4 Ways Digital Transformation is Revolutionising Banking

Ademola Babalola, CEO, OpenFactor Technologies

Digital transformation brings deep disruption with itself. For the banking industry, in particular, the digital transformation of the global economy is ushering in massive changes in –

Operating procedures
Customer experience delivery, and
Customer-centric value propositions

To survive this digital transformation-driven change while remaining competitive, banking and financial institutions (BFSIs) must reinvent themselves. By all accounts, harnessing the power of next-generation technologies is the most efficient (and favoured) way to do so. Especially because traditional operating models aren’t cutting it anymore no longer where changing customer expectations, the rise of new technologies, and increasing competition from fintech start-ups are concerned.

Naturally, there is an urgent need to chart a new course with digital transformation as the proverbial North Star. One that BFSIs are becoming acutely aware of, and that’s validated by digital transformation in the BFSI market being expected to reach a whopping $310.67 billion globally by 2032 at a 16.6%% CAGR.

What’s Threatening Traditional Banking?

Apart from the challenge new age technologies pose, digitally savvy fintech companies too are proving to be a major threat for conventional banks. Primarily because they’re catalysing rapid change in the financial sector; especially by pushing existing banks that’ve been slow to embrace digital transformation to implement it post haste.

Fintech is slowly, but steadily, laying the foundation of future banks that are more effective, transparent, and user-friendly than ever before by employing the latest technologies and high-end mobile devices – the latter helping provide comparable services (vis à vis traditional banks) at much lower costs. However, there are sections which worry that fintech-driven digital transformation may mean financial danger for those who can’t afford, or don’t know how to use, next-gen devices and technologies.

For now, though, legacy banks and revolutionary fintech firms have a complex relationship despite each needing the other to survive and thrive.

Bank 4.0 – The Future of Banking

According to fintech future expert, author, and co-founder of New York-based mobile banking start-up Moven, Brett King, the change in banking approaches can be classified as follows –

Bank 1.0 represents the conventional banking system
Bank 2.0 stands for the self-service banking era which saw the early deployment of self-service capabilities via the web
Bank 3.0 represents the growth of specialist fintech businesses and mobile-based banking
Bank 4.0 is the radical reorganisation of banking business models on new-age digital platforms and apps to deliver experience-driven customer satisfaction

To quote King, “Bank 4.0 is essentially embedded, ubiquitous banking built into the world around us through a technology layer.” Clearly, the prospect of banking today goes beyond just innovative ideas for value-based retailers and payment methods to involve voice-based smart assistants (such as Alexa) and soon-to-be-released smart glasses. In the imminent Bank 4.0 age, therefore, a brick-and-mortar bank may no longer exist at all! Instead, banking will be technologically integrated into people’s daily lives, creating a situation of minimal friction and latency.

“Low-income women represent a large, untapped market opportunity for digital financial services providers, particularly fintechs leveraging technology to close the gender gap in financial services.”

How is Digital Transformation Preparing Banks for Bank 4.0?

Prepping, or warming up, before a match is a must in sports. The same principle applies in banking with regard to preparing banks to embrace, and assimilate, digital transformation. Here’s how Bank 4.0 is facilitating this ‘prepping up’ exercise –

Evaluate banks’ historical antecedents and recommend reassessment/ revamp of specific/ enterprise-wide functions
Uncover low-friction technological encounters that undercut the items people sell right now
Understand how reputation, value, and assets may change as cash and cards become less useful
Assess the various ways cutting-edge technologies, including blockchain, artificial intelligence, and artificial reality are laying the foundation of future banking systems’ development
Estimate the extent of back-end improvements necessary to facilitate this transition, and the effort involved to bring this process to fruition

Irrespective of their size, banks today are increasingly signing up to undergo digital transformation in their quest to engage customers, improve customer experience and satisfaction levels by providing online platform-based and digital services. Especially since customers are already transacting using mobile apps and online sites, making mobile banking emerge as a vital component of the transition to digital banking.

The banking sector’s pace of modernisation is also being accelerated by the concurrent development and increased need for blockchain, artificial intelligence (AI), and the Internet of Things (IoT). As a result, financial service providers that’ve opted to transition to digital banking are witnessing a spike in productivity and more convenient customer servicing, leading to a higher count of potential consumers.

How is Digital Transformation Improving Banking?

Contemporary banks are leveraging the following digital technologies to speed up and simplify tasks, offer personalized products and services, attract new customers, enhance data security, and meet constantly changing compliance requirements –

1) IoT – Real-time data analysis, enabled by IoT, is dramatically improving the consumer experience by personalizing and tailoring it. Customers can now quickly, and easily, make contactless payments through IoT-enabled smart device connectivity. Additionally, IoT-led risk management, biometric authentication procedures, and access to numerous platforms is introducing radical changes in the financial environment.

2) Cloud Computing – The enhanced administration and productivity a cloud computing-driven setup offers allows the instantaneous delivery of goods and services. Reason why banks are increasingly employing APIs to promote data sharing and enhance cloud integration-powered customer experience.

3) AI and ML – Virtual assistants and chatbots in banking use AI to deliver the information customers need to tackle problems. Additionally, AI is employed for efficient data handling, analysis, and security. Another tool that can collect, store, and compare user data in real-time for banks is Machine Learning (ML). A key benefit is the near-accurate risk prediction, and identification, of fraud through the recognition of changes in user behaviour.

4) Blockchain – Vital to implementing digital banking, blockchain technology is helping the banking sector with better UIs, secure data transfers, and increased accuracy. Thanks to it, current consumers have reported experiencing improved convenience and more transparent banking transactions. The integration of blockchain with IoT (abbreviated as BIoT) is a significant development in digital banking technology which is expected to have a far-reaching positive impact.

In conclusion

Leading IT services and technology consulting companies like OpenFactor Technologies are paving the way for BFSIs, especially in Africa, to adopt and implement the digital transformation process through their innovative, cost-effective solutions and services. Capable of infusing disruptive capabilities that overcome tough business challenges and unlock customer value, these solutions and services are, in essence, spurring the much-needed adoption of digital technology across the rank and file of banking institutions.

OpenFactor Technology is a software technology powerhouse providing Innovative and cutting-edge cloud-native solutions and platforms that enable financial transactions. Our mission is to help businesses unlock customer value using our innovative and cost-effective technologies. Our business philosophy stems from our intrinsic ability to infuse disruptive capabilities, uncompromising focus on quality, and resolve to help our esteemed clients unlock customer value.

To know how OpenFactor Technologies is pioneering digital transformation-led financial inclusion in Africa and the rest of the world, click here.

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