It was almost 4 years ago that JP Morgan Chase got the ball rolling in implementing digitalisation in business under the leadership of Marianne Lake, the then CFO of the company. The organisation announced it was now a ‘tech company’, a move that raised a lot of eyebrows in the industry. JP Morgan Chase created a $9 billion technology budget realising the need to invest in innovative transformation technology to meet emerging consumer needs.
Though back then JP Morgan Chase could have been seen as somewhat of an outlier in the industry, the scenario today stands in stark contrast. Today, most financial institutions are seeing that the world is driven by technology and that the ongoing – digital transformation of enterprises does not rule out the financial domain. Transformation seen from the late 1990’s online banking, to e-wallets being the norm in the 2000’s, is a gradual change that has been accelerated by global digital finance today.
COVID-19 has also proven to be a catalyst in accelerating the digital transformation in financial services and banking as people are forced to access services remotely, expecting the same level of quality as when they visited a bank physically, if only more. Credit Suisse, the swiss lender, though having noticed branch visits declining and mobile banking thriving in the past few years, has only now taken the big leap to launch its online banking service. It’s time for change, and everyone can feel it. Embracing digital finance and strategically creating a digital transformation roadmap now requires prompt action from the financial sector.
What is digital finance?
Put simply, digital finance is a new way of working that is aimed at making finance better, quicker and more cost effective, with the help of digital tools and processes. It constitutes the impact of technological advancements on the financial industry, be it through products, systems and processes, or new business models, that have morphed the way traditional finance was structured.
These evolving technologies create new digital finance services by allowing people and organisations to have access to payments, savings, and credit products without the need of visiting a bank. This new reality born out of digitalisation conjures the possibility of repurposing a smartphone as a wallet, checkbook, bank branch and an accounting ledger, all in one.
Digitalization in finance is a concept not too far fetched because of the level of progress that has been made in technology. The extensive availability of data, the ability to synthesise it with algorithms and tools, and advancements in connectivity devices and systems like cloud computing and sensors. What’s interesting to know, is that a lot of these technologies already exist in other verticals of a business and it’s for us to capitalize on this existing knowledge by learning from other business functions and adapting our approach.
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Why Digital Finance is Important
Financial Inclusion
One of the most pressing issues faced by countries around the world is that of achieving financial inclusion. In the midst of this growing concern, it is hard to turn a blind eye to the solution right in front of us: digital finance. With the possibility of reaching billions by building a digital transformation strategy, several organisations in the banking industry and otherwise are capitalizing on improving accessibility through digital channels. Financial services that are digitally driven – including those accessible through mobile phones – have already launched in over 80 countries, some with great success.
Changing consumer behaviour
The accelerating trend of more digitally enhanced experiences has been to an extent driven by the Gen Y demographic; Finextra’s research conducted in 2015, revealed that a third of this group believe they don’t require banks and 73% were more inclined to use Google and Amazon’s financial services. Though millennials may be forerunners of digitalized experiences, a world that is more digitally driven is the product of a larger paradigm shift in people’s behaviour and expectations.
Digitalisation is driving customer experience transformation with consumers preferring the convenience, speed and on-demand service offered by digital banking services over physical visits to the bank. According to Accenture, Vvisits to bank branches have plummeted from 52% to a meager 32%, from 2015 to 2019. Customers are now also always on the lookout for highly personalised experiences that can only be offered with the support of emerging digital technologies. With many organisations still struggling to offer this attractive value proposition, they could risk losing a significant segment of valuable customers.
Improving operational efficiency
In an era that is demanding higher standards of financial services powered by a digital business process, now is not the time to fall back on traditional ways of doing things. Enabling digital transformation through operations that are bolstered by automation and artificial intelligence in all processes from the back to front office can help increase efficiencies – by cutting costs, increasing speed and improving quality of service. These systems can be implemented for highly standardized tasks to foster efficient working – like transaction processing – and tasks associated with compliance – like customer identification. and,
Disruption is Underway. Are we Ready for the Paradigm Shift?
While the financial services industry is growing aware of the disruptive transformation driven by digitalization, it still seems to be lagging behind as it chooses to cling to age-old legacy systems.
In a survey conducted by FICO and Arizent, 71% of bank executives were doubtful that their organisation is capable of responding to digital banking transformation. Additionally, in this environment of rapidly changing customer needs, just over one-half of banks are confident that they will successfully be able to tackle challenges and meet maturing customer needs. Another major obstacle chaining down progress, is that nearly two-thirds of global banks are struggling to provide a consistent customer experience in an omni-channel set-up.
Apart from system bottlenecks, the industry is also plagued with a shortage of a tech savvy and innovative workforce that is ready to be the ones leading digital business transformation. PWC’s Global CEO 2019 survey highlights that 80% of banking CEOs view skills shortage as a hindrance to future growth, adding to the already existing problems the financial industry is infested with today.
The inability to adapt in a time vying for rapid change could risk the financial industry losing customers to more innovative service providers like fintechs and big tech firms. The only two paths now forging ahead into the new digital finance world are either failing the test of time, or adapting and winning over disruption guided by a digitalization roadmap.
How can organisations adapt to the new age of banking and digital finance and emerge as a digital transformation leader?
Digitisation a strategic priority co-created with employees
A quintessential ingredient in the recipe for a successful digital business transformation strategy is to ensure your organisation propagates the right strategic vision that percolates down from the top. The Boston Consulting Group states that it is key for senior managers to be wholly committed to digital transformation in the financial services sector, by enabling the right funding, talent and by embracing the digital transformation with agile ways of working. Building a purpose driven institution by empowering the workforce with the reason behind change is imperative. It is also important to have a closed loop communication system and continually review employee successes or failures to reiterate the formula for digital transformation.
Reinvent legacy systems
Since digital transformation and innovation go hand-in-hand, staying on top of changing times calls for the modernisation of legacy systems. These systems apart from burdening organisations’ complex systems are also chipping away at funds that could be siphoned towards new digital technologies. IT operational costs stemming from higher fixed costs, are practically absent in fintech start-ups giving them a greater advantage. To escape this vicious downward spiral and champion the digital transformation process, organisations must invest in SaaS-based models and deploy automation through AI and robotics to create the right digital transformation infrastructure.
Invest in up-skilling; creating a new generation of digital natives
For the digital transformation of an organisation, an important precursor to the digital shift is the need to cultivate a workforce that is digitally literate. With 29% of the global workforce in financial services employed in completely new roles that will emerge from the digital transformation by 2022, as predicted by Infosys, that will have emerged from the digital transformation, the need to rapidly train, reskill and upskill talent is imperative. The benefits that organisations may reap from this initiative are saving additional costs of job replacement, control over the talent pipeline and an improvement in internal development processes that align with the future of the workplace.
These initiatives must aim to infuse an entrepreneurial mindset among the workforce, foster a culture of continual learning and equip the workforce with the knowledge of emerging technologies
Conclusion
To summarise and conclude, we see that the financial services industry today can no longer escape unscathed from the organisational reforms required to flourish in a digital world. Though digitally driven services and experiences in financial services have been amplified by COVID-19, these changes are here to stay. Those who champion this transformation will successfully meet rising consumer expectations, strip down unnecessary costs and incubate a world that stimulates financial inclusion. With an evidently high proportion of individuals and organisations still struggling to grasp the foundations of this shift, institutions need to speed up their efforts to lead change through a unified strategic vision, replace legacy systems to improve efficiencies and invest in reskilling the workforce for the jobs of tomorrow.
Wish to learn how you can upgrade your skills and reskill your workforce to lead the next chapter of digital transformation in your organization?
Check out our Specialisations in Payments in Digital Finance and AI in Finance that will give you access to unparalleled industry insights directly from global experts themselves.
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