Digital transformation: the two words that have become like the holy grail for kinds of business innovation. It’s almost impossible to go for any client meeting or brainstorming session these days without hearing this word, or some other variations of it, being used a couple of times.
And, Wall Street is not an exception to this. In the last couple of years, there have been considerable increases in the number of FinTech companies that have completely transformed the landscape of financial services. The push for innovation has been constant due to the pressure of streamlining operations, rising regulatory complications, fierce competition, and changing customer demands.
To add to that, there’s the modern open banking system that supports seamless integration with new applications and platforms, replacing the paper systems and physical banks for well-networked digital environments.
Regardless of whether a financial business was born hundred years back or came up recently, there is no escaping the need for digital transformation.
And, on that note, let’s take a closer look today at the ways in which digital transformation affects the financial services.
Digital transformation: Imperative for financial services
Digital transformation is imperative for any of the modern businesses, and the financial services are not an exception. Almost 97 percent of the financial firms have some or other strategy at work that involves digital transformation.
The reason behind it is the rapidly changing landscape of the financial services. Let’s just take the example of the banking sector. Though services like investments, loans, and safekeeping, remain the same as forever, the way banks handle these transactions and the way customers receive them have undergone a massive change.
The rising competition is also a major driver behind this transformation. The financial sector, which was once known only by the top players, now has participants of all revenue ranges and sizes. And, being a big player is no longer a safety net. In fact, it can also act as the barrier to innovations.
Financial services realize this, and they understand that there’s a lot to catch up to, in comparison with other industries. At present, a majority of the institutions have a solid digital transformation strategy, and most of them are in the process of implementing it.
Greater ROI through digital transformation initiatives
The Digital Transformation Companies can help the financial services in significantly improving operational efficiency and customer experience. Thus, most financial firms can expect to get higher returns on their revenue, and greater profitability from digital innovations, just as the companies in other sectors have secured for themselves.
Since the financial service companies expect a greater rise in their profitability and revenue in the upcoming years through digital transformation, they are also ready to increase the amount spent in such initiatives by a similar percentage. Because of the already proved and assured future gains, the companies involved in financial services are no longer skeptical towards digital investments.
Ensuring a great customer experience from start to finish
People frequently confuse the terms customer service with customer experience. Customer service is hardly a part of the wider concept of customer experience, which entails the entire journey of a customer with a company, with all the interactions and touch-points on the way.
Customer experience no longer involves only having a good experience at the physical offices of the firm. Its scope has widened to include things like the ability to access accounts from more than one channel, getting questions answered by chatbots, receive real-time updates, and more. Along with all these, customers also expect personalized solutions to their issues. There’s also the need to offer better data security to the customers.
So, with all these factors in mind, the financial firms are not only trying to get more customer attention than their competitors using new-age digital strategies, but also aiming to retain those customers through an improved customer experience.
Meeting the goals of operational efficiency
Cost cutting is nothing new to businesses, but the financial services feel it more acutely than the others. One of the top priorities that most of the financial organizations have is to optimize business operations and efficiencies across their supply chain.
Upgrading old-school IT systems is, actually, one of the main goals of the present financial institutions. There is no denying the fact that interoperability with conventional technology is the bigger barrier businesses have towards successful implementation of their digital initiatives. After all, most of the major financial institutions, even today, rely on the core systems that were made over fifty years back. This makes it difficult for them to integrate new products.
Thus, financial services, though facing a dire need for digital transformation, face more problems in developing and integrating advanced technologies than other industries. A majority of these businesses suffer from poor or barely okay IT systems.
Blockchain, Artificial Intelligence, and IoT gaining momentum
The industry is yet to reach the stage where it completely adopts blockchain technology, but that is no reason to deny the future potential of this technology. Cryptocurrency is not the sole application of it.
Blockchain also helps in ensuring safer automatic payments by using smart contacts, strengthening trading systems, claims processing, and supply chains, mitigating fraud risks, and so on. Moreover, blockchain can make money transfers and global payments faster compared to the traditional systems. So, it comes as no surprise that many of the financial organizations are considering its deployment in near future.
Now, speaking of Artificial Intelligence, it has transformed each aspect of this industry. The firms use AI for identifying transaction anomalies and to mitigate money laundering and fraud risks. Capital market organizations need to make smarter, faster trade decisions depending on the precise analysis of performance data of the past markets.
Firms get to conduct mood and customer sentiment analyses to customize customer experiences depending on different customer profiles, like, offering personalized portfolio solutions depending on the risk appetite of each individual. AI offers the financial services an opportunity for growth and greater development.
Finally, coming to Internet of Things, which is something commonly related to consumer products. However, having real-time information about the physical assets of the client is valuable to financial companies who want to improve the present services and products, bank on customer purchasing patterns, and deliver more customized user experiences.
The much-needed IoT applications for the financial services of today go from offering usage-based insurance to the analysis of biometric data for improving the underwriting process of credit. But, many more of such applications are bound to come up in near future. Even within the companies, IoT tools, like smart sensors are of huge help in improving the dynamics of the workforce by effectively tracking the working habits and movements of the employees and reducing utility costs and building management.
Even though financial services are steadily making strides towards an era of digital transformation, there are barriers like ditching the old systems, improving the employees’ skills, updating the cultural norms, adjusting the perceptions, and so on that still exist. All these factors make this journey of digital transformation really challenging for the organization. However, the important thing is to break through these barriers through considerable planning and foresight, regardless of whether the business originated in this digital era or way back.