Veriff
Blog

Digital transformation in banking

In an increasingly virtual world, long-running sectors like banking are looking to embrace innovation, benefiting both businesses and customers. However, risks can come about in choosing the right technology, implementation, and guaranteeing efficiencies. Read on to discover common pitfalls and tips for success.

July 12th, 2022

Share

Share

Love this blog? Why not share it with the world?

For the past couple of years, digital transformation has been one of the biggest buzzwords in the world of banking.

But, what does digital transformation mean for both banks and customers? Let’s take a look. 

What does digital transformation mean?

Digital transformation occurs when a business like a bank adopts technology in order to improve efficiency, value, or innovation.

Digital transformation involves digital technologies becoming incorporated into all areas of a business. As a result, it fundamentally changes how a business operates and delivers value to its customers.

On top of this, digital transformation also creates cultural change. Within any organization, digital transformation challenges the status quo. It also forces companies to experiment and means that employees and leaders have to be comfortable with change.

Why is it important for financial services?

Digital transformation helps a company like a bank make improvements in a wide range of areas related to offerings, process automation, customer experience, data integration, organizational flexibility, and sales.

The rise of fintechs, the effects of increased regulation, and changes in customer behavior mean that banks and financial services providers have been forced to assess their business models and find ways to become more agile in recent years. 

What are the benefits of a digital transformation?

According to Cornerstone Advisors’ 2022 What’s Going On in Banking study, 75% of banks and credit unions have launched a digital transformation initiative. On top of this, another 15% plan to develop a digital transformation strategy in 2022.

But, why is digital transformation so popular? In short, because it provides a number of benefits for both the user and for the bank itself. Let’s look at these benefits in greater detail.

For the user

At its most basic level, digital transformation involves a bank moving its customer service and banking functions online. This creates two main benefits for the user: speed and accessibility.

If a bank launches an app and offers customer service through the internet, then the customer no longer needs to visit the branch. This means that they’re not affected by cumbersome opening and closing times, and they do not need to leave their front room to receive an answer to their query.

Similarly, digital transformation has led to the creation of digital banks, which offer cost savings, constant access, and a greater choice in the market. As our reviews of these banks in the UK and Europe have shown, many digital banks are just as good as the bricks and mortar banks that most people have used for decades.

For the bank

Digital transformation allows a bank to streamline its operations, increase its efficiency, manage costs, amplify security, and improve the overall customer experience.

In essence, digital transformation allows a bank to move faster and more effectively meet the needs of its clients.

What are the risks of a digital transformation?

However, for all the positives, digital transformation in banking does come with its own risks for both the user and the bank. Let’s analyze these in greater detail.

For the user

As digital transformation is a user-centric process, there aren’t many downsides for the user.

However, if a bank tries to transform too quickly, then the process may not be seamless and the customer may suffer from access issues. Similarly, if the bank rolls out the technology too quickly, then security issues may arise. In extreme circumstances, this could mean that a customer’s data is lost or stolen by an opportunistic hacker.

For the bank

Studies show us that although banks are embarking on digital transformation strategies, few are carrying them out as planned. If a bank does not complete its digital transformation journey, it will experience a high level of cost and a minimal return on investment. 

Similarly, many banks opting for digital transformation have failed to properly embrace the scale of change required to achieve their goals. This means that they cannot properly achieve digital transformation and experience the benefits it provides. At the opposite end of the spectrum, many banks are rushing transformation, creating security issues and poor customer experiences.

Finally, when planning and implementing their new digital transformation strategies, many banks are failing to transform with the future of the industry in mind. By instead transforming for what’s currently happening and what has already happened, these banks are only playing catch-up and making investments they should have made five years ago. Although making these changes now is helpful for short-term performance, these changes aren’t transformational and won’t lead to long-term success.  

What are the key technologies used to implement the transition?

A number of technologies are central to any digital transformation strategy. However, popular technologies include:

Robotic process automation (RPA)

RPA provides low error rates and cost reductions for banks who employ a large number of standardized processes and deal with huge volumes of data. Some estimates suggest that RPA can reduce processing costs by up to 70%.

On top of this, RPA can be implemented quickly within an organization and can free up staff members from completing manual and laborious tasks. 

Big Data

Financial institutions such as banks have access to huge amounts of data that they simply do not use.

By analyzing all the data they have available, banks can optimize the customer experience and generate new business opportunities. After all, analyzing the available data allows a bank to get a comprehensive picture of customer requirements, so suitable services can be developed and under-performing departments and services can be identified.

Blockchain technology

Banks are in their infancy when it comes to adopting blockchain and distributed ledger technology. However, few banks doubt its potential.

Blockchain technology can ensure more secure and automatic payments via the use of smart contracts. It can also strengthen supply chains, trading systems, and claims processing. Plus, by removing friction from processes, it can also streamline back office operations and mitigate fraud risk.

How does a digital transformation affect security and data privacy?

Of course, digital transformation in banking has a huge impact on security and data privacy. However, although moving systems, services, and products online creates security challenges, digital transformation actually provides banks with a huge opportunity.

Today, banks are tasked with meeting a number of rules, regulations, and compliance demands. But, digital solutions are the perfect way of navigating this seemingly endless and intricate network of demands. For example, technological solutions such as identity verification tools eliminate the need for manual staff checks and ensure compliance.  

But, data privacy and cybersecurity will remain serious concerns for decades to come. Due to this, as financial service providers move more of their activities online and embrace digital transformation, they must also ensure their cybersecurity systems can withstand the threat of a cyber-attack. If not, they will face serious consequences, including the loss of money and reputation, as well as legal claims and sanctions.

Conclusion

As we’ve seen, digital transformation in banking provides a number of benefits to both the bank and the user. Due to this, it’s undoubtedly the future of how we bank and interact with financial service providers.

That said, digital transformation in banking is not without its challenges, and banks must ensure they’re transforming the right elements of their operations at the right pace. If not, they may be left behind.

But, the chief issue that banks face when transforming their operations is undoubtedly providing the correct security and ensuring they stay compliant with the latest regulations. As a result, employing technologies like customer identity verification should be central to any digital transformation plan. If not, any ROI gains will be wiped out by fines, reputational damages, and sanctions.

Speak with the identity verification experts at Veriff

Embarking on your own digital transformation project and would like to learn more about how our online identity verification solution can help your business? Schedule a free and personalized demo today.

Our experts can show you exactly how our end-to-end verification service can support your digital transformation strategy. By leaving identity verification to us, you can focus on doing what you do best.

Stay up to date on Veriff news, product updates, and more

Veriff will only use the information you provide to share blog updates. You can unsubscribe any time. For more details, check out our privacy policy.

Related articles

A new expression for Veriff: the story behind our enhanced brand identity  

Blog

A new expression for Veriff: the story behind our enhanced brand identity  

We are thrilled to unveil Veriff’s new brand identity, reflecting our next stage of growth and our mission to bring real safety, protection and transparency to the internet. Here’s more on why we did it.

Enablers Act expands anti-money laundering requirements

KYC news

Enablers Act expands anti-money laundering requirements

At present, financial institutions such as banks are required to investigate their clients and their sources of wealth or funds. But, until now, many other financial gatekeepers have been exempted from so-called ‘due diligence rules’.

EU lawmakers say NFT platforms should be subjected to money laundering regulations

KYC news

EU lawmakers say NFT platforms should be subjected to money laundering regulations

If new legislation passes, it will mean that all NFT marketplaces will have to assess the risk of illicit finance flowing through their systems and carry out identity checks on new customers and suspicious transactions.