Banks have been executing digital transformation initiatives over the past decade, though progress in the pre-COVID era has been incremental. For long, banking services have been heavily manual, and paper based and lacked the personalisation of products and services across customer channels.
Today, we see that the banking industry is being shaped by the confluence of customer needs, technological innovation, and policy decisions. The post-pandemic era powered by technology will witness banking institutions shifting from product-based banking to customer-first banking by catering to the unmet and evolving needs of digital consumers in a better way.
More importantly it is well expected, and essential, that new-age banking will conceive of and implement products and services embedded with humanity, sustainability, and personalization to cater effectively to consumers. Let us discuss how digital transformation has impacted the banking sector, especially in the post-pandemic era.
Acceleration in digital transformation
The COVID pandemic enforced restrictions in physical banking services. This propelled the adoption of digital banking, and the incumbents responded by ramping up their tech transformation efforts by revitalising digital channels. To accelerate the digitisation process, banks started to operate like tech companies offering improved customer experience, customer engagement and customer operations.
This accelerated pace of digitisation can be measured across two categories. First was the digitisation of the existing processes, making them available through the internet and mobile channels. The second involved building entirely new customer journeys, keeping digital-only and data-first considerations in mind.
Driving open and beyond banking
The drive for digitisation is not confined to banking. It has expanded the scope of operations for banks to seamlessly connect and offer third-party services through APIs, thanks to regulations like PSD2 and GDPR. Banks have been trying to become the one-stop business and tech gateway for customers through super apps for all their banking and financial needs.
The rise of open banking is enabling super apps to use financial data from varied sources and precisely meet customer needs. In future, it will create an ecosystem that proactively leverages customer data and deliver personalised experiences. Super apps can help users simplify all financial functions like pay utility bills or book cabs on one platform – accessed anytime with convenience. This will shift the focus of retail banks facilitating simple digital transactions towards more long-term relationships.
Emergence of tokens and digital assets
Over the past two years, blockchain technology, particularly with the advent of Web 3, has given rise to an entirely new economy that is borderless, secure, fast (at par with traditional banking transactions), and getting more and more decentralised (without intermediaries).
An uptake in crypto, NFTs and central bank digital currencies has led to a new virtual and creator economy by unlocking the potential of entirely new assets in the market like art, real estate and gaming. Traditional banks can focus on developing a strategy to address this new segment of customers and at the same time engage regulators proactively.
Metaverse, the move to virtual
Metaverse spans the full spectrum from our real world to a fully virtual world. Banks are already dabbling with metaverse, exploring practical and convenient use cases that could win customers over and sustain their interest. To truly understand the possibilities of the metaverse for banking, one needs to first comprehend what constitutes a metaverse, and what are the building blocks that together create this digital twin of our current reality.
There are four distinct pieces to the puzzle: technology, platform, marketplace, and commerce. Each is powered by a unique set of ecosystem players having undergone their own unique maturation curve. The immediate focus can be on engaging customers in the existing open metaverses of Sandbox and Decentraland. Banks can identify potential customers, onboard them through crypto wallets, and provide payments, lending, and custody services.
The progress already made in the realm of decentralised finance and NFTs could enable financial institutions to imagine and strategise a long-term plan around the DeFi and metaverse. Most global banks already offer digital assets/exchange/custody platforms that can be extended to support the requirements of the virtual world.
Banks can consider developing their own virtual world platforms, enabling new products and even marketplaces and tying them back to traditional infrastructure. Identity management in the metaverse is another area where banks can focus. NFT-based identities with standards like ERC 725 can help banks better understand their customers’ Web 3 activities, which in turn help with better risk management, compliance management, data protection and fraud management.
‘Banking’ on the industry
The accelerated transformation of the banking industry was inevitable. While most businesses suffered during the pandemic, it was banking that was able to resist the collapse of the worldwide financial systems and be the bulwark for all other sectors.
Surely, the sector has not seen the last of digital transformation. It is inevitable that given the rising customer expectations and the demand for ease of transactions, this is one industry that will continue to leverage the best of digital and keep the wheels of the global economy moving.