DIGITAL TRANSFORMATION AND MODERNISATION IN BANKING AND FINANCIAL SERVICES

Although digital transformation was seen as a luxury for financial services companies in the pre-pandemic era, today it’s a necessity for every organisation in the industry.

Why Digital Transformation

Demanding customers, stiff competition from fintechs, and the emergence of new and disruptive technologies have pressured banks to reimagine their business models and increase the efficiency of their IT infrastructure. Digitalisation is aimed at delivering a better user experience through integrated capabilities and streamlined access to information.

Although digital transformation was seen as a luxury for financial services companies in the pre-pandemic era, today it’s a necessity for every organization in the industry. Global investment in digital transformation reached $1.8 trillion in 2022, rising by 17.6% compared to 2021, and this spending is estimated to double by 2025. Whilst many financial institutes are investing in the newest hi-tech solutions, they often overlook the need to create comprehensive B2B and B2C experiences, which can give them a competitive edge.

Pillars Of Digital Transformation

Customer Experience (CX) is the main driver of digital transformation. Customers now have higher expectations because of the digitalfirst mindset. They expect a simple, fast, and personalized digital experience. Banks need to focus on understanding the user’s motivation and behaviour to get there. The objective is to create a frictionless experience and boosts customer engagement with their financial institution.

Regulatory compliance across the world is another factor driving digitalization in banking. Central banks across the globe have mandated the adoption of ISO20022 in payment messaging and Swift has already provided the deadline of November 2025. Complexity in payment messages has motivated banks to adopt human centric experience in their platform modernization journey to achieve higher STP rates and facilitate real time and instant payments. I recommend a user experience driven modernization strategy for the banking and financial services digitalization.

Human Centric Cx

Before banks begin the digital transformation, it’s important to work backward using a human-centric approach. Understanding why an organization is undertaking a transformation and the target audience for its new digital initiatives are extremely important. While the customer and their user journeys are extremely important, it’s equally important to understand the organization’s processes and the people involved for a successful and holistic transformation.

Any business undergoing a transformation must go beyond the product strategy. Our team looked at not only the products but also the entire customer and advisor journeys across various stages to transform the products and services that a leading wealth management company offers to financial advisors. This holistic approach helps ensure that any team, in this case, advisors, are comfortable

BY ANOOP GALA Global Head Financial Services, Orion Innovation

Key Takeaways

l Digitalisation is aimed at delivering a better user experience through integrated capabilities and streamlined access to information l Global investment in digital transformation reached $1.8 trillion in 2022, rising by 17.6% compared to 2021, and this spending is estimated to double by 2025 l Any business undergoing a transformation must go beyond the product strategy l Banks need to create a ‘Zero Trust’ based cyber security system and equipped to provide their clients with new services and experiences.

Platform Modernization

While digital transformation can create easy-to-use consumer apps, they also provide institutions with digital tools to work more efficiently. We encourage clients to look at consumer experience models within the context of an enterprise-level application.

A micro-services based, cloud enabled architecture is the most suitable way to create modern digital platforms for banking functions like Payments, Core Banking, Wealth management, etc. Such architecture helps banks to expose their processes and clients’ data to third parties fintechs in an open banking economy.

Banks should focus on creating an extendable, extensible, resilient, automated, cloud enabled, and flexible platform to support new products, new geographies, and high volumes of data, especially for payment systems.

Unlock Data Insights

The biggest issue faced by any organisation is access to real time, enriched, and structured data. Legacy based systems are not capable to create data snapshots of every step of any business process. Insufficient and unstructured data is creating friction in BFSI industry when it comes to implementing analytics and AI/ML models.

While banks can modernize their customers and reference data separately, platform modernization provides an opportunity to generate enriched, structured, and real time transactional data, which can be used for descriptive and predictive analytics. New digitalised platforms must create business events and audit logs for all the business processes and subprocesses to populate transactional data in data lakes for analytics and research.

Improve Operation Efficiency Using Intelligent Automation

Identifying opportunities to use automation and visualisation technologies to rapidly diagnose issues with transactions is a game changer. Our team created detailed end-to-end user journey maps for external and internal clients in a payment modernization project and reimagined the treasury and payment services touchpoints. We provided contextual suggestions to repair transactions and option to chat with clients at real time to gather missing information. Human centric design also enabled self-services capability to the customers.

Enhanced Risk And Control Environment

While banks can focus on creating customer experience driven digitalised platforms, they should not ignore the growing demand for risk and control requirements. Banks need to create a ‘Zero Trust’ based cyber security system. Banks that are exposing their business processes and clients’ data to third parties must implement strong customer authentication (SCA) and data security on the go to keep control of their data on third party platforms. Banks should also implement complex events processing and 360-degree view of events to monitor suspicious transactions and possible cyberattacks.

Banks should also adopt NLP and ML to improve AML and fraud detection systems. Use of knowledge graphs, enhanced onboarding, continuous customer due diligence, and efficient transaction monitoring can significantly reduce money laundering and fraud activities.

Disruptive Technologies

Emergence of newer technologies has challenged the status quo

Banking & Financial Services Digitalization Model and accelerated the digital transformation journey of banking and financial services. While enhanced customer experience is paramount, newer technologies have forced banks to digitalize their ecosystem to fully realize the value of Cloud, AI/ML, Analytics, and Blockchain.

Banks have started using data analytics in transactions monitoring, machine learning in transactions enrichment, artificial intelligence in money laundering and fraud detection, and natural language processing in regulatory reporting. Wealth management clients are increasingly asking for digital assets and ESG as alternative investment avenues, which forced banks to quickly adopt blockchain to facilitate accounting, execution, and custody of digital assets. Insurance companies have adopted smart contracts for automatic insurance settlement and natural language processing (NLP) to accelerate the underwriting process.

Emergence Of Fintechs

Favourable regulations and newer technologies have resulted in creation of many new age fintechs. These fintechs are agile, cloud native, and only focus on certain areas of banking and financial services. Open banking has accelerated adoption of fintechs in banking ecosystems. These fintechs provide treasury as a service, banking as a service, etc. on a per transaction basis and enable banks to launch new products with reduced time to market. Banks are also associating with fintechs to launch digital only services, virtualize the accounts, and provide embedded banking services. fintechs are helping banks to create standalone digital only banks to cater Gen Z and millennials.

Conclusion

Digital transformation is becoming more critical as financial organizations fight to attract and retain new customers. Incorporating a holistic and human-centric approach can help organizations create thoughtful solutions that improve their customer’s experience, business capabilities, and operational efficiencies.

Digital service providers are helping banking and financial services clients to modernise their Payment system, Core banking, and Wealth/Advisor platforms using customer experience driven strategy. They specialize in designing human centric experiences, creating extendable and extensible architecture, accelerating cloud adoption, modernizing client and reference data, and process optimization.