Financial industry is now going through a massive transformation by turning to digital technologies and tools. What benefits do financial companies and their clients gain from this digital revolution?

All financial institutions are now working at implementing new technologies that can help prioritize customer needs and improve operational processes. According to the report, the size of the global digital banking market will reach $164.08 billion by 2027.

Digital transformation in financial services means revamping inefficient working patterns and switching to a more reliable and effective tech stack in order to greatly improve both staff and client experience. Mass adoption of smart devices and increased connectivity are two factors driving the introduction of innovative technologies. Clients no longer tolerate outdated workflow and rigid procedures and readily turn to more tech-savvy financial companies.

But how exactly is digital innovation in financial services achieved? What technologies do financial institutions rely on to provide an effective and smooth online experience for their customers?

Read on to find the answers to these questions and discover some real-life examples.

What are the key challenges in traditional financial services?

There are a number of pain points that financial institutions struggle with, such as:

Decline of in-branch banking

As fewer people attend physical banks, branches are being shut down. In 2021, 2,927 US bank departments were closed. This is a result of the general tendency of customers to deal with their financial operations online rather than communicate with bank officials.

Challenges caused by the pandemic

No one, including financial organizations, was prepared for the Covid-19 pandemic. When people were forced to stay at home, banks had to provide customers with quick solutions for online operations as well as build an effective infrastructure for staff working remotely.

New types of competitors

The number of fintech startups has more than doubled in 2020-2022. All these companies are potential competitors to longstanding financial institutions and banks. What’s more, the tech giants are taking a keen interest in stepping into the financial world — Apple launched its credit card while Alibaba founded its own bank. Bearing in mind that these companies are true experts at tech, it’s no surprise that they are really strong competitors.

Outdated mobile experiences

People nowadays are very spoiled with the flawless digital experience they get from media giants such as Netflix or Amazon, and they expect the same quality from banking apps. So if a bank can’t provide its customers with a pitch-perfect online experience, they will lose a substantial part of their clientele.

Security violation

Security is a top priority in finance, as even fast-detected breaches can result in huge losses of data and money. According to reports, financial institutions lose $18.3 million annually per company due to cyberattacks. And that’s not to mention the reputational damage.

Error-prone manual processes

Financial services require tons of data processing, the majority of which is done manually — and in some cases still on paper. This is not only a highly inefficient way of document management, but it’s also very vulnerable to human error.

What are the goals of digital transformation in financial services?

Even though financial companies may have different digital transformation goals, there are several points relevant for any business:

Customer experience
Security reinforcement
Operational efficiency
Cost reduction
Data driven knowledge acquisition
Creation of higher quality products and services

As you can see, the emphasis is on the client, the quality of provided services and strict security regulations.

What are the key technologies that enable digital transformation in finance?

Financial institutions looking for innovation have a variety of mind-blowing technologies to choose from. Robotic process automation, big data, cloud computing, blockchain, internet of things, artificial intelligence — these are the solutions that stand at the forefront of digital transformation. Let’s examine their possibilities in detail.

Robotic process automation (RPA)

Robotic process automation (RPA) is a technology that makes it easy to create and manage software robots that imitate human actions.

RPA in finance helps handle great volumes of standardized processes, leaving little room for errors and sparing humans from hours of monotonous work. It also reduces operational costs and speeds up customer service, delivering quick answers to the most frequently occurring problems and questions.

The technology is easily intertwined with existing systems, so it doesn’t require much effort or many resources to implement it. According to the statistics, around 80% of finance leaders already use RPA or are planning to introduce it to their workflow.

One of the banks leveraging RPA technology is Bank of America. Robots are primarily employed in customer service, regulatory compliance, and foreign money transactions. RPA was integrated into the existing infrastructure so no invasive actions were made to the bank’s systems.

Big data

It is predicted that by 2025 463 exabytes of data will be generated per day. It is simply impossible to analyze this amount of information relying on traditional approaches. So this is where big data steps in.

Big data is an umbrella term combining various instruments and methods for processing huge amounts of information. In banking and finance, this technology can be used to get valuable insights about customer behavior and demand, strengthen security measures, spot weak points in the current workflow and identify what works perfectly. Equipped with this knowledge, banks and financial institutions can significantly improve their processes and facilitate decision-making.

For example, big data technology helped Danske Bank combat fraudulent activities more effectively — detection has become 50% more accurate since big data implementation.

Cloud computing

Finance institutions process enormous quantities of information and this data needs reliable storage. As it is quite costly to maintain their own databases, financial companies turn to cloud technology — servers and storage space that exist on the internet.

Cloud computing makes it quick and easy to navigate through huge data storage, and also eliminates the need to spend money on special hardware and software and running on-site data centers. What’s more, cloud storage is highly reliable as it makes data backup and disaster recovery: 94% of companies report that their online security has improved with cloud computing.

A perfect example of cloud computing leveraged by a financial institution is the case of Starling Bank. The bank turned to BigQuery, one of the leading cloud computing providers, to glean valuable insights from the collected data and thus deliver the best customer service possible. Since Starling Bank generated £188 million in revenue in 2021, which is a 157% increase compared to 2020, we may conclude that this collaboration works pretty well.

Blockchain

Blockchain has already disrupted the world of finance with its cryptocurrencies and NFTs. But this technology has a lot more to offer — it’s not for nothing that the global blockchain in the financial services market is expected to reach $12.39 billion in 2026.

First of all, blockchain can greatly improve data and document management. Since everything that enters the chain stays there forever and is immutable, it is a great tool for maintaining verified documents. It means that different processes, from payments to loans, can be executed much faster, since there will be no need to re-collect and certify documents for every operation.

Blockchain can also contribute to faster and more efficient execution of repetitive tasks such as compliance and regulatory reporting. Thanks to smart contracts, these operations can be automated and performed within a fixed timespan and according to a determined order, eliminating human error.

Furthermore, blockchain allows payments to be executed much faster through becoming a P2P operation involving no intermediaries. This can considerably enhance customer experience: after all, everyone wants their money operations managed quickly.

In addition, finance organizations working with blockchain can collect digitized KYC and AML data as well as transaction history, which reduces the risk of fraud and enables real-time authentication.

One of the ways financial companies can use blockchain in their work is to support crypto wallets, such as Qtum. This is a multi-cryptocurrency wallet equipped with strong security tools: 2-factor authentication, password protection, and Touch ID / Face ID biometric authentication. In addition, users can create transaction templates for frequent operations.

Internet of things (IoT)

A financial internet of things device familiar to almost everyone is the automated teller machine (ATM). ATMs help to streamline real-time transactions, enabling people to carry out simple operations without the need to stand in long queues to speak to bank tellers. Modern machines have progressed significantly — some are even able to offer livestream video with support teams if a customer requires additional assistance.

Now financial organizations are diving deeper into the IoT technology and uncovering the more sophisticated features it offers. For example, some banks use beacons — tiny wireless transmitters that send Bluetooth signals to smart devices within reach. This way they drop special offers into clients’ smartphones or notify employees when a customer with special needs arrives at the bank so that they can provide prompt assistance.

TBC Bank is one of the banks that have successfully introduced beacons into their workflow. The new feature has helped them to enhance customer experience and level up awareness of the bank’s offers.

Banks can also invest in adding smart speaker features to their apps, allowing people to inquire about account balances and their latest transactions via voice instructions. For example, U.S. Bank installed a voice-based smart assistant in its mobile app. The assistant uses natural language processing technology to understand human speech.

Artificial intelligence (AI)

Artificial intelligence is now an essential component of the digital transformation in financial services. It is used by millions of clients all over the world in the form of virtual assistants and chatbots. The global market for chatbots in banking, financial services and insurance (BFSI) is expected to reach $7 billion in 2030.

In stark contrast to humans, chatbots can attend to customers’ questions 24/7 across a multichannel communication network. This helps employees to focus on more complex tasks and allows companies to maintain a smaller support team, consequently reducing expenses.

AI is also used to enhance customer identification and authentication and provide personalized insights and recommendations. In addition, the technology can anticipate risks, detect and prevent payments fraud, boost Anti-Money Laundering (AML) measures, and perform Know Your Customer (KYC) regulatory checks.

The largest US bank, JP Morgan, is actively using AI across its key processes, including fraud recognition and risk mitigation, natural language processing for virtual assistants, and client intelligence.

What are the trends of digital transformation in financial services?

When diving into digital transformation, financial organizations are following industry-specific trends. These are the most popular ones:

Digitization — no digital transformation can be achieved without a solid online presence. Well-designed services and applications greatly contribute to customer satisfaction, resulting in long-lasting relationships with the company or bank.
Automation — financial institutions aim to achieve automation of standardized repetitive tasks. This helps not only to free employees from a substantial part of their workload, but also cuts down on mistakes. This is the area where AI and RPA are of great value.
Cooperation — to keep up with the rapid pace of technological development, financial institutions and fintech companies form partnerships. This strategy has many advantages, such as market expansion, creation of new brands, discovery of new application areas, and building brand awareness.

“Today, banks are accelerating their growth by partnering with fintechs to add new services, embedding banking-as-a-service solutions in online retail offerings, and tapping the insights of agencies with big data expertise.” ― Seshika Fernando, vice president of banking and financial services at WSO2.

Evolution of payment methods — as online payments grow in popularity, it is necessary to come up with more effective and reliable payment services. PayPal, Apple Pay and Google Pay are the top online payment services at present. In 2022, Apple Pay had more than 507 million users.
Improved use of data — new methods of data collection and analysis such as big data and AI have the potential to utterly change the quality of company-client relationships, providing in-depth personalization. So it should come as no surprise that the market size for business intelligence and analytics software is estimated to reach $18 billion in 2025.
New approaches to design — the majority of financial companies already follow the three key design principles helping to gain customers’ engagement: simplicity, speed and user-friendliness. For example, DBS Hong Kong is one of the banks that place great emphasis on improving user experience. The bank works at maintaining smooth navigation and intuitive design, while also making the performance of repetitive operations effortless.

How can your financial organization start its digital transformation?

There are several aspects you need to focus on while redesigning your business so that it reaps all the benefits of the new technologies:

Communicate the vision — senior leadership should make sure employees understand the importance and goals of digital transformation, so that everyone works towards its successful implementation. Don’t forget to regularly highlight the benefits of this transition, to keep everyone motivated. Plus, be attentive to your employees’ suggestions and concerns throughout the process, so that you have first-hand knowledge of what is going on.
Training — to increase employee engagement in digital transformation, it is very important to invest in learning and training. This will not only help employees understand the technologies better but also reduce the stress associated with encountering something new.
Investment in digital tools — to streamline your business processes, automate workflows, and receive actionable insights, you should invest in such technologies as RPA, big data, IoT, etc. You need to create a digital workplace that is effective and interoperable — all databases, tools and applications should be easy to access.
Consumer experience — your customer is your top priority, so make sure new technologies you implement are targeted to enhance clients’ experience. Focus on developing smooth and intuitive solutions, such as self-service banking portals.
Upgrading existing systems and processes — to achieve great results from digital transformation, simply adding new technologies is not enough. You need to take time to upgrade already existing systems to achieve a mix of completely new and reformed processes to deliver best performance.

Future of digital transformation in financial services

Digital transformation of the financial sphere will gather pace with each passing year as companies and banks adopt digital transformation trends. It is no longer possible to ignore the rise of online banking and the overall shift towards conducting operations remotely rather than in physical locations.

Besides the actual communication with clients, new technologies such as RPA, big data, cloud computing, blockchain, IoT, and AI will streamline all vital aspects of banking and financial services, making both internal and external processes reliable and performant.

Thinking about bringing innovation to your business? Let PixelPlex team assist you with this. Our experienced IT consultants will gladly give you valuable insights on how to implement digital transformation, guaranteeing that your project will truly stand out. Contact us — and we will uncover the true potential of your business.