Digitalization in Banking: Definition, Advantages and Current Challenges
The banking industry is moving from a traditional offline mode to a more
proactive digital approach. It is modern technologies such as Internet of
Things, Artificial Intelligence, Machine Learning, Block Chain, Big Data Analytics
etc. that are driving this digitalization in banking.
In this blog we will take you through what banking digitalization means, along
with its advantages and current challenges faced by banking institutions in
digitalization their banking infrastructure.
What is Banking Digitalization?
While consumer facing tech such as real-time digital payments, or instant loan processing are
technologies that improve customers’ experience when availing these services, technologies
deployed at the back office, such as intelligent document processing, or real time data
analytics also hold great promise for banks.
Therefore, banking digitalization refers to transformation in the technological infrastructure
used by banking institutions at both front and back office. According to research by Market
and Markets, the global digital banking platforms market is projected to grow at a CAGR of
11.3% and is expected to reach $13.9 Billion by 2026.
With such rapid growth in adoption of modern technologies for digital banking, banking
institutions will face tough competition in the coming future, from technologically advanced
competitors.
Advantage of Digitalization in Banking
From fraud detection to seamless client onboarding, banking digitalization through
tech has multiple potential advantages for banking institutions.
Let us have a look at some of the most important benefits of digitalization in
banking
Improved Customer Experience
Digitalization in banking involves building specialised applications that enable customers in resolving all of their banking related tasks in a simplified manner. By building the required technological infrastructure, banking institutions can provide their banking service online, through their website, mobile application, or via phone banking. Thus, improving customer experience at very touchpoint.
Enhanced Operational Efficiency
Banking digitalization involves incorporating technology to enhance the operational efficiency of both front office as well as back office. By automating repetitive banking processes for example manual customer data entry, and validation or processing documents, banks can save significant amount labour which can lead to more efficiency business operations.
Increased Data Security
Banks hold a vast amount of crucial customer data, from personal details to bank account passwords. It is the responsibility of the bank to deploy necessary security measures to protect customer’s valuable sensitive information from getting into the wrong hands. Through banking digitalization, banks can digitize their sensitive customer information and keep is secured behind cybersecurity infrastructure.
Touchless Banking Processes
Visiting a bank is usually not an experience most people look forward to, mainly because of the complicated processes involved and the amount of time that is wasted while jumping from one counter to the other. Digitalization in banking enables banks to offer touchless processing of majority of banking related tasks and offer self-servicing capabilities to their customers.
End-to End Workflow Monitoring
One of the most crucial advantages of banking digitalization is the ability to track and monitor over business workflows through a single dashboard and initiate changes in the processes as and when needed. Tech driven banking digitalization offer bird’s eye view of all banking processes and facilitate faster resolutions of blockages in the workflow.
Data Driven Decision Making
Data has become the guiding principle of all business process automation strategies in the last decade. Banking digitalization through AI driven tech helps banks make data driven decision by collating data from various business solutions, such as CRM, accounting, loans, insurance etc. By integrating data across all business operations, banks can utilise customer data more accurately and perform data analytics to gain insights that can help boost business performance.
Challenges to Digitalization in Banking
Majority of banks have been using IT solutions to help with their daily business processes for years. However, according to a report by McKinsey, only 30% of banks that have successfully transformed their digital banking ecosystems and have sustained it for profitable business outcomes. Let us have a quick look at top 5 challenges that pose a threat to digitalization in banking:
Internal Training and Digital Skill Gap
Any digital transformation strategy should incorporate adequate training and mentorship for internal staff to make the most of the new digital infrastructure. Bank employees lack the technical expertise to implement and sustain the digital transformation. Banking institutions should incorporate adequate resources towards training the staff and bridging the skill gap while transformation their banking infrastructure.
Complexity of Implementation
Transforming digital banking infrastructure involves implementation of complex technologies that require expert support from a technology partner. Banks that partner with third party service providers to develop specialised enterprise grade solutions for their business need internal agents to guide the digital transformation. The complexities of implementing latest technologies pose a significant challenge to banking digitalization as it can drive up the cost of the project and cause delays in deployment.
High Cost of Digital Transformation
Developing specialised enterprise grade technological solutions can take months and involve high cost due depending on the complexity of applications. Banking digitalization projects can also incur significant costs which require extensive due diligence before initiating the project. Therefore, most banking digitalization projects are very slow when it comes to execution due to slow development and deployment of digital solutions.
Increased Dependency on Legacy Tech
Dependency on legacy tech for extended period is among the biggest challenges for banking digitalization’s. The digital solutions utilized by banks have been deployed in the infrastructure for decades and therefore have created a dependency on it. Banks that have most of their data stored in legacy tech solutions are often reluctant to transition to new technological upgrades due to lack of awareness and the fear of loosing existing data.
Organizational Siloes
Intelligent document processing software enables seamless integration of data across multiple systems. Thus, facilitating uninterrupted flow of data between crucial business systems such as CRM, accounting, Insurance Sales and Distribution Management software etc.
Future of Digitalization in Banking
While the challenges to banking digitalization do pose threats that can reduce the progress of industry wide digital transformation, incorporating
modern technologies to optimize business processes is also essential to sustain in a AI driven market.
As most large banking institutions look towards allocating a significant amount toward to digitalization, banks that can not afford such widespread
transformation should partner with application development service providers. Banking institutions should look towards a digital transformation
strategy in phases in a API led ecosystem that protects existing data within legacy solutions currently deployed at banks.