Digital transformation in banking

Digital transformation in banking, as in all other industries, is a manifold process that encompasses not only the customer-facing aspects like digital services for clients. In fact, banking digital transformation entails a complete overhaul of how traditional banks operate on the backend and in customer-facing services.

In essence, digital transformation is precisely this — a full revamping of how an organization functions, executed through adopting appropriate digital technologies and their skillful integration into the business processes. Digital transformation in banking is complex since banks must get on par with newly created digital-native financial service providers. 

In the sections below, you can find an overview of digital transformation in the banking sector, how it changes the customer experience in the banking sector, and how to overcome the main challenges in the digital transformation process in banking. 

Digital transformation in financial institutions 

Digital innovations on a global scale have driven major shifts in the banking industry in the last few years. Parallel to this, the changes in customer expectations are a powerful force too. Customers are increasingly opt-in to use the services of organizations that have gone digital and are thus able to provide speed, cost-effectiveness, and ease of access. Traditional banks thus strive to embrace digital transformation to address the new preferences of both corporate and private clients as an important competitive advantage.

In fact, integrating digital tools, collaborating with top fintech companies, and investing in new technologies is paramount to a financial institution's ability to stay in sync with the market and meet customer expectations in the 21st century. In addition, digital transformation in banking also requires a shift in the company culture and a process to adapt to digital innovations. 

How digital transformation in banking improves the customer journey

One of the main goals of bank digital transformation is to change how customers interact with their financial service providers — bringing this experience to the expectations of our highly technological times. Traditional banks that want to stay in the top rows of the industry are thus adopting novel approaches to meet this demand.

Today most customers need to have the option to use online banking to make payments and keep track of balances and transfers. This is becoming the norm for most types of clients. Various other services are also going digital, saving time and money for customers and banks alike.

Nevertheless, bank clients tend to prefer in-person services still when it comes to asset management, investment banking, and corporate account management, as these require more consulting and back-and-forth communication. But these services also need to be powered by digital technology to provide the required efficiency and innovation. 

Digital transformation in the banking sector is driven by adopting various new technologies that impact the customer journey. Below are the most notable ones and how they affect client interaction. 

Cloud computing

Cloud computing is one of the first aspects of going digital for most organizations, and this is the case for digital transformation in banking and finance. When a bank starts using cloud-based services, this leads to faster operations and a boost in productivity, as well as in better customer relationship management. All of this, in turn, means that products and services are delivered faster to end customers. 

Artificial intelligence and machine learning

Banking tools powered by Artificial Intelligence are a reality — chatbots and digital assistants already serve customers by providing information and troubleshooting. They are a significant driving force of digital transformation in banking.

In addition, AI and machine learning are being used for the management, security, and analysis of financial data. Equipped with these additional insights, financial institutions can provide better client services by spotting recurring patterns (great for fraud protection) and processing customer data in real-time. 

Big Data

Data analytics solutions based on Big Data are powering up a major shift in banking activities. Big Data technologies allow banks to manage risks better and process consumer data, which makes them key to digital transformation in banking. With this extra knowledge, financial institutions are able to offer improved services to increase customer satisfaction and offer people the most innovative solutions on the market. 

Types of digital transformation in the banking industry

The digital transformations of operations of a financial institution can be tackled in three major ways. Organizations often combine the three to match the needs of revamping the different lines in their operations. 

Business-as-usual mode

Many banking businesses choose this digital transformation model because it is low-risk and doesn’t require a huge up-front investment. The changes are done in an incremental fashion, one piece at a time, while the company continues regular operations. It’s often a preferred model in the first steps of the digital banking transformation process. 

New business model creation 

This model is a bit more complex and involves more resources dedicated to digital transformation in banking. In particular, a new digital business department is set up to take care of the process. The model is typically used in the middle and early advanced stages. 

Starting from scratch with a digital-native bank

This model — digital native — is the most challenging but brings the biggest changes. Customers have to be willing to switch to a completely new digital bank. This is not an easy process, but it is not subject to pushbacks due to slow legacy systems. The model is used for the most advanced digital transformation strategies. 

Challenges of digital transformation in banking

While the benefits of digital transformation in banking are undoubted, the process comes with challenges. That’s why a solid digital transformation strategy is key to success. 

Some of the most common difficulties financial institutions encounter include adapting legacy systems and shifting from established business models. Creating a tailor-mode workaround strategy around these challenges is essential for the transformation’s success. 

Legacy systems usually are the hardest nut to crack. Many banks' existing systems were set up in the 1980s and 1990s, way before the digital age we’re living in today. These old core systems are difficult to replace altogether, making companies seek alternative solutions such as patching, third-party vendors, and various workarounds — all of which complicate the digital transformation process. 

While some sort of new system can be set up this way, it’s often quite a headache to keep track of all its elements. At the same time, replacing the old core system is also a complicated and risky process. Each organization thus needs a tailor-made digital transformation strategy that considers its specifics.

Heavier business models are another major challenge. Traditional banks have been operating in much more complicated ways than new financial institutions, especially compared to lean fintech startups. They need much smaller teams and often operate with a digital business model. In addition, they have leaner internal processes and fewer or no physical locations. Moving to more flexible business models is key for banks because it allows for agility and speed, which feeds directly into their ability to undergo a successful digital transformation. 

A trusted partner can help you set the right digital transformation goals

Undergoing the complex process of digital transformation in banking is rigorous. Working with a trusted partner is crucial, as it will help you craft a solid digital transformation strategy and execute it adequately with the right goals in mind. 

Since every company and every transformation process are different, you need a tailor-made approach fitting your organization and vision. 

Our mission at Resolute Software is to help companies achieve digital transformation and modernize their systems and processes effectively. We have realized many successful projects throughout the years in various sectors, with a special focus on financial institutions. 

Ready to embark on your digital banking transformation journey? Get in touch with us today to start this thrilling process.