A popular buzzword in today’s competitive world, digital transformation (DT) is changing the landscape of all businesses or industries. The growing impact of digital technology and automation has created innovative opportunities for streamlined and optimized business operations, improved customer experiences, and enhanced employee efficiency. While the COVID-19 pandemic has challenged all industries, finance and banking are at the center of this transforming experience. Digital transformation in the financial industry has now become a successful business strategy. The rise of FinTech companies and solutions over the past years has led to a completely new and transformed financial services landscape. A new era of open banking has enabled systems to seamlessly integrate with robust networked digital ecosystems which assist in better compliance and financial management while minimizing errors and other related risks. Financial institutions like banks, and investment and insurance companies are always in the process of creating new records for new clients, which generates numerous paper records. Converting all these crucial data into digital format with the help of data entry services is a practical option to streamline documentation and management.
DT in Financial Services – A New Frontier
Digital transformation (DT) has made a significant impact on the financial services industry and has now become a strategy for business growth. Improvements in customer experience (CX) and revenue growth opportunities are the two drivers of digital transformation. However, the journey of digital transformation can be challenging. Even though some organizations have digital transformation in their DNA, the majority will need considerable foresight and planning. They will need to shed old habits, update cultural norms, up skill their employees, and adjust their ideologies or work to become a digital business. Learning to correctly connect the dots between digital initiatives, strategy, and business enablement will be critical.
Here are some key points on how digital transformation is changing or impacting the financial sector –
- Improved Operations with FinTech – FinTech (or financial technology) involves all modern technologies that banks and other financial companies employ to improve the delivery of financial services. The technology has in a way significantly transformed the finance sector by utilizing automation and machine learning techniques to elevate the customer experience. It includes all services from the use of ATMs and electronic cards to digital banks and block chain technology. Reports suggest in the period 2019 – 2025 FinTech will grow by about 25 to 30 percent. Financial businesses will be openly embracing FinTech as a future investment and may include the use of automated chat bots (available 24×7), online budgeting tools to regulate money spending, and spending tracker to monitor funds. In addition, the technology focuses on fixing operational issues like budgeting and customer service.
- Proven ROI – As the benefits of digital transformation are varied, most financial services companies anticipate high returns on revenue and profitability, even more than other industries. As a result of the promising gains, financial services companies are making significant digital investments. About 65 percent of all financial services organizations plan to increase spending by 10 percent or more. Lower middle market companies anticipate the greatest increase in revenue and profitability – 83 percent (10 percent or more) over the next three years and therefore are willing to increase their level of spending by the same percentage.
- Focused Investments in IoT, AI and Blockchain – Investing in innovative digital capabilities for anticipated businesses is a top digital priority for financial services. Among these include the internet of things (IoT), artificial intelligence (AI), and block chain, in addition to the advanced technologies that are being deployed (like cloud computing, advanced analytics, and automation).
- IoT – The implications of IoT for financial services institutions are very significant. According to Markets and Markets, IoT in banking and financial services institutions is expected to grow from $249.4M in 2018 to $2.03B by the end of 2023. IoT devices are more often associated with consumer products. The benefits of having real-time data about clients’ physical assets are valuable to financial services companies that are planning to improve their current products and services, capitalize on customer purchasing behavior, and offer more personalized user experience. Some of the common financial services IoT applications today range from providing usage-based insurance to analyzing biometrics data to improve the credit underwriting process. However, many more will emerge. Within a financial organization, use of IoT devices like smart sensors, can help improve workforce dynamics by tracking employees’ movements and working habits, and reducing building management and utility costs.
- Artificial Intelligence (AI) – Companies use AI to identify transaction anomalies, perform basic background checks and better mitigate fraud and money laundering risk. AI reduces the possibilities of cybercrime by protecting mobile banking, login credentials and much more. Apart from detecting financial frauds and preventing cybercrime, AI also improves customer experience by providing valuable insights into customer behaviors. According to a study done by Forbes, about 70 percent of all financial service businesses use machine learning in their production and 60 percent of them utilize Natural Language Processing (NLP). Reports fromTheFinancialBrand.com states that by the end of 2030 financial institutions will be able to save 22 percent of their operational costs due to AI. Capital market firms can make faster, smarter trade decisions based on sophisticated analyses of past market performance data. They can conduct customer behavior analyses and personalize customer experiences based on individual customer profiles (like suggesting customized portfolio solutions based on each individual’s risk appetite).
- Blockchain Technology – While cryptocurrency may be the most widely known application till date, Blockchain technology can ensure more secure and automatic payments via the use of smart contracts, claims processing; streamline back office operations; and mitigate fraud risk; by removing friction from processes. Blockchain-powered payment systems facilitate global payments and money transfers within seconds and run 24/7. According to Global Market Insights, by 2024, the blockchain market is expected to be worth more than $16 billion, with applications related to identity management anticipated to be the most profitable, with a greater than 90 percent compound annual growth rate (CAGR) from 2018-2024. Reports suggest that Blockchain technology has huge potential to transform the world if adopted widely. Its ledger system functionality uses strict controls to audit data and enables smart contracts.
- Cultivate a Strong Employee Culture – Digital transformation is all about changing the way companies work. Cultivating a strong employee culture is important in financial services institutions. The technology hinges on the adoption of digital capabilities by the end users – employees and customers – and business enablement. Inspiring organizational behavioral change begins from the top. The senior most employees of the company need to evangelize the vision and make their employees understand why they need to leave the status quo behind and believe in the strategy and get fully engaged in the new process. Cultivating a corporate culture that embraces constant experimentation and learning is particularly important for financial institutions to survive in this digital age. About three-fourths of financial services executives (73 percent) cite insufficient training as the biggest challenge to moving forward with a new digital initiative. While giving opportunities to budding talents can help improve overall digital competency, organizations also need to provide current employees with the right training and development and other resources they need to be effective as their roles start to evolve. Companies need to consider a formal digital up skilling program, with personalized training modules to future-proof their workforce.
- Leverage the Power of Disruptive Technology – Disruptive technologies help transform financial markets and generate innovative industry verticals. In fact, the growing tendency of customer’s shift from traditional banking procedures to convenient digital banking services analyses the significant power of these technologies. Examples of market transformation using disruptive technologies include services like PayPal, ApplePay, or Google Pay. With about 286 million users active on its site, PayPal Holdings, Inc is transforming businesses with about 87.5 percent of online purchasers using PayPal. Following suit, providers like Kabbage and Stripe focus on small businesses by providing valuable services. For instance, Kabbage, Inc – an online financial technology company offers lending services to small business owners via an automated lending platform. On the other hand, Stripe delivers high-quality online payment processing capabilities to small business owners making them more competitive in the marketplace.
Change is inevitable in technology and business. As digital transformation technology comes on-board in the financial services world, an equivalent back-end support layer must be applied to counterbalance any doors opened with new technological approaches. Digitization of payments has opened doors for cybercrimes. For instance, Trade-based money laundering (TBML) is a system based on massive volumes of traffic. The US Government Accountability Office (GAO) has recently warned that cybercriminals are turning to TBML as a way of hiding fraudulent payments, and using international fund transfers to wire money across borders. When incorporating new innovative technologies to create better customer experience and build new revenue opportunities, it is equally important for financial companies or businesses to digitally transform the backend that facilitates these changes. A 360-degree-approach to digital transformation helps the finance industry ensure that innovation fully meets regulations as well as customer expectations.
Digitization is an ongoing process that is vital for all industries. However, having a proper digitization plan aligned with every aspect of specific business outcomes is crucial for every industry to survive and grow in the present digital world. The process of digitization begins with conversion of all paper-based documents or data into digital format, which needs to be carried out efficiently. To digitize data accurately and cost effectively, make sure to approach a reliable data entry company that provides dedicated data conversion services. Experienced companies allow efficient processing of data into digital format and enable companies to remain strong in the competitive world, while earning maximum profit. With digitized documents in place, companies can incorporate advanced technologies like AI etc to gain valuable insights and a competitive edge.