The financial services sector, just like many others, is undergoing enormous change as mobile and internet banking take over and high-street branches close their doors. However, this digital transformation in banking isn’t just about consumers enjoying the more modern, accessible experience they’ve come to expect in recent years – it’s also about cybersecurity for banks, optimizing internal operations from sales to marketing and pretty much everything in between.
With finance, insurance and real estate now accounting for 20% of the United States’ GDP, financial technology (fintech) is one of the fastest-growing technology sectors of all, in spite of the fact that financial services companies have traditionally been slow to innovate. By the end of 2017, global investment in fintech ventures reached $31 billion,4 with many of the largest gains taking place in emerging markets, which are often less constrained by organizational impediments to innovation. Though the benefits of social media and mobile technology in the finance sector are without doubt, many companies are falling short of their digital transformation goals and obligations. Given the profound change in consumer habits in recent years, this failure for banks to transform digitally will inevitably become a serious obstacle to growth sooner rather than later. Even some of the biggest firms in the US are now under threat from more agile and innovative startups.
Now that banking is one of the most commonly used mobile applications, and consumers routinely apply for loans, insurance and other services online, it has become more important than ever for digital transformation in banking and financial services. Not only that; companies also need to maximize internal efficiencies to improve the service they offer their customers in an age when instant gratification is now expected.
Raising $120 million by December 2017, property insurance company Lemonade is a New York-based fintech startup that uses artificial intelligence to automate insurance quotes and claim handling. Its innovative, digital transformation approach helped break records by using AI to review, approve, and pay a claim in just three seconds.5
Handling $12 billion worth of online transactions in the first quarter of 2018 alone, mobile payment service Venmo allows users living in the US to transfer money to one another in minutes rather than days. Owing to its success, the PayPal subsidiary is now expanding into retail markets as well.7 This is a perfect example of how digital transformation in banking is benefiting the customers and the banks.7
Digital Transformation in Banking: Advantages and Challenges
Increased Reach & Accessibility to Customers
With a third of the world’s population on social media, and over two thirds owning a mobile phone, physical distances and political borders are becoming less and less relevant by the year. Few millennials, for example, have visited a high-street bank in the past year as they become accustomed to managing their finances online or using a smartphone. As engagement through social and mobile channels continues to rise, banks and other financial organizations are leveraging digital technology to increase their reach exponentially.
Reduced Operational Costs
Aside from satisfying the demands of the modern customer, digital transformation in banking and financial sector results directly in cost savings. For example, insurance companies often use automation technology to provide quotes and handle claims, thus reducing their staffing requirements. Furthermore, as the rise of online banking and other financial services reduces the need for high-street branches, companies can also keep their operational costs down to a minimum. On top of the cost savings is the fact that digital adoption leads to increased sales and customer retention.10
Better Control Over Information
Information is one of a company’s most valuable assets, and digital transformation in banking empowers financial organizations with more agile information-management. Every digital activity that generates data, which using the right software, can be translated into actionable insights that automate decision-making and drive growth. In other words, digital transformation in banking leads to smarter decisions made in real-time, simplified communications, more control over information and redundancy in case of disaster.
Improved Service Quality
Studies have consistently shown that the most reliable way to win business is to offer an excellent customer experience. As more is invested in digital transformation in banking to build an omnichannel approach across mobile and social, they’re able to respond to their customers’ needs faster and in their preferred mode of communication. Automation technology also helps improve service quality, as exemplified by Lemonade’s super-fast claim-handling process.
Staying Apace with Customer Expectations
Although the days of high-street financial offices are by no means done, customers now expect to be able to manage their everyday finances online. They want to receive insurance quotes quickly, apply for loans online and receive answers within minutes, transfer money at the click of a button, and make purchases with ease. Consumers and business customers alike expect and require almost instantaneous communication on the channels of their choosing. This is particularly true when looking at mobile chat applications. Digital transformation in banking and financial sector is focused on enabling the above services and delivering exceptional customer experiences. Doing business in China, for example, almost certainly entails communicating on WeChat. In Brazil or India, the channel of choice is WhatsApp. Teams required to use email are likely losing out to local competitors who are willing to engage clients on chat.
Many people haven’t walked into a high-street bank or other financial office for months, if not years. From obtaining insurance quotes to applying for credit cards to making payments, the increasing majority of dealings that consumers have with financial institutions take place online. Hence it's essential for banks and financial institutions to transform digitally.
Financial Sector Cybersecurity: How can we prevent cyber crimes in the banking sector?
Fearing legal and regulatory challenges, financial institutions are often among the last to innovate when it comes to social media and mobile technology. Other top challenges include overcoming resistance to change, being able to effectively implement new technologies, achieving an adequate return on investment and cybersecurity threats to the financial sector.
Phishing remains one of the most common digital threats facing the public sector, not least because it’s the main vector for data theft and malicious software infections, like ransomware. Social engineering scams may be waged against the state, local and federal government organizations alike by foreign actors, unscrupulous political opponents or hackers. Given that digital data is now one of the most powerful and valuable commodities on the planet - digital risks for the government are high too. Malevolent actors are using it to command high ransoms, sow public discord, or even influence election outcomes.
of top executives considered digital disruption a growing concern
Source: Big Data Executive Survey 2018
of banks consider legal and compliance their greatest challenges
of banks consider their use of digital to be ‘very effective’
All financial institutions, including the largest, risk losing their competitive advantage if they fail to innovate and satisfy evolving customer demands. The responsibility of Banking and Finance to meet compliance and governance demands is among the biggest challenges of all. However, cybersecurity for the financial sector needs to be reframed as something that empowers them to thrive in the modern age and not appear as a threat.
SafeGuard Cyber was developed to operationalize security and compliance with real-time monitoring, automated data retention and full audit trails, app-level protection and the ability to let employees take ownership of their accounts. Our belief is that cybersecurity of banking and financial sector shouldn’t be seen as a cumbersome necessity, but as something that fuels growth, supercharges productivity and empowers employees with confidence in knowing that cybersecurity is on their side and in their interest.