From bartering to paper money, money lending to financial institutions and the banks as we know them today, financial management and the institutions behind it have come a long way and so has the global economy. Fintech has disrupted the way in which banking works and with the current pace of digital transformation, it isn’t wrong to assume that, Not Going Digital Is a Bigger Threat to Banks.
According to Deloitte, “The global banking system is not only bigger and more profitable but also more resilient than at any time in the last 10 years. In the technology arena, the promise of exponential technologies seems more real than ever. While the wild enthusiasm with blockchain has tapered off, the industry continues to sail toward a blockchain future. However, the energy might now lie with artificial intelligence (AI) and cloud, as they are already transforming many aspects of banking in significant ways.”
Why has the otherwise pro-active banking sector been procrastinating for so long? Why hasn’t technological inclusiveness been a priority?
Quoting Fintech Expert Chris Skinner, “The banking industry was built in the industrial revolution, and focused upon the physical distribution of paper in a localized network of buildings and humans. Now we’re in a digital revolution where everything is becoming the distribution of data on a globalized network focused on software and servers, and banks have this physicality that’s locking them into old ways of doing things. They’re trying to break out of it, but it’s diﬃcult because it’s a fundamental change of the bank structure.”
While it is wrong to claim that digitalization hasn’t influenced the banking sector, the use of Mobile Applications and Chatbots for customer support alone doesn’t cover even a portion of what technology has to offer to the ever-dynamic banking sector. If anything, it is just a one-sided approach that choses to just take a step towards change staying in the risk-free zone. According to Jim Marous, an internationally recognized financial industry influencer, “Financial institutions must be able to deliver an easy to navigate, a seamless digital banking platform that goes far beyond a miniaturized online banking oﬀering.”
Digitalization offers a lot more than ‘app’ification. Contrary to popular belief, automation wouldn’t really wipe out job opportunities. Chris Skinner states that, “most of the jobs of the next century haven’t been invented yet, and old jobs will just be replaced by new ones. There are already many new jobs replacing old ones in finance, just look at FinTech. Work is blossoming across the tech world, in AI and Blockchain specifically, and generally across the Internet of Things.” If anything, digitalization is the way to work and deliver faster, and be more efficient. Take for instance, JPMorgan’s AI system that wiped out 360,000 hours of legal work overnight, and UBS’s high net worth system that does in a second what took humans 45 minutes to administer.
Putting the concern related to human resources aside, security risk is another aspect used to justifying the decision to not go digital and stick to the status quo. But, industries with greater security risks have been digitalized without compromising the security to deliver better customer experiences.
While most bankers even acknowledge the need for digital transformation, breaking out of the traditional shackles requires more than just scattered interest. It is an organization wide change that needs to be analyzed, received and implemented. Digitalization offers an option for industrial convergence bringing the likes of banking industry and bigtech under the same fold. While this is often viewed skeptically, it is a strategic change that offers to benefit both the industries.
In spite of the growing demand for digitalization, it is still a tough task to convince the traditional and smaller banks. What they miss out to see in the fear of an overwhelming technological invasion are the benefits it would bring and not adopting the change they could really be a greater threat.
Take for instance Cost Reduction. Digital transformation offers at least 30% reduction in operational cost, which can vary from bank to bank. By not accepting digitalization to improve the efficiency of work and quality of processes at a reduced operational cost, banks could eventually fail to balance the costs as demand keeps increasing.
Not going digital can also affect customer retention. Digitalization in banking isn’t just about using digital channels to divert branch activities, it is about using digital tools augment frontline servicing (i.e. using digital forms instead of paper forms, or video conference access to specialists) hence, improving productivity and enhancing the customer experience. There already exists a generation gap in business that keeps increasing with time, and with banks failing to give the Gen Z what they want in terms of cryptocurrency, digital solutions, faster processes, and affordable transactions and everything that the new crypto startups offer, there is a fair chance that banks will lose out on gaining new prospects and holding on to the old clients too.
One of the major risks in not going digital is adherence to compliance. Bank Secrecy Act (BSA), Cash Management Policies, revised Payment Services Directive (PSD2) and the General Data Protection Regulation (GDPR) are just a few among the large compliance list that banks need to adhere to. Digitalization assists in regulating compliance using analytics-based modeling and incorporating robust governance practices faster and more efficiently. By not acting fast enough the banks may be affected by compliance issues, which in turn can greatly impact the overall functioning.
It is not just about digitization for improving the way banks function and delivers services, it is also about staying advanced enough to match the industrial trends. With digital transformation pioneers already steps ahead in the game, the rest of the banking industry faces tough competition. Embracing the open, platform-based business models used by Non-banking financial companies and e-commerce firms could be the only way to stay viable and keep moving forward.
Dilly-dallying and procrastinating about the negative impacts of digital transformation would only act as a handicap in the longer run, giving others a greater head start.
As mentioned in Deloitte, “Banks should bolster their conviction and reimagine transformation as a holistic, multiyear process, and “change how they change.” The world is becoming too volatile, and external change is happening more rapidly than before. Taking a traditional approach in confronting these challenges may not work. “Change the bank” initiatives should move to the fore and could essentially become the new operating model for “running the bank.”
We cannot emphasize enough on the fact that not going digital is a bigger threat to banks. But, if you are still reluctant or worried about how to get started, get in touch with us for a FREE consultation where our in-house experts can walk you through the process of going digital the right way.
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