Unlocking the Power of Digital Transformation in Banking

Discusses the strategies and technologies reshaping the banking sector, such as core banking system upgrades, cloud computing adoption, and robotic process automation, which are digitally transforming the banking industry.

FREMONT, CA: Enhanced regulatory clarity and the potential return to normal interest rates are poised to make technology the primary distinguishing factor for consumers and investors. For instance, it is anticipated that most bank customers in developed economies will have access to real-time payments, enabling financial transactions to be completed with a swipe of the smartphone.

Investors should also monitor other differentiators, not only customer-facing applications. Indeed, as consumer traffic from mobile banking grows, having effective, scalable back-end solutions becomes essential. Banking digitisation can increase back-office productivity, lower operational risk, and increase profitability.

Shifting From Banks to Tech Companies

In the long run, technological developments like blockchain and artificial intelligence (AI) will undoubtedly contribute to the development of banking. However, updating the core banking systems, which manage the essential activities of a bank, such as deposits and credits, is likely the most crucial action banks will need to take. Customers will need more patience for glitchy apps, regardless of how slick the user interface is. Thus, banks will need to update technology on the back end in order to give a flawless experience on the front end.

Investments in robotic process automation (RPA) and cloud computing should also be prioritised. These initiatives put banks in a stronger position to compete with FinTechs while providing an immediate opportunity for cost savings in the back office.

Technological Strategies for Banking Transformation

Investors must, therefore, learn to recognise which banks are innovating. Each bank cover has a digitisation strategy. However, it is challenging to comprehend and compare how businesses spend their IT budgets because IT spending is not consistently disclosed in financial statements.

Core banking systems

Most banks will need to make some upgrades to their technological backbone, as many are still running on an assortment of outdated systems. A nine per cent reduction in cost/income could be achieved by switching to a modern core banking system.

However, we anticipate that most banks will choose to wrap existing systems, which reduces back-end functions to simple processing but centralises data so banks can add new technology to modern systems and have a single view of their customers. This is because moving to a single system on a large scale presents its own set of challenges.

Cloud computing

With the potential to reduce key infrastructure costs by at least 30 per cent, most banks switch to the cloud. Businesses have already shifted 10 per cent to 40 per cent of their operating systems and servers to the cloud, and many want to move as much as 80 per cent. However, the argument for cloud computing differs depending on whether banks plan to employ a public, private, or hybrid cloud, what apps they are migrating, and whether they are outsourcing IT operations. For instance, shifting horizontal apps to the cloud is very simple but has little financial impact; on the other hand, moving vertical applications to the cloud may be more substantial but requires more effort.

Robotic process automation (RPA)

RPA might offer the most promise of all the technologies in the near future. These applications—robots—transfer data between systems, automating tasks that people previously performed. Such tasks include payment reconciliation, customer onboarding, fraud detection, and compliance reporting. The data indicates that some top banks aim for as many as 1,000 robots in the future while deploying as many as 200. Although lowering headcounts is the apparent advantage of RPA, this automation also reduces human error and speeds up transaction times.

These innovations promise cost-efficiency and enhance customer experiences by streamlining operations, reducing errors, and accelerating transaction times. By navigating these digital avenues, banks can stay competitive and deliver the services that today's tech-savvy customers demand.