Brand Insights

Getting started with digital transformation in finance

Overview

The finance sector has undergone a huge shift over the past decade, with the rise of fintech companies redefining how financial products and services are delivered and offering new levels of customer experience. But what are the benefits of digital in finance, and how can digital transformation open up new opportunities for banks and financial institutions to increase their revenue?

Scope

This article will explore how digital transformation can aid financial organisations to be more competitive in the marketplace, reducing their cost to serve and attracting a wider customer base. We go through the key considerations for a successful transformation, including business objectives, budget, customer expectations, culture, compliance, and change management.

A decade ago, the high street bank was the stalwart of every town centre, and access to a local branch was a deciding factor for consumers making banking choices. But in recent years, technological developments and digital trends are driving huge changes across the finance and investment management landscape – from more secure data storage, to personalised products and new opportunities for customers managing budgets and savings.

From machine learning to blockchain, technology is advancing rapidly, and it’s clear those who embrace this digital transformation are set to thrive, reaping the benefits of improved efficiency and greater opportunities.

But what exactly is digital transformation and how is it best implemented? In this blog, we’ll explain more about digital transformation in finance, explore why it’s needed and look at some examples of the things to consider before getting started.

What is digital transformation?

In its simplest form, digital transformation is replacing old methods with new ones. It begins with digitalisation moving away from traditional working methods and manual processes, replacing them with digital equivalents and upgrading legacy systems, to help to make financial services more efficient, effective and accessible, but it results in full transformation of business models, creating solutions and personalised products that disrupt the market and generate revenue.

Banking apps are a good example of this. They demonstrate not only a move from labour-intensive processes to instantaneous digital solutions but also the positive impact on both revenue and customer experience of this transition. Indeed, one of the key drivers of digital transformation is the need for finance companies to adapt to changing customer requirements and their expectations of a speedy, easy-to-use 24/7 service.  

Almost every aspect of the finance function has a digital equivalent, from expense management and invoicing to payroll and compliance. As such, financial digital transformation can take many forms, but it typically involves advanced technologies such as cloud computing, artificial intelligence, big data analytics, the Internet of Things (IoT), mobile applications and blockchain.

However, technology upgrades are just one part of the process. To be implemented successfully, digital transformation needs to be part of a wider digital strategy that also encompasses cultural change, encourages innovation and welcomes new ways of working.

The benefits of digital technology in finance

For those that embrace digital transformation in this way, there are a number of rewards to be had, not least remaining competitive in a fast-moving marketplace.

Traditional finance companies are facing increasing competition from fintech startups and digital-only banks, which are rapidly gaining market share thanks to their faster, more convenient and more personalized services (more on the benefits of this later). Investing in digital transformation can help traditional finance companies remain competitive by streamlining their operations, enhancing their services, and creating new revenue streams.

Further to this, digital transformation is one of the main drivers of innovation in the sector. New and emerging technologies like artificial intelligence and blockchain are helping finance companies to develop new products and services, enter new markets and compete with industry disrupters. For example, some finance companies are using blockchain technology to create more efficient and secure payment systems, whilst others are using artificial intelligence to improve credit scoring and risk assessment.

Linked to this is the improved operational efficiency that digital transformation and automation can deliver.  By automating routine tasks, companies can reduce costs, increase speed and accuracy and free up employees to focus on higher-value tasks. AI and machine learning can help finance companies automate loan processing, fraud detection and risk assessment, allowing them to provide faster and more accurate services to their customers.

Digital technologies in the financial sector

A solid digital transformation strategy uses digital technology to create new business models that disrupt traditional ways of doing finance. These new models eliminate the need for physical infrastructure in servicing customers, dramatically reducing the cost to serve.

The rise of fintech enterprises has brought innovative ways of bringing essential banking capabilities to under-served populations, but their focus on customer experience and using innovation to simplify services has led to them attracting customers away from traditional banks. In fact, the ability to do banking via their mobile devices has become expected by the majority of consumers, and demand for app-based financial services has risen over the past 5 years.

The importance of customer service

Once again, we’re brought back to service and the importance of the customer experience. Today’s customers are tech-savvy and expect fast, convenient and personalized, financial products and services. And, as we’ve already touched upon, if traditional finance companies aren’t able to fulfil these needs, there are a growing number of other options that consumers can turn to.

Already, digital technologies enable organisations to offer 24/7 self-service options, personalized recommendations based on customer data and seamless omnichannel experiences, and this is just part of what’s possible. Service and the customer experience play a vital role in helping businesses attract and retain customers, increase loyalty and satisfaction and ultimately drive revenue growth – in fact, it could be said that the future of financial services rests on a company’s ability to offer a stand-out customer experience.

An individual approach

Despite the clear benefits of digital transformation, there's a risk that leaders get caught up in adopting new technology for technology’s sake. Of course, there are plenty of advantages to digital in finance but it’s not a ‘one size fits all’ situation. Each business will have unique circumstances, specific requirements and particular internal structures, and leaders should take these into account as part of the transformation process.  

Business objectives

The very first question business leaders should tackle along with their digital transformation leader is 'What is the business trying to achieve in the short, medium and long term and how can digital transformation help to achieve those objectives?' The answer to that question will depend on the current customer base and their needs. It'll also take into account what the competition is doing and what financial services and products they want to offer.

Once those things are decided, leaders will need to consider what current processes and specific tasks could be improved by digital technologies, and what fintech innovations could add value. Identifying these will help prioritise the areas that will benefit the most from change.

Budget

Digital transformation can be costly and finance enterprises should consider the whole cost of investment including not just the technology, but the additional training and other resources required.

While leaders will eventually be able to offset all of these costs against operational efficiencies gained through digitalisation, a growing customer base through improved digital marketing, and an increase in product sales due to self-serve ability, the initial capex investment needs to be available to cover the digital transformation efforts. Understanding the potential ROI and time period will help make decisions around budget.

Customer expectation

We already know digital transformation is key to delivering an enhanced customer experience, but different customers will have different needs and preferences. And with so many digital-first finance services on the market, differentiating in some way will be important in helping gain new customers.

Analysing customer data and feedback will provide a thorough understanding of what customers want and help to ensure digital transformation meets those requirements. Working with data scientists to understand where the gaps in provision are, can help to create a unique offering over and above current fintech companies.

Business culture

Culture is critical to the success of digital transformation. Any business needs the resources and people in place to support effective digital transformation. That includes the technology infrastructure and skills but it requires a culture where technology is used innovatively and teams work together to transform operations.

Driving this kind of significant change can't be left to tech alone - it needs human intervention and cross-functional teams working towards pre-defined goals. There often needs a significant shift in workforce communication and feedback loops to ensure that innovative thinking is encouraged from every level of the business.

Compliance

The finance sector is under strict compliance and regulatory requirements, including data privacy and cyber security risks. Technology and digital are providing solutions that are helping finance enterprises to improve their compliance and decrease fraud.

Machine learning and robotic process automation are being used to automate compliance processes, such as monitoring transactions for suspicious activity. Using AI to analyse vast amounts of data is helping to identify patterns and trends that could indicate risks around potential scams and fraudulent transactions.

Change management

As mentioned previously, digital transformation efforts won't have the kind of impact leaders are looking for without a culture shift that sees a significant change in the way technology is used and thought about in relation to both financial products and behind-the-scenes operations.

How do employees and stakeholders view digital transformation and what is the potential impact of the planned changes? Managing the pace of change, as well as the organisation's introduction to changes will mitigate potential resistance and help to further communication, bring alignment to teams, and encourage everyone to be involved.