The growing necessity for digital transformation in the banking and financial services sectors can be attributed to various reasons.
However, one of the main objectives would depend on satisfying the consumers’ demand. The resurgence of the COVID-19 pandemic has featured an augmented decline to the already-established, in-branch banking, creating a requirement to either evolve or fail.
In recent year, competition from outside the traditional industry model, has also evolved with the surge in fintech companies around the world. Staying true to their definition, financial technology organizations are constructed on innovations, with the purpose of both improving and disrupting the financial services industry.
According to an EY Global FinTech Adoption 2019 Index, the increase in FinTech services grew from 16% in 2015 to 64% in 2019.
At the beginning of the coronavirus pandemic, the use of financial application in Europe increased by 72% in a week.
Online banking is becoming one of the most popular payment methods in Europe, allowing customers of a bank or other financial institution to affect a wide range of financial transactions through their digital devices. Over time, Europeans’ confidence in this electronic payment system has increased. Therefore, should banking and financial organizations want to keep up with this fast-paced development and it’s increasing competition, then meeting the requirements of the digital age is a must.
Bringing an organization to the digital age, allows more room for agility. Outdated processes can be replaced with evolving tech which can relieve pressure and heighten efficiency. Having said that, enhanced value to the customer is made more viable, given the saturated market whereby the customer can easily decide to make use of other organizations’ services.
Current banking is mainly related with Big Data. For this purpose, most technologies that are actively implemented during the digital transformation of the financial sector are highly beneficial for collecting, processing, storing, and analyzing large amounts of information.
Most popular types of computer technologies in banking include:
- Artificial Intelligence and Machine Learning. AI and ML are powerful technologies, even when they are used separately. However, their synergy multiplies their effectiveness.
- Internet of Things. Smart devices are the best way for enterprises to learn about their current and potential clients, find out their needs and desires and to develop and adjust their marketing strategies using targeted advertisements. IoT is also used as a source for further analysis performed with Machine Learning to identify customer behavior patterns and train Artificial Intelligence to recognize subtle signs of fraud.
- Cloud Computing. In addition to personal data centers and warehouses, financial institutions also use a wide range of cloud-based services to store, back up, and recover data, analyse data, virtualise resources.
- Blockchain. While this technology is mostly associated with cryptocurrency, it can be used in banking for its extremely high security features. It ensures safe storage of data and protects it from tampering.
What are the EU’s priorities for Digital Transformation in the Financial Services?
The Digital Finance Strategy by the European Commission sets out four main objectives till 2024. First to tackle fragmentation in the digital single market for financial services by enabling; on one hand, EU consumers to access cross border services and on the other hand, help European financial firms to scale up digital operations. Second, to ensure that the EU regulatory framework facilitates digital innovation. This is done in the interest of consumers and market efficiency. Third, to create a European financial data space to promote data driven innovation, including enhanced access to data and data sharing within the financial sector. Fourth, to address new challenges and risks associated with digital transformation.
The main challenge of this strategy will be to ensure a level playing field amongst traditional providers of financial services and tech companies by applying the principle ‘same activities, same risks, same rules.’
This article is part of the FinTalk Podcast Series by Finance Malta and Tech.mt’s CEO, Dana Farrugia.
Posts in Series:
- The Digital Transformation in the Financial Industry
- The priority areas of the Digital Finance Strategy by the EU Commission
- A step forward in regulating crypto assets