No sector can afford to stay behind in the race of digitalization. After all, it is not an option, which can be overlooked, but a necessity that needs to be fulfilled at any cost to sustain in this highly volatile market. Digital transformation is not just a process, but a long term vision. It extensively focuses on resculpting, restyling, and revamping through technology advancements. It puts greater emphasis on concepts like automation, lean, six sigma, and agile to achieve the overall goals strategically. It does not mean replacing the entire traditional setup but aims to recreate it in such a way so that the processes can become more streamlined and efficient.
The heart of the financial services, the banking industry has finally witnessed some of the major disruptive changes under the influence of digital transformation. The corresponding firms are embracing technology by reforming themselves into FinTechs. This is the reason why investments to facilitate R&D, invention, innovation, and automation have skyrocketed. FinTech will continue to foster versatility, agility, and transparency in 2019 and beyond. This trillion-dollar industry is hence investing way too high in accomplishing the desired digital transformation goals. Adopting technology is not the only concern of digital transformation as it ultimately plans to devise new business models.
Let’s take a look at all the stages we need to go through to achieve the ultimate transformation goal, which is not a destination but an ever-lasting journey.
(Also, read more about financial services industry and digital transformation)
Stage 1: Start small but with an intent to make an impact
We are stepping into an era where we have everything except time. Anything and everything which makes us wait is not apparent at all. All of us want convenience and quickness backed by safety. The traditional finance sector suffered from various loopholes and faced constraints in terms of swiftness, safety, and ease in transactions. Today, millennials want a little to no human interference in the processes. They would instead like to interact with a machine. That’s why robots, chatbots, and automated machines are getting huge prominence lately. Handling the customer service department to chatbots is extensively appreciable. For starters, you can try to automate the fundamental routine interactions with your clients as the first step towards digitalization.
The simplest of all options is to start with a straightforward yet attractive mobile platform. As banks occupy a dominant position in the finance industry, mobile banking apps are an excellent option as they can automate the monotonous routine tasks like checking the balances, directing funds into RDs, FDs, mutual funds, insurance, pay bills, recharge , avail Demat account facility, remit funds across the globe, etc. A bank can utilize an open Application Programming Interface (API) for integrating legacy architecture with the newly developed mobile app. Data will be extracted from the backend and delivered to the user through the app. Now, while creating an app, few factors should be taken into consideration like robustness, security challenges, data caching vulnerabilities, legal compliances, transparency, data consistency, multi-factor authentication, utilizing in-house servers and cloud computing smartly for data storage.
It is more like stepping into the era of automation. Automation simplifies routine tasks, improves quality, efficiency, productivity, and incorporate agility in the working practices. As with mobile banking apps, clients no longer need to rely on bankers or need to personally visits branches for every routine transaction. ATM-CDM machines, Self-service kiosks, Robots (RPA), e-KYC, c-KYC practices, and core banking, etc., have made stringent transactions a lot easier and streamlined and enhanced the customer experience.
However, it is a cumbersome task for a financial company to create everything in-house. Take the example of a mobile app. A lot of underlying factors can act as hindrances, for instance, the niche experience and expertise, creation for various platforms web/ios/android, security issues, compliances, and factors such as cost and time, etc. It is better to coordinate and get work done with the help of an expert third party or digital vendors. In such scenarios, outsourcing, offshoring, and nearshoring are viable options, which reduce the overall expenditure without compromising quality. Outsourcing to an expert can lead to cost reduction by almost 59%.
For Asset Management Companies (AMCs), and Insurance companies, digital transformation has removed geographical barriers and improved the working methods. By retrieving historical data, execution can be done speedier by auto-filling the details. E-statements, digital signature, and paperless transactions have provided a significant push to the industry.
Stage 2: Add varied platforms to make it more diversified
It is like adding a punch of additional features to your sort of Minimum Viable Product (MVP). After creating an application with almost the necessary features, you have to make it feasible for other platforms and to devices as well to enhance its usability. Assimilating and analyzing users’ needs, expectations, behaviors, gathering their valuable feedback on the existing application landscape has become a lot easier through data analytics. Mobile platforms nowadays are not confined to certain specific features, but like an ocean of immense potential with endless possibilities.
Starting from a beautiful user experience, you can make it feasible for Apple watch, Alexa, etc. By connecting to Alexa, it can respond to your app. With Alexa voice service (AVS), you can integrate the app with different products. iPhone users can set up the apple watch. They will get a choice to install the apps anytime, anywhere. If you opt for the install all option, all those apps on your iPhone which are compatible with apple watch will get installed.
More personalized service with customer loyalty reward points, discounts, membership cards, cash-backs, rebates, and credit card points, etc. All these additional services aid to customer retention and boost their engagement. 81% of US consumers admitted with a loyalty program. They are more likely to continue doing business with a particular brand. Incorporate digital payments options like Paypal, Venmo, Stripe to facilitate contactless payments. TOSHL finance is an example, where it connects with your bank, credit card, or PayPal, etc. Wells Fargo announced that its clients could use PayPal for near-field communication in-store payments in androids.
Introducing and using chatbots in the apps. Bank of America has a chatbot named Erica. It can take text and voice commands, you can easily make payments, or check your transaction history. It also helps customers in making more informed financial decisions with its predictive skills and acts as your digital financial assistant. Similarly, Capital One (Eno), Mastercard (uses a bot on Facebook), Paypal (Bae) also have their chatbots which help customers to manage their money, bills and offer notifications seamlessly.
Stage 3: Scale it up
Still, a long journey is yet to cover. Creating a mobile platform is merely a starting point, not the end. For financial companies, it is not easy to incorporate digital transformation without altering its legacy and reforming its internal process. Introducing a new backend model is hence a must like moving to microservices from a monolithic architecture. Earlier monolithic was widely prevalent. The core components were interdependent and interconnected. Developers thus were not able to work individually be it in backend services, UI, etc., which altogether makes it an unsuitable approach to drive modernization.
Microservices architecture was evolved for legacy system modernization to combat the prevailing challenges. Now with independent elements, individual elements can be scaled separately, smaller teams facilitated the internal communication, a best-fit technology can use for every microservice, unwanted dependencies also have reduced to a great extent. However, by resorting to this architecture, you need to put more emphasis on testing, monitoring, and DevOps.
Now in practical purview, as legacy banks were facing the problem of increasing costs, plus the structure was causing a hindrance in adopting newer evolving changes. It is a must to fix the time frame to change the legacy systems. After making the changes in the backend platform, the newly created core system can now be linked to mobile apps via APIs. Along with this, back and middle office operations need to get redesigned to support the IT landscape. Technologies like artificial intelligence and machine learning can be used to enhance the essence of cybersecurity practices. This overall new infrastructure can boost the effectiveness of the mobile platform. To fully realize the potential of digitalization, it is one of the critical yet crucial stages.
As we have seen above, collaborating with the right solution provider is utmost necessary. The provider has to be well aware of financial services, compliances, and regulations, thorough domain knowledge, financial operations, and data consistency. The functions that are majorly outsourced are software designing, programming, UI-UX designing, quality assurance, and business analysis. The corresponding head in the bank needs to scrutinize the app, once it is successfully created and should focus on its continuous improvement so that it can meet the needs of the customers.
Pros and cons of the abovementioned method of implementing digital transformation in financial services.
It is a straightforward approach with which banks can move ahead. After creating a subtle mobile platform, adopting progressive changes won’t be a difficult task anymore. Also, the cost associated with this strategic decision and implementation is comparatively less. Hence you can reap more by sowing less. However, few aspects need to be taken under serious consideration. This digital transformation change cannot be left in halfway under any circumstances. Otherwise, it can do more harm than good. Moreover, if employees resist this change, it needs to be taken care of tactfully.
Technology advents like Artificial Intelligence, Cloud Computing, the Blockchain, IoT, bots are driving the growth of the finance industry to a whole new level. You may remember how bitcoins dominated the headlines a few years back and brought the entire FinTech advancement in the limelight. For CEOs, it is a high time to move out of the status quo and start adopting this change. However, implementing digitalization is not an easy task as it seems, especially for those who aren’t related to IT in any way. It is a step-by-step, systematic, and dynamic approach that requires a lot of cognition. We can conclude that digitalization may seem hard at first, but it is the need of an hour, which cannot be ignored at all.