The world is more connected than ever before. We’re using our smartphones, tablets and smartwatches to communicate, stay in tune with the news and access services. Consumers expect instant digital access and a seamless experience from vendors, particularly millennials (check out Connected Living 2025 for more about young people’s expectations). Financial institutions must adapt to the new climate, especially traditional banks, which are feeling increasing pressure from emerging fintech companies and digital-only organizations. Unless they innovate rapidly, they could find their consumers go elsewhere. Embracing a digital-first business model brings banks multiple benefits. If delivered in the right way, digitization can simplify customer enrolment, boost efficiency, strengthen trust and give them an edge over competitors.
Digital transformation can simplify customer enrolment and engagement processes. We’ve already discussed on the blog the challenges posed by KYC (Know Your Customer) regulations, meaning that current enrolment journeys are long, complex and rely too much on paper-based processes. These can deter customers from signing up to new services. Furthermore, once they have enrolled, consumers can find their digital journeys to be inefficient and inconsistent. By investing in advanced digital solutions, banks can ensure signing up is seamless and convenient. Through delivering an integrated app which functions smoothly on mobiles, tablets and smartwatches, enrolment can be rendered much speedier. Similarly, a smooth multi-channel experience will keep customers engaged and encourage frequent interaction with the brand.
Not only does digital transformation make enrolment and engagement more efficient and effective, banks can reduce costs and streamline processes across their business. Innovations like digital currencies, wearable payments and mobile banking represent an increasingly important source of revenue and so banks must ensure their business models are as flexible as possible. The virtual infrastructure must be put in place to facilitate fast, robust and transparent decision-making. Multichannel digital banking can lead to increased agility and enhanced efficiency.
While digitization brings benefits, it can also pose new challenges from a security perspective. By 2020, Juniper estimates that $9.2 billion will be lost to fraudsters, as they focus on mobile transactions. In addition, as with KYC, banks must abide by new regulations, which might make it seem difficult to preserve convenience for the end-user. When deploying a digital-first strategy, banks must ensure multi-layered security architecture is deployed, which does not affect the customer journey. While this may seem difficult, there are authentication and cyber-protection solutions which can achieve the balance.
Ultimately, the most crucial reason for embracing digital processes is from a commercial standpoint, giving banks an edge over their competitors. The new Payment Services Directive 2 regulatory reforms mean that tech giants and digital-only institutions can play an increasing role in PIS (Payment Initiation Services) and AIS (Account Information Services). As a result, the likes of Apple and Google could begin to play an increasing role in financial services. Banks must evolve, digitizing their services and leveraging their existing assets, particularly customer data, to keep pace with new and existing competitors. They also need to deliver a personalized, engaging multichannel service, so that they stand out from other providers.
As you can see, the new digital world brings all sorts of benefits to banks, but also poses new challenges. What’s certain is that banks cannot hold back from innovating. Gone are the days of three or four dominant high-street banks; the field is becoming increasingly competitive, as consumers start to choose between traditional institutions, fintechs and technological companies.
You can read more about the importance of digital banking at our dedicated microsite. Let us know your thoughts on the future of financial services by tweeting to us at @Gemalto. Over the coming weeks, we’ll be looking in more detail at the specific elements of digital transformation within the banking sector and the formula for success, so make sure you keep checking our blog. You can also discover more by reading our white paper.
