Author: Johanna Böhm

Digitalization in the financial industry

Digitization and technological progress are not leaving the banking and finance industry unscathed. Nevertheless, stricter regulations, historically low-interest rates, and high-cost pressure have shifted the focus to other fields. Customer expectations and competitive pressure require a more vital digitalization of the financial sector.

Relevance of digitalization in the financial sector

Relevance of digitalization in the finance industry

In addition to rising interest rates, high inflation, and a possible European crisis, banks, and financial institutions have recently dealt with one topic: digitalization. It holds opportunities and possibilities to expand business fields in the financial sector. In addition to online banking, the demand for digital payment transactions, remote business processes, digital loans, etc., is increasing.

Experts assume digitalization will shake up the financial world in five years. There is an immense need for action, and the restructuring of traditional business models is necessary.


Challenges for companies in the financial industry

In the banking business and financial services, it is a particular case of digitization. One thing is sure: a bank remains a bank and will only partially digitize its business. Nevertheless, specific requirements arise for digitalization.

Rising customer expectations

Now, customers like to conduct banking transactions anytime and anywhere. With a smartphone in their pocket, it has already become much more accessible but is mainly limited to online banking. Comprehensive digital banking platforms, digital communication channels, cash, and cardless payment methods are among the core tasks of financial institutions if they want to meet the demands of their customers.

Increasing competition

Digital currency alternatives such as Bitcoin, smartphone providers with their payment systems, and young fintech are putting additional pressure on banks and financial institutions. It is necessary to react to existing innovative solutions and create their own if established, and traditional banks do not want to miss the boat.

Regulatory requirements

Since the global stock market shake and the financial crisis of 2008, more control and transparency in the financial sector have become very loud. Blockchains, for example, are already established in many areas and make business and payment transactions much more transparent. The digitization of the financial world offers the possibility of comprehensive transparency.


Customer expectations of banking processes

Now, almost everyone carries out their banking transactions on smartphones. Customers are already accustomed to digital solutions' convenience and are looking out for more, e.g., smart apps and even higher security in digital payment transactions. There are even more fields of action when looking at corporate customers in the financial world. The focus here is on transparency and liquidity. At the same time, banks and financial institutions can be more directly involved in the processes for which they provide loans.


Advantages of digitization in the financial industry

However, the digitalization of the financial sector concerns private and corporate customers. It should be comprehensively considered regarding internal processes and departments in the respective banks or financial institutions. The numerous advantages are:

Cost reduction

With the expansion of online services and digital payment options, more specialized staff is needed, especially since the paper is saved. This reduces material and personnel costs enormously. Remote workplaces may also save on rental costs, among other things.

Increasing the efficiency of internal processes

Internal processes can be enormously simplified, better structured, and accelerated digitally. Electronic signatures, digital contracts, and central database solutions create free capacities and increase the efficiency of employees previously involved in lengthy and mostly tedious paper-based, repetitive processes. This also increases employee satisfaction.

Improving customer satisfaction and loyalty

By creating more options, digitized structures increase customer satisfaction, transactions, and conversion rates. Better and faster access to online services of financial institutions, therefore, increases customer loyalty enormously.


Requirements for banks, financial institutions, and services

With the demands of digitalization, banks, and financial institutions face immense change and adapt their business models. This change should not only be decided by the management and not affect technologies alone, but it also impacts internal structures and processes. Therefore, The financial sector faces an overarching change management in which employees and customers should involve themselves too.

From a technological point of view, each financial institution should deal with clouds, big data, and IT security. Process automation and checks for AML purposes or when granting loans are essential. Identification procedures, signatures, onboarding solutions, and contracts could be digitalized largely, guaranteeing more efficiency and speed.

In addition, this results in a massive increase in demand for young personnel who thoroughly understand, support, and further develop digital and technological change. Digital natives could accelerate digitization in the financial sector. Customer acquisition and loyalty can only be achieved through more than traditional business areas. New solutions and services are needed that go beyond the previous benefits.

Banks and financial institutions, in particular, must find the right mix of online offers and branch businesses. Banks are becoming more digital, but complete digitization, as in retail, still needs to be added in most cases. Reconciling this hybrid business with the demands of private and corporate customers is a significant challenge for the financial sector. Structures for digital payment transactions and online information are indispensable, but consultation on-site or virtually remains an essential success factor.



Success factors of the digital transformation in the finance industry


Digitization in finance is more than just a question of technology. In particular, it also requires a clear focus, a defined budget, and leadership from management. Above all, it must extend to all areas and departments. Otherwise, we face islands in the IT and business landscape: networking and interlocking guarantee central and efficient structures and the possibility of process automation. The customer focus is significant in digitalization. The goals should be transparency and mobility.

At the same time, after the introduction of appropriate workflows and technologies, it is essential not to sit back and relax. Digital and technology do not stand still either. Financial institutions must constantly work and be up-to-date to expand and improve processes and services.

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