Digital Transformation in Financial Services

Digital transformation: the holy grail of innovation. It’s virtually impossible to enter an office, a client meeting or an innovation brainstorming session without hearing the term “digital transformation” tossed around at least more likely, a dozen times.


Wall Street is no exception. The growth of FinTech businesses and solutions over the last five years has created an entirely new and changing landscape of financial services. Changes in customer expectations, fierce competition, growing complexity of regulations as well as the pressure to reduce costs, and other factors are fueling the need for re-invention and technological innovation. The new age of banking openness has allowed systems to swiftly and seamlessly integrate with the latest platforms and apps. Paper and physical banks are being replaced rapidly by strong digital ecosystems that are networked.


The kinds of businesses affected vary from the oldest banks and insurance companies of 100 years to FinTech startups that were founded just a decade ago. No matter if a company was established in the digital age or is currently moving towards it and is still not immune.


Digital transformation is a major business necessity:


Digital transformation is a key business essential across all sectors and financial services are no exception. Nearly all (97 per cent) of financial services firms are making some sort of inroads on digital transformation–whether they’re in the process of developing a strategy or already implementing one. Over one-fifth (21 per cent) are citing the creation of the digital transformation strategy as their number one priority for digital transformation.


What is the driving force behind this? The fast-changing landscape of financial services. Just take a look at one subsector–banking–for example. While the core banking services (i.e. deposits, safekeeping, loans and investment) remain similar to what the past 100 years, the way banks manage these processes and transactions, as well as the way the customers are expecting them to be delivered has dramatically changed.


In the same way, the level of competition within the sector has risen rapidly. The term “financial services” was once confined to a handful of popular notions in the field of financial services, it is now comprised of hundreds of new players that span all revenue ranges, sizes and types of services. The bigger the safe or more reliable, and in many instances, could even hinder the development of new ideas.


Financial service companies are aware of this and realize they are a long way from getting ahead of themselves compared to other sectors. While the majority of respondents said they had an approach to digital transformation but a few have yet to implement it.

Digital transformation is a proven and highly anticipated ROI


The advantages of digitalization, such as an improved customer experience as well as the efficiency of operations, is obvious. This is why the majority of firms in the financial sector anticipate significant returns on revenue and profit from digital transformation, even more than companies in other sectors. Companies in the lower middle-market specifically, expect the highest growth in profitability and revenue (10 per cent or higher) in the coming three years and therefore are willing to boost their expenditure in the same proportion.

Improved Customer Experience


Customer experience encompasses more than simply customer service. While it is often reactive (and only one aspect of the first) the term “customer experience” refers to the entire experience of a customer from start to finish which includes every interaction and touchpoint during the journey.


The concept is rapidly changing. It was a few years ago that the concept of providing a positive “customer experience” could refer to getting a positive experience at an actual bank or financial service company. Nowadays, it could mean everything from being able to access an account via different channels to having an answer to a question within minutes by chatbots or robot advisors and receiving real-time automated notifications.

Maximizing Efficiency of Operation


Every business is looking to cut expenses, but financial service firms are particularly feeling the pressure to cut their budgets. Enhancing efficiency and operational efficiency throughout the entire supply chain among financial service organizations is their top priority in the digital realm (cited as a top priority by 37 per cent). Eighty-two per cent also point to the reduction of operational inefficiency as among the top three long-term objectives and 76 per cent refer to that as one of their top three short-term objectives.

Artificial Intelligence (AI)


Innovations in AI have changed all aspects of the financial services sector. Businesses, using AI to spot irregularities in transactions and to reduce the risk of money laundering and fraud. Capital market companies can take faster, more intelligent trade-related decisions using sophisticated analyses of the past performance of markets information. Businesses can conduct sentiment and mood analysis and tailor customer experiences based on customer profiles, such as suggesting personalized portfolio strategies based on the person’s risk tolerance.

While firms in the financial sector see AI and machine learning-based applications as growth opportunities, however, many are concerned about AI’s other sibling, automation. 39% of respondents cite commoditization and automation as their top digital security threat, which is higher than 23 per cent of businesses. While chatbots, robots, and other automated systems could greatly boost operational efficiency but it is possible that concerns about job security or the likelihood of being replaced.



The market may be at the beginning of embracing blockchain technology and distributed ledger technologies, however, there are many businesses who doubt its immense potential. While cryptocurrency might be the most well-known application Blockchain technology can provide more secure and automated payment through the use of smart contracts, which can help strengthen trading systems, supply chains and claims processing. improve back-office processes and decrease the risk of fraud in addition, by eliminating any friction from the process.


One such example of a blockchain technology that is beginning to transform the field is the blockchain-powered payment system. While many financial messaging systems are currently requiring days to make worldwide payments and transfers (and are usually limited to hours of operation) Blockchain-powered solutions can be done in only a few seconds to operate all hours of the day. Although it could take time before they reach the same levels of participation as existing payment methods it shouldn’t take long before they are catching up.


The immense potential of blockchain is the reason why a third of financial institutions contemplate its use within the next year. This percentage is likely to rise in the coming years. In 2024, the blockchain market will exceed $16 billion as per Global Market Insights, with applications related to identity management predicted to become the most lucrative with more than 90 per cent compound annual growth (CAGR) between 2018 and 2024.


 Achieving a positive “employee Experience” is essential

Enhancing customer service may be prominent for many financial institutions, However, equally important is fostering an employee-centric culture. Digital transformation isn’t so much about new technology but is about changing the way businesses operate. It’s about a shift in mindset that is not dependent on the capabilities of digital technology, but rather the adoption of those capabilities by employees and customers, as well as business technology.


Inspiring this shift — and bringing about the change in behaviour of an organization starts in the upper echelons. The top managers of a business need to convince their employees of the company’s vision and encourage their employees to see the reasons why they should change their ways and believe in the plan and be a part of the process. They also need to create a culture that encourages continuous testing and learning. One that is one where mistakes and failures are accepted and accepted as part of the process of long-term growth and creation of value. This is particularly challenging for financial institutions operating prior to the advent of the digital age.


The issue of strong governance continues to be a major obstacle.


Good governance–encompassing everything from planning and forecasting to implementation and execution–is critical to any company-wide initiative but isn’t easy. Finding the right metrics to assess the progress of financial services is their most difficult task in moving forward in the direction of a new digital strategy (39 per cent, as compared to 27 per cent for all companies). This number rises to 46 per cent for the lower middle-market companies who might not have as much experience in managing projects that are this large.




If there’s a single thing every financial institution can be sure of, it’s that the amount and complexity of regulations rules and compliance requirements they’re subject to is infinite. Not only has the number of regulations grown in the past 10 years and beyond, but also the number of federally-governed organizations that monitor and the costs associated with the compliance (and not complying). No matter whether you’re dealing with an organization like the Financial Crimes Enforcement Network, the Financial Industry Regulatory Authority (FINRA) or the Office of the Comptroller of Currency (OCC) or a different organization, financial institutions cannot afford to drop their guard even once.


To navigate the complex web of requirements Financial institutions have no other choice than to turn to technology solutions for help. One area that has developed as a result of this is regulation technology, also known as RegTech which is designed to help businesses deal with their financial compliance needs quickly and cheaply. Utilizing cloud computing and data analytics AI and other tools to search through their massive amounts of information, RegTech can help shine the spotlight on financial institutions’ more precise operations and pinpoint possible areas of risk for violations before the guillotine is lowered. Since it doesn’t rely on human beings on their own, RegTech allows institutions to make decisions more quickly and precise, while bringing substantial cost savings as well.


It is crucial to remember that technology implementation by itself isn’t digital transformation, but it is a component of the process. As middle-market financial services businesses continue to create as they refine and develop their digital strategies and objectives, RegTech could be a crucial element in helping them with their day-to-day tasks, which will allow them to focus more time and energy on R&D and innovations.


Privacy and security of data on the internet must be made an important issue


Cybersecurity and data privacy will be a significant issue for a long time in the future, as attackers employ more sophisticated methods and access more access points due to the increasing number of technologies and IoT devices. Financial services firms are, thanks to their wealth of sensitive information from clients and other third-party sources are especially vulnerable to these types of attacks. If a breach occurs, the company could be liable for severe consequences, including loss of revenue and reputation as well as legal action and penalties.


However, many financial services firms are confident in their capability to stand up to any attack or even aren’t aware of the possible causes of their own security weaknesses. A mere quarter (24 per cent) of respondents cite security breaches or cyberattacks as their most significant digital threat. This is lower than the overall average of all companies (33 percentage). The proportion of respondents citing cyber-related concerns as their top concern in taking on the new digital initiative is also lower than average (15 per cent in comparison to. 25%).

This is alarming, particularly in light of the numerous cyberattacks that have been massively spewed out in the last few years (i.e. Equifax, WannaCry, NotPetya, etc.).


To avoid the same situation to those who were the victim’s Financial services firms must concentrate more on detection and the response (including immediate defence) as well as strengthen their control systems within the company, as well as provide awareness of everyone in the company. It starts with the identification and documentation of potential threats and makes it an element of their current risk management strategy. Internal controls, particularly in relation to payment processes, must be implemented to stop employees from ignoring the four-eyes principle as well as the separation of tasks.



Financial Services and Digital Transformation in the industry:


The financial services industry is currently on the verge of a digital transformation. A full 90% of respondents agreed or strongly agreed that digital technologies are causing significant or moderate disruption in the industry. However, the study found that the majority of financial institution employees polled do not believe their companies are prepared for this disruption.




Your email address will not be published. Required fields are marked *

type your search

We are a “YOU” organisation.

This isn’t about what we’re capable of. It’s all about what you can accomplish with us by your side.

Reach out to us anytime and lets create a better future for all technology users together, forever.