Digital Transformation in Banking: What it means for businesses

Digital transformation in banking is not just a change; it is far beyond just moving from the traditional to a digital world. The entire concept of digital transformation strategy in banking is a vital process of how banks and financial institutions analyze, interact, and satisfy their customers. 

The basic approach of digitization in banking and fintech begins with understanding customer behavior, preferences, and demands. As a result, the banking sector has transformed from product-centric to customer-centric. 

As per a report by MarketsandMarkets, the global digital banking platform market size is expected to grow from USD 8.2 billion in 2021 to USD 13.9 billion in 2026 at a CAGR of 11.3%. The report suggests that this expansion is due to the increasing demand among banks to deliver the best customer experience and the growing adoption of cloud technologies in banking institutes. 

As for the customers using digital banking, a study by Statista predicts 2.5 billion individuals to utilize online banking services by the year 2024. A few examples of digital banking transformation are online banking applications, data encryption software, virtual assistants, KYC system software, website optimization, etc. 

This raises a ton of questions around digitization in modern banks and similar business institutes. Let’s start with analyzing how the digital process in banking started, considering the shift from a traditional to a digital approach. 

The shift from traditional to digital banking 

Most banks began their digital banking journey years ago with a clear strategy, even though there were major challenges along the way. The trend of digital banking started when the financial leaders realized a majority of their users are on digital channels. 

With the top-down implementation of digital strategies, the banking sector has become more client-inclusive and tech-savvy. What does the evolving shift from traditional to digital platforms look like? Let’s take a look at the highlights of this journey. 

In particular, as more customers used their mobile applications and websites to perform transactions, omni-channel took hold in financial services. Hence, mobile banking became a crucial part of the digital banking journey. 

To keep up with the ever-changing market, traditional banks had to adapt to new technologies and operating models that could keep them in the loop throughout the entire customer’s journey. 

At the same time, the growth and rising demand for Artificial Intelligence (AI), blockchain, augmented reality and the Internet of Things (IoT) accelerated the process of modernizing the banking industry. 

As of today, the banks are highly dependent on the omni-channel strategy, breaking data silos from every channel to renovate the customer experience. 

This digital banking transition has helped financial service providers improve efficiency, generating growth and convenience with the opportunity to bring more prospective customers. This brings us to our next point of discussion, the key factors that make digital transformation in banking and financial services possible. 

Key factors driving digital transformation in banking 

Increasing usage of smart devices, increased connectivity, and demand for high end-user experience are the key drivers of the digital transformation trend, taking banking solutions to customers’ doorstep. Along with these aspects, six essential factors highly impact the success of digital banking.  

Importance of customers

Why would banks migrate to digital platforms? Because that’s where their customers are. The digital approach is all about ensuring the needs and expectations of its customers. Banks are now delivering personalized product experience, seamless query disintegration, transparency, and security standing at the core of customer satisfaction with modern solutions. In short, the transformation has made it imperative to adopt a “customer approach,” bringing engagement at its best. 

Operating model 

Today, customers are in need of a hybrid experience, a combination of speed and convenience with personal attachment with the product. This is why the transforming banking sector follows three different operating models. 

Digital as a business – This is generally at the management level. 

Digital as the new line of business – This includes working at the next level as a separate digital division to take care of digital activities. 

Digital Native – This involves a new setup with the business of their own technology stack that focuses directly on consumers. 

Modernized infrastructure 

As mentioned above, achieving digital transformation for banks is not just about implementing modern technologies. Today, the digital transformation in financial services has enhanced due to underlying infrastructure that facilitates data to the front-end operations. Therefore, modernizing the legacy infrastructure has played the most critical factor in driving digital transformation in banking industry.

The power of data 

Banking and financial institutions are well aware of the power that consumer data attains. This means implementing more data analytics practices to analyze and monitor customer patterns. This has helped the banking sector produce more relevant products and services aligned with customer needs. This is probably why major fintech enterprises outsource data analytics requirements to development companies.

Complete digitally-driven market 

We cannot forget how not just banking but every sector such as industrial, eCommerce, agriculture, IT, etc., are moving ahead with digital capabilities. This includes business culture, technologies, strategies, and skills that contribute to a digital transformation journey. Hence, the entire consumer market is on the edge of transforming digitally, which is one of the driving reasons for digital banking transformation. 

So far, we have been talking about digital whereabouts in banking and similar financial institutions. However, we are yet to discover what technologies lead to bank digital transformation. Let’s take a broader look at some of the major tools and technologies used by banks to improve digital lending and enhance customer experience.

Digital technologies utilized by modern banks 

When the concept of digital transformation in financial services was initiated, the banks started with developing a detailed strategy to revamp their operation models, enhance customer offers and create an end-to-end customer-centric process. For this process to succeed, the banking sector embraced digital business transformation services to generate value for both banks and their customers. 

Below are some of the most used tools and technologies utilized by the digital banking sector. 

Artificial intelligence (AI) and machine learning (ML)

AI in banking is leveraged by online assistants and chatbots that resolve customer issues by providing necessary information. Along with this, artificial intelligence is used for the purpose of data analysis and management, data security, and enhancing customer experience.

For instance, AI can detect repetitive patterns by analyzing consumer data within seconds. 

Machine learning is another companion for banks that has the potential to gather, store and compare user data in real-time. One of the biggest advantages of using Machine learning in the banking sector is fraud detection. This kind of digital transformation for banking makes it is easier to detect any change in the user action and take a timely preventive measure with machine learning.

Internet of Things (IoT) 

IoT is super helpful with real-time data analysis, making the customer experience more personal and tailored. Thanks to IoT and its smart connectivity among devices, customers can seamlessly make contactless payments within seconds. Besides, the Internet of things has transformed the financial ecosystem by introducing risk management, authorization processes (biometric sensors), and access to multiple platforms. 

Blockchain 

Every discussion on digital implementation in banking is incomplete without blockchain. The integration of blockchain in the financial sector has resulted in secured data transactions, more accuracy, and an enhanced interface. Modern customers rigidly trust blockchain solutions and believe that it has made transactions and other banking operations more transparent and convenient. In fact, the fusion of blockchain and IoT (BIoT) has been one of the biggest digital banking technology trends. 

Cloud computing and APIs

Cloud computing is by far the most popular technology utilized by banks and financial sectors. A cloud-driven service results in improved operations, better productivity, and instant delivery of products and services. 

With the integration of the cloud, banks are now more open to using banking APIs to promote data sharing and enhance the overall experience.  

Big data analytics 

Modern customers don’t look at banks the same way they used to look a decade ago. All thanks to big data technology that helps banks in analyzing customers’ expenditures, monitoring risk, and managing feedback to increase customer loyalty. Data analytics solutions have brought new prospects for banking software development and have been prompt in responding to growing market demands. 

The above technologies have not only transformed the banking landscape but also brought some significant benefits to the financial domain. What are these benefits? 

[Also Read: Metaverse in banking – How is the technology transforming the future of banks?]

Benefits of digital transformation in banking and what it means for businesses 

As we say, the digital banking transformation is more than just instant transactions and online banking. Digitization in banking brings a lot of new opportunities for small and medium scale businesses, big corporations, and similar institutions. Digital innovation in banking has led to the following benefits. 

Investment banking on digital platform

The expansion of digital banking has resulted in reduced intermediate processes, data transparency and substitute methods to access intellectual data. All of these factors positively impact the operation costs and make transactions easier and faster. Digitization in banking has replaced investment banks with small investors brought together on one centralized digital platform. 

[Also Read: How Can Businesses Reduce the Digital Transformation Costs?]

The digital transformation also made investment banks focus on short term goals and let immediate customer requirements guide their technology investments which is great news for digital enterprises and businesses. 

Compliance 

Switching to the modern digital financial management system has made it easier for banks to stay compliant. Advanced features such as auto auditing helps employees to spend less time on auditing reports and documents. The digital data stays standardized and can be shared on multiple platforms without any error. 

Besides, the digital payroll system on cloud gives timely updates which means the banks do not have to worry about updating regulations. 

Easier acquisition of new customers 

Businesses require customers just as customers require services. Since financial institutions are no longer passive about their services, it has become cheaper and easier to attract new customers not just for banks but for every other sector. With instant online payment, every customer and business can operate hassle-free. 

Business innovation and adaptability 

The emergence of social channels, shopping portals, and mobile banking applications has opened doors for banks and other businesses to reach out to their customers. This banking digitization has led to new business innovations that are highly reliable on banking services. 

Enhanced security

Customer data security is one of the rigid issues that companies and institutions are struggling to overcome. Banks can now protect sensitive data with sophisticated software development services and save accounts from scammers, hacker attacks, phishing, etc. 

Personalized offerings 

Digital transformation in banking and financial services has allowed banks to serve exactly what customers need. Instead of guesswork, financial institutions have started formulating their products and offers according to the customer’s daily expenses, and this is by far the biggest benefit of digital banking to its users. 

Looking at the above benefits, more enterprises and businesses have adapted to digital transforming solutions and services for better opportunities. What solutions can you leverage for your business? 

Navigating the Digital Transformation Process in the Banking Sector

Explore the key steps in banking innovation, including the adoption of digital technologies and strategies to enhance operational efficiency and customer engagement.

Strategy Development

Digital transformation in banking starts with crafting a well-defined strategy, outlining the vision and objectives while evaluating market trends and competition to shape the direction. This strategic foundation provides a roadmap for aligning all transformation efforts with overarching goals.

Technology Integration

Integrating advanced technologies, such as modern core banking systems and cloud computing, while ensuring strong cybersecurity is crucial for modernization. This integration helps banks improve operational efficiency and stay resilient against evolving digital threats.

Regulatory Compliance and Risk Management

Maintaining regulatory compliance and managing digital risks, including modern banking cybersecurity threats, are essential to safeguarding the bank’s integrity. Effective risk management strategies protect sensitive data and ensure adherence to industry standards.

Change Management

Effective change management involves equipping employees with training and cultivating a culture that embraces technological advancements. This support helps smooth the transition and encourages ongoing adaptation to new tools and processes.

Continuous Innovation

Fostering continuous innovation by developing new digital products and services and incorporating customer feedback is vital for staying competitive. Regular updates and improvements ensure that offerings remain relevant and meet evolving customer needs.

Performance Measurement

Regularly measuring performance through key performance indicators (KPIs) and analyzing metrics is essential for assessing the success of digital transformation efforts. This ongoing evaluation enables banks to refine strategies and make data-driven adjustments for sustained improvement.

Digital transformation solutions you can leverage

How can you get value out of your business? By leveraging digital transformation solutions. Enterprises that adapt advanced digital technologies automatically gain a competitive advantage in the market. Digitization gives your business full control over end-to-end frontend and backend operations along with consistency and usability. 

What digital solutions can you leverage for your business? Below are a few examples.

Mobile applications

Mobile apps are designed to help businesses in all kinds of ways. With banking apps, one gets hold of its financial data, tailored options, bank accessibility, and personal financial management. However, this is not just limited to the banking sector; any business application helps an enterprise to understand and serve its customers personally. This is probably why over 82% of businesses with a digital presence have their own withstanding application using app development services.

Data analytics solutions 

Deriving the greatest value from the business data is the key to success. If your business deals with massive amounts of data from multiple sources, data analytics solutions and services can help you transform your everyday data into valuable business insights. 

How Appinventiv helped Asian Bank digitally transform its business?

The Asian Bank app required a solution to offer core advanced wire transactions with crypto buying and selling. The app also needed support for wallet recharge and payments using cryptocurrencies like Bitcoin and Ethereum. 

Appinventiv’s primary objective was to widen the Asian Bank’s app horizon for the use of cryptocurrencies. We started from designing a central ledger to maintain transactions and further incorporated a system that supported both FIAT and crypto user fund’s identity. 

By overcoming the biggest challenge of syncing all third party solutions into an existing app, Appinventiv offered Asian bank a core banking solution.  

Final thoughts

Appinventiv can be a reliable technical partner in the digital transformation of banking businesses. From designing a UX strategy to integrating modern data solutions, Appinventiv has the best professionals to serve their clients. Additionally, Appinventiv is well-equipped to guide businesses in adopting sustainable banking, merging financial growth with eco-friendly and ethical practices.

Talk to us for customized digital transformation services for your banking business.  

FAQs

Q. What is digital transformation in banking?

A. Digital transformation in banking involves embedding digital technology across every facet of a bank’s operations. This shift fundamentally alters how banks function and provide value, leading to greater efficiency, improved customer experiences, and increased innovation.

Q. Why is digital transformation important for banks?

A. Digital transformation is vital for banks to stay competitive in a rapidly changing financial landscape. It enhances operational efficiency, enables personalized services, improves customer engagement, and allows banks to adapt to new market demands and technological advancements.

Q. What are some key benefits of digital transformation in banking?

A. Some of the key benefits of digital transformation banking include:

• Improved Data Management: Offers better insights and supports informed decision-making.
• Cost Savings: Lowers expenses through automation and process improvements.
• Strengthened Security and Compliance: Enhances data protection and meets regulatory requirements effectively.
• Operational Efficiency: Streamlines processes and boosts productivity.
• Enhanced Customer Experience: Provides personalized services and seamless interactions.

THE AUTHOR

Saurabh Singh

CEO & Director