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The banking industry has been under pressure to adapt to evolving customer brands, consumer adoption of online banking and commerce, and the need to innovate in order to keep up with emerging financial technologies. As a result, these developments have made digital transformation an urgent need for the industry. For banks and financial services organizations to successfully navigate in the digital landscape and use the opportunities of the new era, they will need to reinvent themselves and embrace a new approach.
Digital transformation is not an easy task to accomplish and requires a fundamental change in how these organizations operate but it’s well worth it as it helps businesses to achieve up to 20% increase in revenues and a 30% decline in expenses. Along with giving the organizations the ability to reduce costs and streamline processes, digital transformation also creates a space for business transformation provided by new technologies like blockchain and artificial intelligence.
Nevertheless, there are a number of challenges organizations need to take into consideration to be able to accomplish digital transformation effectively.
Tech Competition
In terms of customer experience (CE), financial service organizations have to compete against fintechs and more complex players from the tech sector such as Apple, Facebook, or Google as all of these companies are also developing banking opportunities for their users, i.e. Apple Pay, Google Pay, etc. In addition to tech competitors, there is also the competition from new online banks and insurers where significant numbers of customers are willing to purchase services.
Research has found that 31% of consumers would consider buying from a tech giant or neobank followed by 41% among Generation Z. But banks have the advantage of being more secure and more regulated compared to these new organizations.
Technological Foundation
One of the key challenges many banks face in the process of digital transformation is their legacy technological foundation. The shift from old legacy systems that don’t support today’s digital requirements to modern and digitally connected systems will require a big investment for many financial organizations. Along with the cost of the transition which would cover the implementation of the new application, security processes, and maintenance, and all of the risks involved in the transition to make this an effective transformation for the organizations that will bring value.
Customer Experience Relies on UX Research
Consumers want to enjoy seamless experiences that traditional banking systems are often not able to provide. Experience-driven businesses have been shown to benefit from a greater return-on-investment, improved effectiveness and increased efficiencies when employing a user-centered perspective (UX).
In order to mitigate the risk of losing users to competitors due to a poor experience (online, in-person, performance etc.), organizations need to consider the UX (user experience) strategy for all of their products and services. Understanding the UX through research will improve all design aspects of a product or service.
Starting UX research before the actual design process is initiated, is crucial because it eliminates assumptions during the design process. It provides valuable input to help organizations make their product design decisions while also saving them time and resources. UX research contributes to the design process with the end-user in mind and it informs the designers who exactly their users are and about their particular needs. It also provides context and insight by involving the right approach taken at the right time in the development of a new product or service.
UX research prevents organizations from designing the wrong product because it identifies the user’s needs and requirements of a new product or service. Also, by having data to provide further user behavior insight, organizations can create better products while also saving resources. By using UX research, businesses have also the opportunity to align their business goals with their users’ goals to achieve optimum results. UX research enables businesses to define the value proposition of their project from the data gathered from the users which will better optimize the design process.
…digital transformation also creates a space for business transformation provided by new technologies like blockchain and artificial intelligence.
Utilizing Customer Data
Another challenge banks and financial organizations face during their transformation process is the capability to collect and store customer data. Transforming stored data into a central platform is also part of the challenge as the segmentation of customer data is required initially to accomplish digital transformation.
Effective usage of data is crucial for these organizations to better personalize their services according to the preferences of their consumers. To gain more value and benefits from personalized services, today’s consumers are willing to give out their data in exchange. Accenture’s survey found more than half of bank customers are willing to provide additional personal data in exchange for financial benefits.
Security and Compliance Requirements
Cybersecurity is one of the top priorities for banks. Privacy, security and compliance requirements are topics that information officers and IT executives within every financial firm would need to consider when evaluating a new technology.
Given the highly sensitive nature of their customer information, the banking industry has to take security and compliance more to take into consideration than just about any other industry. These requirements can be a complex problem for many organizations compared to new players of the industry such as fintech who don’t always have to meet regulatory compliance.
To offset these real issues, adopting a user experience platform can often lead to access to improved user data and better use of data analytics, which could turn your digital transformation project into a risk-reducing tool by also providing extra security and compliance solutions. According to McKinsey, better use of data analytics can lead to risk-reduction savings valued at up to $1-billion annually for some large banks.
Conclusion
Digital transformation is absolutely necessary for the banking industry if organizations want to keep their competitive advantage in the ever-evolving digital landscape. Fintechs have been ahead of traditional banks in terms of customer service by driving innovation to provide better customer experiences.
Although there could be many challenges along the way, organizations should turn those into opportunities by providing better services and building strong relationships with their customers. Because at the core of this transformation should be the financial health and satisfaction of the customers.
This is where we can help your organization successfully complete the digital transformation. At Veriday, we understand that each organization has a unique vision and we bring our technical experts together to present ideas and solutions that are tailored to your business objectives.
Get in touch with us today to start your digitalization journey.
Related: The 5 Biggest Financial Services Technology Trends in 2020