As competitors continue to provide digitized individual services, financial institutions feel the pressure to adapt quickly or risk getting left behind.
With 81% of customers’ demanding more flexibility in their journey and access to on-demand services, like mobile banking and convenient application features, some of the largest banks have started offering their own automated options to cut down on costs and increase profits.
What is Digital Banking Transformation?
Digital banking transformation is a process of digitalizing customer services, improving processes, and streamlining operations. "Going Digital" is an essential step for banks to take when trying to stay competitive with fintechs and other financial institutions.
To accomplish this, many banking institutions adopt a digital transformation strategy—a comprehensive, actionable plan to help you transform your tools, processes, and company culture to prepare you for the future.
These strategies use a holistic approach to integrate new technologies into all aspects of their business. That means transforming everything, from customer experience platforms and apps to mortgage lending processes.
In the past, several banks have attempted to use smaller digital initiatives to improve online services. However, this is like putting a bandaid on a leaking pipe. These small changes simply aren’t enough and leave many risks unaddressed, like regulatory compliance.
Here are the challenges that an effective digital banking transformation strategy addresses:
Lack of understanding by leadership: How do you help key stakeholders understand the process and get them to buy in?
IT resource management: What are you doing to provide support for your IT team during this process? Do you need to partner with a third party?
Hindered innovation: How are your company’s culture and beliefs restricting your ability to innovate?
Non-compliance with regulatory standards: How long will your institution be able to remain compliant without going digital?
Increased cybersecurity risks: What actions will you take to protect your client’s data from exposure and fraud?
Benefits of Digital Transformation in Banking
Digital banking transformation is an excellent opportunity for financial service providers to modernize and improve their services. Here are some of our favorites:
1. Transforming the Customer Journey
The future of a customer's journey is a cohesive and personalized experience. This means you'll need to incorporate a digital transformation strategy that integrates all your systems into one central platform so that your customers are served better by responsive technology.
To accomplish this, banks have to utilize APIs to support customer-centric digital initiatives becayse even though financial institutions are not technology companies, they need to be very technologically savvy to stay competitive in today’s digital economy.
To accomplish true digital transformation, they need a robust partner ecosystem that helps them consolidate their digital assets, create high-quality customer experiences, and encourage innovation with the help of API-first architecture and advanced API portals.
Taking the customer journey to the next level will save money in the long run, improve customer satisfaction, and help teams work together more efficiently.
2. Additional Revenue Streams
The focus of today's banking system is no longer solely on providing a private platform for online transactions, but rather on exposing APIs that allow customers to accomplish their needs outside the proprietary portals provided by banks in recent years.
APIs have made it possible for banks to cultivate additional revenue streams by partnering up with innovative fintech businesses that can use their existing digital infrastructure - mainly through an API portal - to build targeted and innovative financial products.
Zello, Stripe, PayPal, Allstate, Payoneer… These are just a few examples of companies that create new products with the help of integrations with third-party APIs.
This trend isn’t showing any signs of going away, so banks that invest in digital transformation will get even more opportunities to integrate their APIs into the value chains of other businesses in the not-so-distant future.
By opening up their API products, banks can remain competitive and preserve customer loyalty while providing third parties with an easy way to connect to and leverage their ecosystem.
3. Flexibility and Adaptability
Financial institutions that want to stay competitive in this digital era need a thorough transformation. The shift from traditional banking methods has been rapid and dramatic, with sophisticated technologies at the forefront of change.
Digital transformation allows your institution to equip itself with the latest technology to scale these efforts gradually over time. Companies that don't evolve will need to provide updated services that traditional in-person interactions cannot deliver to their customers.
4. Improving Security and Compliance
An armed guard at the bank's door and the vault's inside aren't enough to protect your digital assets. By putting automated security measures in place and implementing digital protections against data leaks, unauthorized breaches, and other cybersecurity risks, you're improving security for your customers.
APIs are the primary attack vector in 2022, so automating your API security testing is crucial to keeping your enterprise safe.
The 6 Building Blocks of an Effective Digital Banking Transformation Strategy
When planning your own bank's journey toward digital transformation, you must understand and adopt the following building blocks to mitigate its risks.
1. Start With a Customer-Centric Approach
Most banks will find this approach to be the first stop on the road, as it mainly focuses on creating workflows that are more appealing to customers.
Thinking about the customer first and the end-user experience is key to retaining the customers you currently serve and attracting new customers from competitors.
When your customers have a great experience, they're likely to stay longer, come to you for all of their financial needs, and share their great experiences with friends and family.
Outside-In approach: The outside-in approach is a strategy that focuses on the client. This framework aims to understand what they need and want before designing an optimal experience for when they interact with your APIs. This creates satisfied consumers who will come back time after time.
Mobile banking: Today's banks are renowned for their reliance on the web and mobile updates. They no longer focus on branch delivery; instead, they provide users with simple access through these channels while maintaining speed to meet the needs of their clients as quickly as possible.
Voice technology: The banking industry embraces voice recognition technology and assistants like Amazon's Alexa or Google Home. Today several banks offer similar services through their existing customer service lines, allowing customers to do everything on the go. For example, asking Siri what your credit card balance is or to send money to someone is already being implemented around the world.
While this approach is your starting point, there is still much left within these organizations that need improvement after implementing these measures.
2. Reinforce API-First Architecture
Leveraging proven SaaS technologies and focusing on building an API-first architecture will allow you to take advantage of the latest technologies and shift when needed.
APIs are designed to be accessed through client applications, so they must work well and communicate with each other in one seamless process.
By building APIs that serve all applications, API-first strategies enable organizations to develop and maintain applications more efficiently.
API portals: To help your company get the most out of your API assets, deploy an API portal that turns a collection of APIs into a partner ecosystem accessible to developers and non-technical business units alike. This will make it easier for API consumers to find what they need when working on projects related to developing applications that use or consume your API products.
API management platforms: With the help of an API management platform, your company is able to centralize control over its integrations while ensuring high standards for performance and security.
Citizen development: The number of citizen developers is expected to be four times that of IT professionals by 2023. APIs and rapidly evolving technology make it easier for citizen developers to participate in the fintech industry.
Open banking: Open banking connects banks to third-party financial service providers through APIs, making it easy to exchange financial data and collaborate. The use of APIs also means faster data exchange. For example, if you're using Zelle to send and receive money, one transaction can run through dozens of APIs in seconds.
3. Embrace Emerging Technologies
Emerging technology is required to digitally transform an organization into a future-ready business. It allows banks and credit unions to customize services for customers on-demand without relying so heavily upon legacy systems that may not be compatible with the latest standards.
The challenge here isn't just about implementing new software but also ensuring its adoption by all levels within your company—from top executives to ground-level employees who interact directly with clients every day.
Blockchain technology: Blockchain has been used by banks to give people power over their data. The financial services industry benefits from this new tech because of its ability for smart contracts and simplification of loan applications.
Utilizing Artificial Intelligence (AI): The use of automation and AI in banking saves money and improves the standardization of services. This allows humans to be used for more important tasks while machines take over simple requests like checking account balances or making deposits.
Robotic Process Automation (RPA): RPA is a great way to streamline your business operations with minimal risks. From customer service to fraud identification, software robots let you automate processes and cut down on costs while maintaining high accuracy.
4. Prioritize Data and Analytics
Bank and credit union information has traditionally been housed in silos, making it challenging to integrate the data into one cohesive picture of your customers and what they want from the bank.
Big data technology is key to meeting critical banking requirements in the areas of:
Personalized product offerings
When used consistently across all aspects (from leadership roles down to team members' day-to-day workflows), data becomes even more powerful because people start employing its findings in ways they didn't previously know how to do alone.
Machine learning: Data analytics can improve how banks analyze and evaluate their data. The introduction of machine learning into these processes has improved security, reduced human resource costs, and helped understand consumers' habits outside their credit scores.
Enhanced cybersecurity: These days, it's not enough to just have a firewall. You need an intrusion detection system (IDS) and real-time monitoring of all network traffic—both inbound and outbound from your business operations.
5. Expand Your Worker's Skillsets
The skills needed to embark on a digital transformation journey don't exist in sufficient numbers at most financial institutions, which makes talent management and employee reskilling particularly important.
Remember, it's not just about acquiring certain technologies but changing mindsets too!
Foster Innovation: Digital teams are the future of innovation as they have a mix between IT and field expertise. Combining these elements will allow an agile organization to produce tangible innovations ready for the client's use.
Inclusivity: Ensuring that your digital banking transformation includes all departments of your company is crucial. Get input from other sectors like IT and marketing to see their thoughts on different digital strategies pertaining to their department.
6. Encourage Buy-In Culture
Any successful digital transformation requires buy-in from those at the top and those at other levels of management who have been doing things differently for decades now.
You'll need buy-in from:
When everyone's on board with the change, it is much easier to make progress. You need to foster a culture that supports a comprehensive an