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Digital Transformation of Conventional Banking Industry

Published by Cubic Author

Posted on 25/07/2024

Introduction to Digital Transformation in Banking

Recently, innovations related to digital transformation technologies include the ability to focus and refine recommendations, current and future customer behavior analysis and trends, improved products and services, and insightful smarter analytics, which have become ‘disruptive’ features of daily business operations. Advanced digital transformation technologies have become disruptive in various lifestyles and business and service requirements and have enriched and transformed many aspects of society, industry, commerce, lifestyles, and personal services based on the advances in digital technology, e.g., big data, mobile technology, social media, cloud computing, IoT, robotic process automation (RPA), artificial intelligence (AI), and blockchain. They have dramatically changed and redefined the basis and rules of economic cooperation, national and international regulations, markets, and the economy, including global trade, product marketing and distribution, and customer engagement quality. Moreover, advanced digital technology also provides important tools that are essential to support the implementation of up-to-date economic models, direct attention to different desired financial goals, and extract market opportunities. In these manners, the digital economy represents an evolution of customer-focused services and a value-added business model.

Introduction to Digital Transformation in Banking

Recently, innovations related to digital transformation technologies include the ability to focus and refine recommendations, current and future customer behavior analysis and trends, improved products and services, and insightful smarter analytics, which have become ‘disruptive’ features of daily business operations. Advanced digital transformation technologies have become disruptive in various lifestyles and business and service requirements and have enriched and transformed many aspects of society, industry, commerce, lifestyles, and personal services based on the advances in digital technology, e.g., big data, mobile technology, social media, cloud computing, IoT, robotic process automation (RPA), artificial intelligence (AI), and blockchain. They have dramatically changed and redefined the basis and rules of economic cooperation, national and international regulations, markets, and the economy, including global trade, product marketing and distribution, and customer engagement quality. Moreover, advanced digital technology also provides important tools that are essential to support the implementation of up-to-date economic models, direct attention to different desired financial goals, and extract market opportunities. In these manners, the digital economy represents an evolution of customer-focused services and a value-added business model.

On the other hand, the banking industry also focuses on the new economy according to newly developed digital technologies. It is essential to develop business models and financial solutions that respond rapidly and accurately to the market’s financial requirements to build a “customer is my priority” paradigm and then to be capable of achieving the innovative capabilities of the bank of the new era. Consequently, the banks should be industrial with good strategies and an integrated roadmap to build and provide contemporary solutions and specific services that support the development and deployment of their business applications that integrate big data analytics, mobile technology, cloud computing, the internet, social media, IoT, and blockchain.

In fact, the digital economy is changing the nature of business transactions and financial services, and the banking industry today has encountered different trends and challenges. Moreover, current innovative digital technologies are essential to assist the banking industry in adopting various economic models by adding many fascinating value-added functions and services in order to provide the banking’s required services with lower cost and achieve better time-effectiveness and high-security support to make the banking industry manifest business opportunities and master business values.

Digital transformation refers to the use of digital technology to radically improve the performance and reach of enterprises and can have a significant impact across a wide spectrum of business activities, from innovative sales and marketing to conducting applied scientific research to discreetly collecting and recording data. It is always a big challenge for any financial industry to keep track with the market’s needs, develop new business strategies and innovative products, as well as focus on achieving practical business targets. Hence, the financial industry must continuously adopt and deploy appropriate technologies in the context of the era of the digital economy.

Challenges and Opportunities in Implementing Digital Transformation

Opportunities: Vision to execution in record time: Digital transformation allows firms to quickly develop and roll out transactional and engagement features that are immediately useful to customers. The velocity and quality of product management output has never been this quick ever in banking. Shaping new revenue streams: A bank which only sold core banking products (credit cards, deposits, loans, and other associated products) can now offer a number of products and services available from other industries. Traditional banking products were heavily regulated with healthy competition but adjacent value-added financial services like personalized wealth management and superior user insights for targeted advertising were not explicitly regulated and hence always faced a cost advantage by firms in the tech sector. Upgrading to a real-time architecture: The implementation of digital transformation forces the bank to re-architect all backend and core systems to handle real-time access, processing, and management across the entire organization. The benefits accrue not only in technological capabilities but also in how the large legacy banks currently service their retail, small and commercial business customers with their current structure of completely disparate and differentiated business segments with overlapping functions.

Challenges: Stage 1 of implementation is tough: The initial steps of implementation are the toughest, as it involves significant investment (money and resources), process changes, and customer adoption risks. A fear of failure: Given the magnitude of initial investment without realizing visible benefits soon, makes it very tough for the top management to take risks of such investments. Companies hesitate to walk away from their substantial investment in the initial phases of transformation, often leading to cumulative sunk cost losses over time. Overexposure and concentration breakdown: Increasing concentration of digital assets in a few firms could make the banking system erratic and vulnerable to single points of failure. Cybersecurity and fraud-related risks are other fears limiting customer traction for cashless transactions. This need not be looked as a technology fear but one driven by the reduced need for people to people transactions, which has implications on employment, social security and so on.

Key Technologies Driving Digital Transformation in Banking

Key Technologies Driving Digital Transformation in Banking This study examines 11 key technologies that could drive changes in the banks’ business models (applying new approaches to payment services, using distributed ledger technology, the use of international credit identifiers, the role of banks in investment platforms, using application programming interface to access client companies’ systems, using big data techniques), two that exert strategic pressure on the banks, and two strategies that banks are adopting in response to the digital revolution. Our results are, we believe, striking and concerning. Some of the technologies are used to transform the fact that the bankers have little interaction with the banks’ clients, they can execute their transactions from small handheld devices, 24 hours a day, 365 days a year, and they want the best offers from the bank that they select, without needing to differentiate between the banks to which they have entrusted their money.

Introduction As described in the previous section, current studies examining digital transformation in the banking industry generally focus on measures such as advanced payment services, the banks’ technical environments, the mobile channels, and security and compliance. However, these do not cover the central concern that the banking business model and the way that the banks conduct their business, and deal with governments and supervisory institutions and with client companies, are likely to change rapidly. The fact that banks and supervisors operate differently in different countries makes generalizing difficult; however, a key issue is the technology that currently or potentially could drive changes in the banks’ business models. This article would not be possible without it and we thank them all.

Case Studies of Successful Digital Transformation in Banking

First, we must explore why and how digitalization could disrupt any successful conventional business model. The key to be successful in this endeavor lies in understanding the deployment of such key elements as the digital transformation roadmap, digital strategies, digital technologies, digital infrastructures, digital diversification and synergies, as well as digital risks. Each of the key elements, in turn, depends on the strategic vision of the banking institution’s management team with respect to the worldwide banking future, use of financials and non-financials to fulfill customer needs, use of technologies to enhance customer experience and proactively address and solve customer needs, deployment of software and applications that facilitate the organizational culture change, use of Artificial Intelligence (AI) and Machine Learning (ML) to perform market intelligence and data analysis, reengineering of operational models to efficiently and effectively optimize customer results, utilization of technologies that can cope with speed and scalability, adoption of programming interfaces that facilitate new product and channels, use of cybersecurity tools and sustained investment in confidentiality and data integrity, as well as continued use of agile software development methodologies.

Future Trends and Implications for the Conventional Banking Industry

The enrichment of the adopted research model based on the gathered findings presents influential implications for managers, as well as for specialists and digital transformation researchers of conventional banking. By examining the significant internal and external factors such as innovation-led technology and marketing impact, the proposed comprehensive paths can enhance digital transformation and thereby improve the success and competitiveness of a conventional business in the digital age. In addition, it is anticipated that this study will provide a stepping-stone and be useful to future researchers in order to advance the understanding of how to improve customer experiences through the digital transformation of retail banking. Access to banking accounts and services from anywhere has long been an established part of a customer’s everyday lifestyle.

In this chapter, I have empirically tested the relationships among internal and external factors of digital transformation in retail banking and highlighted the importance of the external factor technology. The findings show that, in the context of the digital transformation of the retail banking industry, the level of reliance on internal factors is not enough because technology is the primary driver of the digitally transformed service and customer experience. I have also demonstrated the relevance of direct relationships such as technology and marketing impact on the retail banking industry.

In response to the rapid changes in the business world, especially due to the widespread use of the internet and mobile devices, most service-based industries (e.g., retail) have adopted digital transformation. As digital technology is transforming the business model of the retail banking industry, it is increasingly facing major disruptions from digital-specific competitive threats. Moreover, traditional banks now realize that digital transformation beyond digital-based marketing requires greater corporate investment and strategy to enhance customer retention and satisfaction.