Traditional banking reinforces its’ digital strategy in order to recover lost grounds against FinTech’s.
FinTech’s are technology-based companies for the financial sector. This section of the economy has been experiencing an expansion in the number of market players and turnover in the latest years.
However, the whole social-economic situation due to the Russian-Ukraine conflict plus the “fly to quality” it has unleased, caused some brutal shocks in the financial market that anticipate mergers and new acquisitions in the sector, as well as business reconfiguration.
In this context, highly significant movements are being experienced in different markets all over the world. However, no one is betting on a market collapse yet, but are changing their outlook looking forward to a greater competition from the so-called traditional banking system.
The digital transformation of banks has been accelerated in recent years, multiplying their product portfolio and digitalizing their services.
Globally, as reported by DebMedia, the banking system had heavily invested in solutions for risk management and front office customer service, yet there was a need to move strongly towards digital transformation.
As the article informs, an IDC Digital Transformation Leader Sentiment Survey of 2017, 100% of banks had expressed that digital transformation of their organization was a priority as a priority and 60% considered improving their costumer experience.
What’s more, 50% of respondents pointed to Digital Transformation as the best way to create new business models throughout innovation.
Traditional banks have long known that they needed to improve their tools and services to prevent the Fintech universe from taking control over the market. The Pandemic increased the level of digital transactions accelerating all banking processes.
However, banks showed some weaknesses, which, according to DebMedia, prevented them from keeping up with the user’s demand. Remarking the insufficient capacity of their digital channels, which prevented them from adequately serving a population that stopped going to fiscal banks overnight.
This event made digital transformation the management core of the sector. Among the various innovations it is outstanding the use of modern interfaces through open APIs, microservices, containers and agile methods for development.
This change involved replacing traditional ways that were used as a user interface to modern mobile ones. Change that was only possible through the implementation of Artificial Intelligence and an improved costumer experience.
Straightaway, banks still operate with a mix of traditional and modern infrastructures, so the momentum for the expansion of new technologies still has a long way to go.
Opportunities and new business models
There is a saying throughout the system that express to “collocate the customer at the center of the process”. And, although it sounds like a cliché, it is far from it. The fact that the customer finds a flexibility never seen before is proof of this.
According to Accionpoint, banks should redefine their customer experience, adopt the perspective of mobile devices and develop a data strategy to achieve personalization of offers.
In addition, they need incorporate the newest technology platforms that guarantee agility and flexibility to introduce their clients’ new services, link them with legacy systems and integrate with third parties.
According to ipropup, based on the testimony of Victor Almandoz, consulting manager at IDC Latam, in Latin America almost 50% of the population still does not have access to traditional banking and of those who have a bank account, only 35% use it. At the same time, almost 60% of the global economy has already gone digital or is in the process of doing so.
Bank companies are aware of this situation, although not all are able to take advantage of it. The digitization of financial institutions is still weak and only the biggest ones have made any progress.
Only about 25% of banks had advanced in digital transformation before 2019, and although the entire system is now moving in the same direction, about half activated the process during the pandemic.
Strategies varied. Many developed their digital transformation on their own and others turned to strategic alliances or partnerships with FinTech’s.
This rendered many previously built IT platforms obsolete. In many cases, these legacy systems needed complex upgrades.
One of the big challenges that often arise is handling the growing volume of data and the complexity of securing this data.
The problem with data
The aforementioned portal, citing Forrester Research, notes that 25% of banks report that data issues are among the biggest obstacles to digital transformation, and 24% cite security.
Banking digitization generated a huge volume of data, yet there remain many organizations that underutilize it, meaning they fail to make their data productive for the organization.
According to a survey by the consulting firm CSI, many banks consider that the efficient use of customer data is a strategic priority, but most rate themselves as average or poor in their use of that information.
Among the trends Forbes identified was technological innovation, which recognizes that “banks are becoming more adept at detecting when to evolve, when to buy, and when to build a partnership” to meet technological challenges at the speed the market demands.
In line with this, some banks globally have already begun to identify the need to automate processes involving data from millions of daily transactions. The integral platform for data management Conciliac EDM already provides this solution to some of them globally. If you want to know how, contact us.