analysis examined the factors that influence customers‘ decisions to switch from traditional lenders to challenger banks and found that ease of use, ease of opening an account, and appealing use of technology were crucial elements.
Customers frequently choose an online or mobile bank due to the improved functionality and online experience they provide, as well as more appealing rates or fees and higher-quality services, according to a 2017 survey from data management platform Relay42.
Furthermore, according to a report on digital banking from GlobalData, “Artificial intelligence [AI]-powered money management helps digital banks like Monzo drip-feed highly personalized spending tips to build trust and engagement in the absence of in-person interaction, just as Amazon once did with real-time order progress notifications.”
Fintech’s big role
Financial technology, also known as fintech, is one of the most important signs of the digital transformation of the financial services industry.
Fintech is transforming the financial services industry by providing a variety of technological solutions that improve the user experience for customers, such as expenditure tracking, chatbots for customer care, and budgeting tools. As a result, start-ups providing financial services are one of the factors accelerating digitalization in this sector.
Traditional lenders are having to act quickly to keep up with the fintech revolution in financial services and reevaluate the goods and services they are providing. Traditional bankers frequently work with fintech firms to provide customers with quicker and more affordable services.
The development of Robo advisers
The robo adviser is a different product that is revolutionizing the banking industry, which is evolving quickly.
These online platforms offer both investment management—which is based on algorithms created by portfolio managers—and financial counseling. Robo advisers automate the investment process with little to no human oversight.
Account setup, client assistance, account services, portfolio management, and goal planning are a few of the services provided by Robo advisors. These are usually completed for a small price. Following information collection about their clients, their financial situation, and their aspirations, Robo advisers also invest their clients’ assets automatically.
The robo-advisor market seems destined to continue expanding. According to data compiled by InsideBitcoins, there are projections that the US Robo adviser market would grow to $1 trillion in value by the year 2020, a 40% year-over-year increase.
The effects of blockchain
Another piece of technology that is accelerating the transition to digitalization in banking is blockchain. The technology behind cryptocurrencies like Bitcoin is called a blockchain.
According to GlobalData research on blockchain in banking, “the original objective of blockchain technology was to facilitate the movement of value within trustless networks; where the different parties did not have to trust each other to undertake transactions involving the exchange of value.”
The digital representation of financial or physical assets made possible by blockchain has changed how consumers think about money, invest their wealth, and transact on marketplaces. With the help of this technology, it is possible to locate, catalog, and store assets as digital tokens in a database.
But the GlobalData research also notes that “trust remains vital to most economic partnerships outside the area of cryptocurrency. In favor of permissioned platforms, where users must be screened and approved before joining the network, most commercial blockchains will reject the completely trustless approach pushed by bitcoin platforms.
Technologies facilitating the change
In their quest for digital transformation, financial services are adopting a range of technical developments, including artificial intelligence (AI), data analytics, cloud computing, and the internet of things, among others. Financial services companies are now able to respond and adapt to shifting situations more quickly because of this technology.
The introduction of applications like virtual help, client profiling, identity verification, and fraud detection, particularly in retail banking, has been a particularly significant contribution of AI to the field of financial services.
Key advantages of cloud architecture include its ability to cut costs and provide more security and flexibility. The digital transformation also includes automation, which enables financial institutions to process the massive volumes of data they are producing, gain new clients, and reduce employee workloads.
