What is digital transformation?
Digital transformation is a process by which organizations adopt the newest technologies to improve their operations. More than 80% of organizations are in the transformation process. However, only a small percentage of banks have successfully implemented digital transformation. It can be attributed to the challenges of implementing new technologies. But these challenges are expected to decline in the next few years as new technologies more often will be integrated with other banking solutions. With the rapid increase in digitalization, banks are forced to transform to remain competitive. In addition, today’s customers want to see their bank as a digital business rather than a paper-based organization.
What are the benefits of digital transformation?
Digital transformation in banking can help to improve their core operations and offer a better customer experience. Let’s take a look at a few of the benefits of digital transformation.
Higher return on investment (ROI)
Digital transformation can help banks to reduce costs and increase revenue. It is done by using new technologies to increase efficiency. For example, new technologies like blockchain can help banks reduce settlement costs. If a bank in Estonia starts an electronic transaction, the same transaction will automatically be recorded and available to view on the blockchain. The transaction won’t need to go through a traditional centralized system (a central bank). It allows banks to increase revenue and reduce costs.
More effective use of resources
New technologies are helping to improve the way that banks use resources. For example, Artificial Intelligence is being used to allow banks to identify customers’ needs and develop personalized solutions.
New technologies are helping banks to expand their reach and provide services to customers no matter where they are located. For example, companies can now conduct business online, and customers can access financial services anywhere in the world.
How can digital transformation help banks?
Digital transformation helps banks to increase efficiency. For example, accrual accounting, a system of recording money that moves through an organization, can be a significant source of inefficiency. With modern technologies, banks can reduce their reliance on accrual accounting. This way, banks can create more accurate financial reports, increase security, and manage risk more effectively.
How can banks implement digital transformation?
The implementation of digital transformation varies among banks. It is because each bank has its unique needs. However, depending on the nature of your business, you can choose to implement digital transformation in one of the following ways.
Implement a new technology
Technology implementation is the most straightforward way to introduce digital transformation. This approach involves replacing old technologies with new ones. For example, you can replace your existing ERP system with an enterprise blockchain solution. It makes it easier to track assets and stay compliant.
Start with legacy systems
Legacy systems like accounting, risk management, and compliance can be used to help banks initiate their digital transformation. This way, they can adopt new technologies like artificial intelligence or blockchain without replacing existing systems. It is also an excellent way to implement new technology if you want to see the benefits of these technologies immediately.
Start with core operations
Another way to implement digital transformation is to start with core operations. This approach involves implementing new technologies in areas like customer and contract management. These areas help banks to drive customer acquisition, manage risk, and comply with regulations.
What are the risks of digital transformation?
Digital transformation can have many benefits, but it also comes with risks. Therefore, when implementing digital transformation, banks should be aware of them.
Risk of incomplete implementation
Implementation of new technologies is an integral part of digital transformation. However, there’s a risk that these technologies will fail to deliver on their promises. It is because the market hasn’t thoroughly tested them. In addition, fashionable technologies like blockchain also bring the risk of becoming obsolete.
Risk of failure to adapt
It’s also vital for banks to understand that they may need to adjust their operations as a result of digital transformation. For example, if your business is primarily paper-based, you’ll need to change your processes and employees’ attitude toward digital solutions.
Risk of a data breach
Another risk of digital transformation is the risk of data breaches. It is because banks process a lot of sensitive customer information. If this information is lost or stolen, it could have serious consequences. Thus, the transitional process has to be done carefully.
What are the next steps for banks?
Banks interested in implementing digital transformation have to understand all aspects of the process. It can help banks to identify the areas in their operations where digital transformation could help and, finally, develop an action plan.
Identify areas for transformation
Before implementing digital transformation, banks need to identify the areas in their operations where they need to improve, such as customer experience, revenues, and cost management.
Once banks have identified the areas for transformation, they need to develop an implementation plan. The plan should include a timeline, key milestones, and team roles.
Implementation of digital transformation is an ongoing process. It means that banks must maintain a close eye on the implementation process and make any necessary adjustments to ensure that their transformation process is effective and brings them closer to their goals.
Digital transformation is one of the most important processes for banks in 2022. It is because it can help them to improve their core operations and offer a better customer experience. The benefits of digital transformation include higher return on investment, more effective use of resources, better connectivity, and a higher return on investment. However, there are also risks that banks need to be aware of.