Digital Transformation In Financial Services: From Feature To Necessity
Digital transformation in financial services: from feature to necessity
Gone are the days of people picking a bank, or adopting their parents’ bank, and sticking with it for life. As of 2022, there’s too much choice, and too many options. Modern technological advances have left traditional barriers to entry as scorched earth, and startup financial services companies are popping up everywhere. Loyalty is dead, particularly among the tech-savvy millennial generation, and that makes any company with a strong digital and brand presence a contender. This fast growth of competition and consumer choice in financial services has required companies to focus heavily on the quality of their products and services, and underlying the changes in the entire industry is digital transformation.
What is digital transformation?
Digital transformation involves harnessing the power of technology and using it to provide better, more efficient, and cheaper services to customers. Most obviously, this takes the form of online and app-based services, such as portfolio management platforms like Sharesies.
Higher-end digitisation means things like real-time financial reporting, and more automated and cloud-based data management systems within banks and finance companies that decrease operational inefficiencies and reduce costs for consumers. They are crucially important features, even the mere rollout of an app. McKinsey found that in Singapore, 95% of all daily financial service users were on apps instead of websites in 2020.
How has the increased competition come about? One key aspect is the mobility of funds and data today. It allows customers, e.g investors and savers, to switch accounts in a day, and that fact calls for financial services companies to not only ensure quality service, but also to implement strong digitised solutions. This is certainly happening across most of the industry: a recent BDO report found that 68% of financial services companies have developed a digital transformation strategy. However, there are still many large players that lean on traditional means of service or at most have bare bones digital plans in place. The same BDO report found that just 14% of financial services companies are actually in the process of implementing that strategy. Ten or fifteen years ago, an online portal to manage your own finances was considered somewhat novel and groundbreaking, but now the standard is much higher across the industry.
As technology advances and becomes more accessible, digitisation will only become easier and more commonplace. Any bank or financial services offering that doesn’t have an app and robust online functionality runs the risk of becoming a dinosaur. It’s different, however for companies of different sizes. Smaller and newer companies are faster to innovate, whereas large operations like banks can be slow off the mark. It’s somewhat like trying to turn a motorboat around compared to turning a container ship around. This happens for a variety of reasons, but regardless, a startup with strong digitisation can break right into the market, and a larger company with faster digitisation can stand out among the other big names.
In terms of standing out in the market with digitalisation, it all comes back to customer experience. A Bain APAC survey found that consumers were switching digital financial products for price first and foremost, followed by the quality of the product, followed by how simple and easy-to-use it is. At the end of the day, a bank or financial services product can have as much innovative technology behind the scenes, but what matters is how it relates back to the customer.
And where is digitalisation headed in the future? The prominence of ‘big data’ is going to dictate the industry’s movement. Companies that can access and use big data, i.e the huge amount of finance customer data available online and through product usage, will be able to innovate and experiment with products or services much more accurately and more quickly than slower digital movers. Furthermore, the rise of automation will have drastic effects in the provision of customer service, such as via automated help desks and investment advice, as well the processing and infrastructure behind financial services companies. This should lead to benefits for consumers, but the state of competition and whether any large, monopolistic entities rise up is yet to be determined.
