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By: Julia Nasy
15 Jan. 2023

Digital Banking Transformation

9 mins read
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The banking sector is one of the wide range of industries digitization has impacted. But this transformation isn’t just a shift from traditional to digital banking. The process includes many backend changes needed to support it. Digital transformation requires a cultural change, a top-down approach, and customer experience platforms. This also means adopting the latest technologies, like blockchain, artificial intelligence (AI), cloud computing, and the Internet of things (IoT).

Digital transformation in banking is how financial institutions interact and satisfy their clients. The basic approach to the process starts with understanding customers’ behavior, preferences, and demands. As a result, today, we can see how modern banks have become from product-centric to customer-centric.

There are some objectives of digitization, including cost reduction and profitability increase. But regardless of the chosen target or their combinations, digital banking transformation interrupts multi-year business models. And this is the reason why digitalization is so challenging to achieve. It’s more than simply transferring the same products and services on a new app.

What Is Digital Transformation in Banking

This process implies multiple small and large changes carried out to automate, optimize, digitize procedures, and increase data safety through various solutions. As a result, existing methods, legacy systems, and technologies in the financial area are reshaped.

The Covid-driven crisis is only increasing the urgency of transformation. And many financial institutions make a mistake by adopting several separate digital initiatives, which are unsuccessful as they need the appropriate support to compete with thoughtful digital solutions. Moreover, digital technology is something other than a magic bullet. Instead, successful digital transformation efforts mean improvements in many areas simultaneously.

Digital Transformation Journey

Mobile banking has been a crucial part of the digital banking journey since companies realized that most of their customers use financial services on digital channels. By implementing digital transformation strategies, financial institutions have become more client-inclusive. To keep up with the ever-changing market, traditional banks had to adapt to new technologies: AI, IoT, blockchain, etc.

And the significant step towards digital transformation is digitizing the customer journey. For example, traditional banks offer the client to go through several departments before he receives a product or service, which is likely to be impersonal. But the digital transformation in banking enables the creation of a more personalized digital customer journey.

This means integrating every department into one digital platform that will handle a customer with the same tools and provide the same information throughout the process, unlike traditional financial institutions’ disjointed and disconnected results. In addition, Digital technologies help to faster any procedures. And if earlier loan applications could take days to visit brick-and-mortar branches, now the same services take a couple of minutes in the mobile app.

Thus, digital transformations help financial markets improve efficiency and generate growth and convenience to bring in new customers. It also provides an understanding of customer expectations and invests in those wants and needs.

Benefits of Digital Transformation in Banking

Process Automation

Intelligent Banking Automation (IBA) is the future of the industry. It automates all repetitive and manual workflows, minimizing the human factor. Also, the combination of automation capacity with data analytics allows the creation of advanced automation capable of resolving complex issues and generating deep insights and new ideas. Digital transformation impacted different banking activities, from account opening to bill paying. With IAB, large financial institutions reduce costs, speed up operational processes, improve their quality, enchance employee experience, etc.

Related reading: IoT in Banking: Examples of IoT technology used in financial services

Better Customer Experience

Digital transformation for the banking sector also means improving customer experience and all touchpoints, such as call centers, social media, emails, and more. Modern client demands fast online solutions instead of slow and bulky traditional banking. To enhance customer experience, most banks are applying different digital strategies.

One of them is a developing customer-centric mobile app. Mobile banking applications are a must, but more is needed for banks. To compete successfully, financial institutions develop multi-purpose and user-centric mobile apps. As a result, they attract new people and increase customer bases, reducing operational costs.

Another strategy is hyper-personalization, and, unlike traditional personalization, it focuses on the individual customer. Being a combination of machine learning (ML), AI, and predictive analytics, it enables banks to offer hyper-targeted products for customer acquisition.

Enhanced Security

Customer data security is an essential issue for the financial services industry. And different digital solutions help to protect sensitive data and save accounts from scammers, phishing, and hacker attacks. For example, banks use data encryption to protect themselves against internal and external leaks to their competitors or scammers on the Internet.

Advanced Use of Data Analytics

The banking industry is not the first year working with data analytics. Every day fintech companies process thousands to millions of transactions that consist of big data about their customers and the market. And banks need to have a comprehensive data analysis strategy to use massive amounts of this information in unstructured and structured forms.

Today, banks use data analytics in all areas of their business, which brings a lot of advantages such as:

  • monitoring clients’ actions and their spending patterns;
  • improving customer experience and service;
  • better risk management;
  • data accuracy improving;
  • supporting personalization offers.

Composable Banking

Composing core banking systems into independent components with optimal functionality has great potential. Due to this, banks can be as agile as fintech companies and still have the competitive advantage of traditional banking. Beyond improved agility, composable banking enables faster speed to market, increased productivity, and reduced costs.

Technologies for Digital Transformation

Digital transformation strategy should include the most valuable technologies, as each suits different purposes. However, banks must be smart about which technologies they choose and how they will be deployed. Below are some key technologies that can help banks successfully implement digitalization.


Initially, blockchain was used to secure bitcoin transactions. Today, it has been used in different sectors, in particular, fintech. Many banking services utilize distributed ledger technology, as it makes banking operations and data transactions more transparent, secure, and convenient. In addition, blockchain integration in the banking sector has resulted in more accuracy and an enhanced interface.

Artificial Intelligence

AI technologies provide various ways of use in online banking, and chatbots for customers are one of them. They’re available 24/7, unlike bank managers. They also can answer questions and provide needed information. In addition, AI helps automate business processes, analyze data and security activities, identify frauds, and provide insights for improvement.

Internet of Things

IoT technologies make banking easier and enable real-time data processing and analysis with the following delivery of personalized content. This quick and efficient process results in a positive user experience. Also, IoT is the basis of interconnected devices, like watches and smartphones, allowing contact with each other for payments, loans, savings, and more.

Cloud Сomputing

Moving banking services to the cloud enables companies to leverage a broader scope of opportunities. Due to this, financial institutions of all sizes can partially or entirely upgrade legacy technology. This, in turn, enables better management scale and quick moving to modern technologies, such as eSignature and ID Verification. Other advantages of cloud computing are:

  • better productivity;
  • security of information processing;
  • improved business operations;
  • instant delivery of products and services;
  • democratized data collection, etc.

Key components of Digital Transformation Success

Some factors highly impact a competitive market advantage. Below is the list of four essential aspects of a successful digital transformation strategy.

Modernized Infrastructure

Modernizing the legacy infrastructure is critical in driving digital transformation in banking, and it takes time. Digitization is not just the implementation of modern technologies. This is a step-by-step process that is different for each organization, depending on the institution’s goals and perceived business needs. And the result should be a flexible infrastructure capable support current needs and future innovations.

Operating Model

Modern customers need a hybrid experience, which includes speed and convenience with a personal attachment to the product. And this is the reason why there are three different operating models in the transforming banking sector now:

  1. digital as a business on the management level;
  2. digital as the new line of business, including a separate unit to engage in digital activities;
  3. digital native involves creating its consumer-oriented technology stack.

Importance of Сustomers

The Covid-19 pandemic has made some adjustments to consumers’ digital habits. And it has affected the way banks serve customers and what consumers expect from digital solutions. Today, digital transformation in banking is more about ensuring the needs and expectations of customers. As a result, banks are now delivering terms at the core of customer satisfaction, like seamless query disintegration, security, transparency, and personalized products.

Data Power

Any bank or credit union implementing big data and analytics into their operations bypasses their competitors by profitability and productivity. Because consumer data has the power, that helps financial institutions produce more relevant products and services for their satisfaction. Data analytics practices to analyze and monitor customer patterns provide personalized client engagement and improve privacy and security.

Summing Up

Digital transformation isn’t only a trend in recent years. Banks were talking about it in pre-pandemic times. But COVID-19 forced many financial institutions to go beyond the talking as consumer expectations changed and competition increased. Thus, today, digitalization in banking is a necessity and a matter of survival in the financial market.