Digital transformation in finance: embracing customer focus and new tech

At Carbon, we’ve had a front-row seat to the dynamic and complex world of digital transformations for various organisations in the financial services space. Our view is that a digital transformation is not only about adopting cutting-edge technologies and modernising operational practices; it’s fundamentally about rethinking the very nature of financial business models in response to the digital age. Through this three-part article series, we aim to share important insights and experiences from this transformative journey, offering valuable perspectives for those leading digital initiatives and strategies within their organisations.

This first article focuses on the critical shift towards a customer-centric approach and the role of emerging technologies in reshaping the financial services landscape. We’ll explore how transitioning from traditional, product-focused strategies to a more integrated, customer-oriented model is not just a trend but a necessity in today’s digital-first world. Additionally, we’ll delve into how technologies are not merely enhancing existing processes but are opening new avenues for innovation and growth.

The shift to a digital-first approach

The first step in navigating this transformation is for leaders to understand the landscape. Financial services are no longer just about transactions; they’re about experiences. The move from a product-centric to a customer-centric approach, where digital channels take precedence, is a trend that’s been happening for a few years.

According to the KeyBank 2023 Financial Mobility Survey there has been a 25% increase in the adoption of digital banking services compared to the previous year. The survey findings indicate that 72% of respondents feel comfortable using online banking, while 65% are comfortable with mobile banking apps. We believe this data highlights a significant shift towards digital platforms for everyday banking needs, including bill payments, checking credit scores, and funds transfers.

In a product-centric approach, often associated with a multichannel strategy, organisations typically prioritise promoting their products through various channels. Each channel operates independently, offering the same product but not necessarily delivering a unified or connected customer experience. The focus lies on the product and its distribution across different channels, such as in-branch services, online banking, and mobile apps, without necessarily integrating these experiences seamlessly. Using multiple channels has its pros and cons. On the positive side, it allows organisations to reach a wider audience, increasing product visibility and awareness. It also provides flexibility in terms of channel selection and customisation. However, there are challenges to consider. Lack of integration can lead to inconsistent customer experiences, and delivering a seamless and connected customer journey may be difficult. Managing multiple channels effectively may require additional resources and coordination.

On the other hand, a customer-centric approach aligns closely with an omnichannel strategy. Here, the banks focus on providing a seamless, integrated customer experience across all channels. The idea is that a customer can start a transaction or interaction on one channel and seamlessly continue it on another. The pros of this approach include acknowledging and accommodating the diverse preferences of customers when interacting with financial services. It emphasises the importance of creating a unified and customer-centred experience, enhancing customer satisfaction. However, there are cons to consider, such as substantial investment in technology and infrastructure to support integration across multiple channels. Implementation challenges may arise in ensuring consistent and seamless experiences across all channels, potentially requiring additional resources and training. Overall, this approach offers the potential for improved customer-centricity, but careful consideration and planning are necessary to address the associated challenges.

The shift from a product-centric approach to a customer-centric approach signifies a deeper understanding of customer needs and a firm commitment to meeting them in a more holistic and integrated manner. This transition plays a crucial role in the digital transformation of financial services, as it aims to enrich customer engagement, satisfaction, and loyalty by creating a more interconnected and personalised experience that resonates with individuals on a deeper level. By leveraging technology and data, financial institutions can tailor their offerings and interactions to each customer’s unique preferences and requirements, fostering stronger relationships and driving long-term success. This customer-centric approach enhances the overall customer experience and empowers organisations to adapt and thrive in today’s rapidly evolving digital landscape.

Integration of emerging technologies

Integrating AI, blockchain, cloud computing, and advanced analytics is not just altering the finance landscape; it’s reshaping it at its core. Let’s delve into how these technologies act as a catalyst for innovation and new business opportunities in financial services.

AI and machine learning

The AI in Fintech market reached approximately USD 12.61 billion in 2023. This market is expected to grow at a CAGR of 19.50%, reaching around USD 62.65 billion by 2032. We think that this growth highlights the increasing integration of AI in financial technology applications and services.

In today’s world, AI enables financial institutions to offer personalised financial products and advice to a vast number of customers, something that was previously only feasible for high-net-worth individuals via banks’ private banking offerings. We’re not far from a world where your banking app understands your spending habits better than you do and offers tailored advice on saving and investing; some FinTechs are already there.

From risk assessment to fraud detection, AI automates complex, data-heavy processes more accurately and efficiently. For instance, machine learning algorithms can already analyse patterns in transaction data to identify and prevent fraudulent activities in real time, saving millions in potential losses.

Chatbots and virtual assistants powered by AI provide 24/7 customer service, handle queries, and even offer financial advice, leading to increased customer engagement and satisfaction.

Leaders in organisations must recognise that AI is not merely a buzzword; it is a transformative force. From personalised financial advice to risk assessment, AI offers significant competitive advantages. However, achieving this requires a deep understanding of your data. It necessitates mature data quality management, robust data governance, sound data infrastructure and architecture, effective data integration practices, and well-defined use cases.

Blockchain

In an industry where trust and security are paramount, blockchain offers an immutable, transparent ledger system. This technology can significantly reduce fraud, streamline compliance, and provide a clear audit trail.

Blockchain technology streamlines the cross-border payment process by eliminating intermediaries, leading to faster settlement times and increased efficiency. This is particularly advantageous for business-to-business and person-to-person transactions across international borders, a stark contrast to traditional methods that can take several days, especially when involving emerging markets.

Asset tokenisation on blockchain platforms creates new ways to invest and manage assets. It allows for the fractional ownership of real estate or art, making these high-value investments accessible to a broader audience.

Blockchain has potential far beyond cryptocurrencies and their speculative nature we’ve seen in the last few years. Its secure, transparent transactional systems applications can redefine trust in financial services. While blockchain offers tremendous potential to redefine trust, its adoption requires addressing a complex mix of technological, regulatory, operational, and cultural challenges. Success in this endeavour will depend on individual institutions and the collective effort of the entire financial ecosystem to foster an environment conducive to blockchain innovation. The journey toward blockchain integration in financial services is as much about building the proper infrastructure and regulatory frameworks as it is about changing mindsets and fostering collaboration.

Cloud computing

Cloud computing allows financial institutions to rapidly scale up or down their IT resources based on demand. This flexibility is crucial in quickly adapting to market changes and launching new products and services ahead of competitors.

By reducing the need for significant upfront investments in IT infrastructure and shifting costs from capital expenditure (CapEx) to operational expenditure (OpEx), cloud computing enables even smaller financial institutions to experiment with and adopt the latest technologies, levelling the playing field. Something that was not possible before the mass adoption of cloud services.

We believe cloud platforms play a pivotal role in enhancing collaboration both within institutions and with external partners. By fostering innovation through shared platforms and ecosystems, cloud computing offers scalability and agility. It’s not solely about cost savings; it empowers organisations to drive innovation and accelerate time to market.

Advanced analytics

The advanced analytics market in the BFSI (Banking, Financial Services, and Insurance) sector holds the largest market share and is projected to grow significantly. This growth is driven by integrating analytical tools for detecting unusual transaction patterns, which helps reduce financial risks and improve operational efficiency.

Advanced analytics turn vast amounts of data into actionable insights. Mature financial institutions use these insights for everything, from optimising their operations to developing personalised financial products.

By analysing historical data and identifying patterns, predictive analytics can foresee potential risks and enable proactive risk management, a critical aspect of finance.

Strategic insights for digital transformation

In today’s rapidly evolving digital landscape, any organisation must integrate a digital strategy as a core component of its overall business strategy. This integration ensures that digital initiatives are not isolated projects but rather essential to the organisation’s overarching goals and objectives. A successful digital strategy must be flexible and agile, allowing quick adaptation as technological advancements unfold; see what’s happening with GenAI since early 2023. It requires the ability to anticipate and respond to emerging technologies, market shifts, and changes in consumer behaviour. By continuously evaluating and, if necessary, adjusting the digital approach, businesses can remain relevant and competitive in a digital-first world.

At the heart of any digital strategy lies a focus on CX (Customer Experience), which reigns supreme in the digital age. The emphasis is on creating personalised, intuitive, and seamless experiences across all digital touchpoints. In the financial services industry, this could mean user-friendly mobile banking apps, personalised investment advice based on a customer’s financial history, or seamless omnichannel support that allows customers to switch between a phone call, a mobile app, and an in-branch visit without friction. Understanding customer needs and behaviours through data analytics, customer feedback, and market research is critical in crafting these experiences. By leveraging this understanding, businesses can tailor their digital offerings to resonate with their target audience and meet their expectations meaningfully and engagingly.

We believe that the role of data analytics in shaping effective digital strategies cannot be overstated. By harnessing the power of data, businesses can gain valuable insights into market trends, customer preferences, and operational efficiencies, unlocking the benefits of AI crunching the qualitative data.

In summary, integrating a digital strategy into the overall business strategy is essential in today’s fast-paced digital landscape. Organisations can thrive in the digital age by prioritising customer experience, leveraging data analytics, and remaining adaptable to technological advancements.

Carbon is the go-to staffing specialist for Eastern European and North African technical talent. Trusted by the biggest names in technology and venture capital, Carbon’s hyperlocal expertise makes entering new talent markets for value-seeking global companies possible.

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