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Digital Transformation

What Is Digital Transformation in Banking?

Digital transformation aims to integrate computer technologies into an organization's business processes, strategies, and products. Organizations implement digital transformation to improve employee and customer engagement and services and increase competitiveness.

In the banking sector, digital transformation requires migrating to digital and online services. It typically requires making changes to backend processes to facilitate automation and digitization. To compete with digital-native companies, banks must deliver an end-to-end digital customer experience, integrating the technologies to perform previously manual tasks.

In this article:

The Importance of Digital Transformation in Banking

The banking industry is undergoing major changes, primarily driven by shifting consumer preferences and expectations. Customers use cash and cheques less frequently, decreasing the demand for traditional banking services associated with these payment methods. On the other hand, the demand for digital payment methods is increasing.

Consumer dissatisfaction with outdated banking and payment processes can overshadow the important role of financial institutions in the modern world. Banks that don't adapt to the latest technology may be expensive to manage, harder to work with, and less accessible to consumers who prefer digital solutions. However, banks that adopt new technologies to facilitate their operations, enabling businesses and individuals to access critical capital funds, continue to thrive as pillars of society.

Digital payments and online financial technologies continue to gain momentum, but customers often visit a local branch to consult a human for asset management guidance or corporate account management. Before the COVID-19 pandemic, most customers opened new bank accounts at a physical branch.

However, customers are changing how they interact with their banks. Innovative technologies such as cashless bank branches, video tellers, and ATMs that let customers specify their preferred cash denominations help banks deliver richer experiences and meet changing expectations.

As consumers continue to change their behavior, banks must adapt or risk becoming obsolete. The institutions that grow will be the ones that truly integrate digital tools with the branch experience, partner with FinTech (financial technology) companies, and invest wisely in new technologies. Digital transformation is not the end of banking but rather the new lifeblood of financial activity.

Related content: Read our guide to digital transformation strategy

Digital Technologies Utilized by Modern Banks

Here are some of the most commonly used digital tools and techniques in the banking sector.

Artificial Intelligence (AI) and Machine Learning (ML)

Digital assistants and chatbots leverage AI-based banking tools to provide customers with the information they need to solve various problems. AI is also useful for analyzing and managing data, securing it, and improving the customer experience. For example, AI-based analytics can process consumer data in seconds to detect recurring patterns.

Machine learning is a related concept, allowing banks to collect, store, and compare customer data in real time. One of the main benefits of using ML for banking is fraud detection. Machine learning solutions can easily detect changes in user behavior and take rapid, preventative action.

Cloud Computing and Banking APIs

Cloud computing is the most popular technology in banking and finance. Cloud-based services improve operations, increase productivity, and deliver products and services instantly. Integrating with the cloud also allows banks to use banking APIs. These APIs facilitate data sharing and improve the overall customer experience.

Big Data Analytics

Customers today don't view the banking sector as they did ten years ago. Big data-based technologies are helping banks analyze customer spending patterns, monitor risks associated with specific persons or entities, manage feedback, and build loyalty.

Many banks can leverage the insights from big data to satisfy and retain customers. Data analytics solutions offer new opportunities for the banking industry, allowing financial institutions to respond quickly to evolving market demands.

Blockchain

Any discussion of digital transformation in the banking sector would be incomplete without mentioning blockchain. Financial institutions integrate blockchain to increase the security of data transactions, improve accuracy, and enhance user interfaces.

Today, many customers trust blockchain solutions that make transactions and other banking more convenient and transparent. The merging of blockchain and the Internet of Things (BIoT) is one of the main trends in digital banking technology.

Related content: Read our guide to digital transformation technologies

The Pillars of Digital Transformation in Banking

Successful digital transformation in the banking sector rests on the following pillars:

Reinventing Consumer Experience

Banking providers aim to make their consumer experience as frictionless as possible, meeting customers’ minimum expectations of ease and convenience. Providers must identify the most important aspects of the consumer journey based on varying consumer expectations. Ultimately, they aim to digitize the entire process to meet consumer experience demands and free up employees for higher-value tasks.

Finding the parts of the consumer journey with the greatest impact requires research. Businesses should go over their customer transaction history to identify problem areas. Each improved, digitized customer experience component significantly impacts the overall business.

Leveraging Data Analytics

Credit unions and banks can use data to improve their understanding of consumers, identify opportunities, and cut costs. Financial institutions can use advanced data analytics to predict loan defaults or identify underpaying customers.

For example, granular cluster analytics helps compare individual products to the average product mix for a given consumer type. This information facilitates cross-selling and customer relationship management.

Organizations can mine data to better target customers and prioritize business leads. Data mining also helps improve pricing options—identifying customers who might be paying for services they don’t need or who receive payable services for free. Businesses can also perform behavioral analysis to determine customer loyalty and improve retention.

Building a New Operating Model

Consumers demand a fast, convenient digital experience, and human support for complex services and technical issues. Banking providers must find the right balance between digitization and human experience.

There are three ways to operate a digital business:

  • Business-as-usual digital model—the management team continues to operate, focusing on small, incremental digitization efforts. This model is cost-effective and low risk, but is less suited to businesses that rely heavily on legacy systems. It is best suited for providers in the early stages of transformation.
  • New business model—the banking provider establishes a new business team that includes someone in charge of digital processes. This model significantly improves customer experience and offers greater accountability than the business-as-usual model. However, it is more complicated to manage given the creation of a new digital business department, especially where legacy systems are in use. It is best suited for the middle-to-advanced stages of transformation.
  • Digital native model—the company implements a new digital bank with a dedicated technology stack. This model focuses on customer recruitment and enables fast, deep impacts without legacy systems slowing down the digital transformation process. However, it can be challenging to persuade existing customers to switch to the new bank. This strategy is best suited for highly advanced digital transformation stages.

These operating models are not mutually exclusive organizations often use different models for different business lines and markets.

Digital Transformation in Banking with Cloud Volumes ONTAP

Cloud computing is at the core of digital transformation, elevating it from the adoption stage of digital technology to include also the tools, rebuilding process, and the experience of a virtual environment that is accessible from anywhere. In order for an organization to achieve its goals and secure future viability, it needs to adopt a cloud-first or hybrid cloud management strategy.

NetApp Cloud Volumes ONTAP, the leading enterprise-grade storage management solution, delivers secure, proven storage management services on AWS, Azure and Google Cloud. Cloud Volumes ONTAP capacity can scale into the petabytes, and it supports various use cases such as file services, databases, DevOps or any other enterprise workload, with a strong set of features including high availability, data protection, storage efficiencies, Kubernetes integration, and more.

NetApp and Cloud Volumes ONTAP play a key role in the cloud transformation process, helping enterprises move workloads and data to the cloud securely, manage them efficiently, and integrate them with modern cloud technologies. This frees the organizations from the burden of managing large-scale storage infrastructure, and allows them to focus on their core business.

In particular, Cloud Volumes ONTAP assists with cloud migration in digital transformation projects. Learn more about how Cloud Volumes ONTAP helps with lift and shift cloud migration.

Learn more about how Cloud Volumes ONTAP helps financial companies in their cloud journey in these case studies.

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Yifat Perry, Product Marketing Lead

Product Marketing Lead