Digital Transformation: The enabler of innovation. There is hardly a boardroom discussion that ends without the mention of the two golden words.
“Across industries, digital transformation is playing a huge role in taking businesses forward. Digitalization is the one common business enhancer between traditional and modern businesses”
The one industry which has started brushing up on digital transformation guides, we are going to talk about today is the banking and finance domain.
How Has Digital Transformation Changed the Financial Industry?
Made the sector accessible
In a world where banks are considered one of the most powerful pillars of an economy, there is still a large portion of people that remain unbanked.
By merging technology in the traditional banking architecture, a number of Fintech companies like PayPal, Venmo, etc. have emerged to help finance reach people irrespective of whether they have the accessibility of a banking institution.
Better Risk Assessment
The inclusion of digital transformation in finance has bettered compliance management. A number of firms have started collecting a large sum of data for the process of risk assessment analysis. The occurrence while largely limited to insurance domains as of now will see itself making a place in the loan and stock market domains as well.
Brought Fintech into Existence
One of the biggest contributions of digital transformation in the finance sector lies in the creation of the Fintech domain. The domain is a merger of technology in the finance domain – one that not just makes the ecosystem more efficient and transparent but also lays the foundation for an open banking system.
The role of digital transformation in making the finance domain open and transparent is something that is heavily dependent on the inclusion of technologies. Let us look into the next.
IoT, AI & Blockchain – Technologies Taking the Digital Transformation of Financial Services Ahead
“Ignoring technological change in a financial system based upon technology is like a mouse starving to death because someone moved their cheese” – Chris Skinner”
Around one-fifth of the financial solutions’ executives have said that an investment in creative digital abilities in anticipation of meeting business needs should be a top priority.
Now when we talk about the technologies that are bettering the Fintech industry, there is a trio that tops the list – Artificial Intelligence (AI), the Internet of Things (IoT), and Blockchain technology. Additionally, there are some other advanced level technologies which are being deployed for the betterment of the domain – Advanced analytics, Cloud computing, and Automation.
Internet of Things (IoT)
In the tech-driven digital transformation efforts, IoT is the newest entrant. It is, at the same time, one that has the most promising implications in the financial service institutions.
Although the IoT solutions have been usually associated with consumer products like smart home devices and wearable technologies, its benefits in sharing real-time data of consumers’ physical assets are extremely valuable to the financial service companies as well. The Fintech industry is making use of IoT systems for improving their present services and products, capitalizing on the consumer’s purchase behaviour, and creating a personalized customer experience.
“Financial institutions must be able to deliver an easy to navigate, a seamless digital platform that goes far beyond a miniaturized online banking offering.” – Jim Marous.
The commonly found IoT systems range from offering user-based insurance to identifying biometrics data for improving credit underwriting steps. However, this is just the beginning. The use cases are only going to grow further.
Artificial Intelligence (AI)
AI is an ace card of every digital transformation effort. The advancements in the technology have completely revolutionized almost every single element of the banking and financial sector.
- Businesses, by making use of AI are identifying anomalies in transactions, thus bettering the risk of money laundering and mitigation of fraud.
- Several capital market firms are able to make fast, smart trade-related decisions on the basis of sophisticated analysis of the history of market performance insights.
- Organizations are able to conduct mood analyses and customer sentiments, in addition to providing personalized customer experience on the basis of their individual profiles like suggesting them custom portfolio solutions on basis of the risk appetite.
Even though AI comes with a sea-full of opportunities, there are some facts which cannot be ignored. While on one hand finance companies see machine learning and AI-based solutions as drivers of growth, traditional businesses are worried about AI’s biggest user-level ability – Automation.
“The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency. – Bill Gates”
Over 39% of financial organizations’ employees feel that automation and commoditization are their biggest threats. While businesses swear upon the benefits of chatbots, Robo-advisors, and multiple other automated processes in terms of bettering the operational efficiencies, they also see them as job security fears – one where they can see their employees getting replaced with a machine.
Although the fintech sector as a whole is taking its sweet time to adopt Blockchain and distributed ledger, but there are companies which are backing its potential. While Bitcoin and other cryptocurrencies remain the most widely used application of the technology till date, the power of Blockchain on ensuring –
- Automatic and secure payment through a smart contract
- Strengthening of supply chains, trading systems, and claims processing
- Streamlining of back-office operations, while ensuring zero fraud risk and removal of friction from the plethora of fintech processes remains uncontested.
An example of a blockchain application which is starting to revolutionize the sector can be seen in the payment systems. While on one hand financial services take multiple hours to facilitate global payments and transfer of money, blockchain-enabled solutions take care of the process in a matter of minutes, while not being dependent on the operational hours.
Although it might take some time for Blockchain to gain the same level of trust as the traditional systems do, we can anticipate it catching up to the speed very soon.
The trustless promise of Blockchain is one of the reasons why one-third of the global financial service industry is willing to make it a part of their process. A result of which is that by 2024, the technology would be more than worth $16 billion, according to a report by Global Market Insights.
Digital transformation promises new opportunities for the finance domain – it doesn’t just offer businesses a chance to gain a competitive edge but also improves standardization that in turn augments productivity, lowers the operational cost, and better interaction with the consumers.
Irrespective of what the speed of adoption is, the fact remains the same: Digital Transformation of the finance sector is inevitable and as we can see by the current trends, the pillars of tomorrow’s financial reality have already been laid down.