Banking has evolved immensely over the past few decades. Most notably, customers no longer have to visit a bank in person to deposit a check or open an account, which makes banking more accessible to anyone who wants to use all of the valuable services these important financial institutions can offer. Many of the changes in banking that have already occurred have been able to take place because of digital transformation, a broad term that alludes to the shift of services and operations being done digitally or over the internet.
At the end of 2022, 89% of banks and 96% of credit unions will have launched a digital transformation strategy. Digital transformation, like technology advancements as a whole, shows no signs of slowing down.
This means that financial institutions must stay on top of digital transformation trends in order to stay competitive in an already competitive market, though it's not cost-effective or smart to adapt every single digital transformational trend that emerges. Learn more about the pros and cons of digital transformation, some examples of how digital transformation can already impact financial institutions, and more about the future of banking below!
Change is hard, but change can also be necessary in certain industries. When it comes to banking, change is inevitable. What worked in past decades no longer applies to our current way of life. Change isn't always seamless, which can scare some business leaders from trying new methods or policies. In the case of digital transformation, there are many pros and cons to consider. Here are a few of each:
Adapting to digital transformation trends can let your company stay ahead of the curve. Digital transformation can make applying for a savings account take minutes from your smartphone, and you can easily transfer money in seconds from saving to checking using an app. When customers want to take a certain action, they look for the easiest way with the least amount of friction. Because digital transformation makes banking more convenient than ever, companies that adapt can see major spikes in their profits.
Meanwhile, companies that don't adapt quickly can find themselves out of business before they know it. After all, few people want to or can drive to a physical bank just to check their balance or request a transfer from savings to checking. When customers find a company that offers more convenient solutions, there is little motivation to stay with a brand that refuses to change.
Finally, digital transformation can be an investment that pays for itself in a relatively short amount of time. When customers can apply for accounts themselves without assistance from a banker in a physical location, it allows your employees to focus on more important and lucrative tasks. This frees up time and makes your entire workforce more efficient, while reducing the number of labor hours your company has to pay to do tasks that digital transformation technologies can do.
Although many innovations of digital transformation absolutely make financial institutions better for employees and customers, there are some trends that don't provide enough benefits to outweigh the financial costs and the hassle of implementing them. As a result, it's important to carefully consider and test out new digital transformation trends before jumping the gun just to be the first institution to offer something new.
It can also be harmful to a business to constantly add new features and tools without giving customers a chance to adapt and understand previous changes. Many financial institutions pride themselves on being innovators, and they can make the mistake of biting off more than they can chew when it comes to adding new and exciting technology in banking.
Others raise legitimate security concerns when considering the ways that digital transformation in banking can change the way we hold and lend money. Some digital transformation technologies add plenty of benefits, but may also make institutions a bit more vulnerable to online security hacks. Because data can be stored online, hackers and bad actors may be able to gain access to valuable account information. It's all too easy to get caught up in the rush of adapting to new technology without first ensuring that new methods will provide value and added security measures.
Digital transformation is a term used to describe a general set of technologies that help industries move many of their functions online, or help companies interact with customers in a digital space. Here are some of the biggest digital transformation technologies in banking right now:
AI, or artificial intelligence, is a type of technology going through a significant boom these days. AI uses the power of technology to quickly find trends and analyze huge data bases in almost no time at all. AI can provide valuable insights that can help you identify risks and take actions to mitigate those risks. It may also be used to determine loan eligibility with less bias than a traditional loan officer can provide to make your institution more inclusive and reach more people than ever.
Banks can best serve their customers when they know key details about their lives. It can be impossible for a banker to suggest the right savings account or type of loan to a customer unless they spend hours interviewing them about their background and why they need it. Big data can eliminate the need for bankers to waste time discussing these details in person, as they can instead rely on key data points to come up with the best solutions for the customer. Big data can help cut operating costs and increase customer satisfaction substantially by offering a highly personalized experience.
Blockchain is an inherently confusing type of digital transformation that leaves many scratching their heads. IBM defines blockchain as a "shared, immutable leger that facilitates the process of recording transactions and tracking assets in a business network." Assets don't always refer to money, they can allude to real estate and other valuables. For banks, blockchain can revolutionize the way money is transferred, making it possible to send and receive money in minutes, or even seconds, instead of days.
Many are now familiar with the cloud, or a way of storing data and information online instead of on physical hard drives. Besides simple storage, cloud capabilities also allow users to access important bank information from their smartphones, while also enabling banks to better detect fraud. Cloud-based technology can use other components of digital transformation, like big data and artificial intelligence, to detect irregular or strange transactions that can be further investigated by financial institutions. When used properly, this technology may also play a role in preventing data hacks, which have been the demise of many small- and medium-sized businesses.
Although technology moves fast, it's often better to take one step at a time when implementing new technologies into your financial institution. The best way for banks and credit unions to prepare for digital transformation is to create a comprehensive, step-by-step plan.
The first step when creating a plan is to take an in-depth look at where your institution currently is regarding digital transformation, and to decide where you want the company to be in a month's time, six month's time, a year, and beyond. Some examples of important milestones to achieve include:
Once you have your goals in mind for digital transformation, create a set of actionable steps that can get you closer to point B from point A at manageable intervals. Perhaps you can spend one stretch of time focusing on getting your bank to go paperless, or at least nearly paperless. It promotes sustainability, makes customers less annoyed about receiving physical mail from you, and helps reduce operating costs.
After achieving that major overhaul, focus on the next item. This systematic approach may take longer than trying new technologies on a whim, but it can greatly reduce risk and improve your chances of creating lasting changes within your bank or credit union.
Technology moves fast and waits for nobody to catch up, but you can stay ahead of the curve when you work with a cutting-edge partner like Cotribute. Cotribute's suite of tools and analytics help financial institutions like yours acquire more customers and stay more secure, all while keeping data organized in an intuitive way. Our software empowers customers to input their information when applying for accounts or loans, freeing up valuable time for your employees to focus on other efforts.
To learn more about Cotribute, and all the ways we can help your company grow and thrive, contact us today for a demo.