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Digitalization in banking

Offerings from neobanks are revolutionizing the financial sector. Digital self-services, mobile banking, or robo-services are changing the makeup of future financial services. Customers want to manage their finances digitally and from anywhere. For traditional banks to keep pace with these developments, they need a digitalization strategy that first takes into account their internal processes.

In this article, you can read about the digitalization of the financial sector and the future of banks – and how you can get there with your business.

The future of banking is digital. End customers are no longer forced to visit a physical branch. Instead, they can process everything online. Just a few clicks take you to your personal banking area on the website or in an app.

Digital management options include far more services than just viewing transaction details, downloading account statements, or making transfers via online banking. Customers can now make appointments for consultations digitally and submit loan applications quickly and conveniently online.

To achieve this, a bank’s internal processes also have to be fully digitized. Digital, ideally automated processes are replacing paper bureaucracy. This applies to all (administrative) areas, including the archive, which will be digital and cloud-based in the future.

Challenges of digital transformation

Banks are reluctant to part with their mainframes. Decades of investments make them an integral part of the business. A hybrid approach is the solution for those who want to modernize without completely abandoning the old logic. These digitalization projects are then built on existing systems.

There is a long way to go until then. Many processes in traditional banks are still paper-based. An example is the signature, which is still provided manually on paper. Requirements from the German banking regulator BaFin make digitalization projects even more difficult. The effort is enormous, and the risks are high, if implemented incorrectly.

The hurdles of digital transformation create an imbalance between customer expectations and the status quo. Neobanks are increasing the pressure. Processes are already working for them as intended. The difference: neobanks typically focus on one specific service while traditional banks provide a wide range of services.

Where are banks today?

In a global comparison, the digitalization of traditional banks is in many cases one step ahead of neobanks. This is according to the 2023 Digital Banking Index, which shows, from customer perspective, the degree to which banks are digital. From August to October 2023, a total of 60 branch and direct banks were analyzed based on the index's criteria, including banks in Germany, Great Britain, Italy, France, and Austria.

What is the Digital Banking Index based on?

The Digital Banking Index classifies the degree of digitalization of branch and direct banks based on four evaluation criteria:

  1. Digital sales
  2. Ease of use and support
  3. Digital innovation
  4. Digital marketing

Each of these criteria are added equally to produce the final score, which is a maximum of ten points. In a European comparison, Spain is the best-rated nation with 5.1 points. Countries such as Germany, Austria, the UK, and Italy are in the middle. They achieved ratings in the 4-point range.

There is room for improvement in many areas for branch and direct banks. Despite the steady development of digitalization strategies, digital customer-focused services are still lagging. Offerings frequently missing from traditional banks, such as mobile banking – a standard service at neobanks – give the impression that neobanks are first movers. Branch and direct banks are closing the information gap by investing in new, intelligent functions for customers.

Working together instead of competing

On this note, businesses in the financial industry are reinventing themselves. On the one hand, this means letting go of old structures – on the other hand, it means viewing neobanks as partners.

The trend is towards collaborating on equal terms. Synergies between the business models arise when fintech companies and banks cooperate with each other – for example, when customers use the online banking platform to manage insurance details or robo-advisors for financial investments. This makes it possible to open up new business areas in the banking sector, but also to connect them with each other.

For a partnership between fintechs and banks, a certain degree of digitalization is necessary to enable collaboration via digital interfaces.

Digitalization starts from within

Digitalization projects in banks are based primarily on consumer expectations. In the long term, however, it is not enough to simply go digital at the customer-facing points of contact. Digital transformation impacts the entire banking ecosystem. If only factors involving end customers are digitized, a bank branch will continue to process incoming information using old and rigid processes.

As a result, digitalization of financial services means mapping the flow of information seamlessly across all areas of the bank:

  • How do banks capture incoming information?
  • How does information get to the right bank employee?
  • How do I automatically request missing information?
  • How does communication with the customer take place?

One central question stands out: How can I digitize my bank’s information management system?

Automating processes with intelligent content automation

The answer is intelligent content automation (ICA). With intelligent content management you can manage the entire flow of information digitally. It also automates your processes in an effective way. Intelligent content automation combines a range of technologies, including artificial intelligence, to create new opportunities.

You can use the solutions to capture information and documents, manage them, and process them intelligently in workflows. The result is a standardized, digitized, and automated process.

Transforming the banking market from outside in

Neobanks show us how the digitalization of the financial sector will develop in the future. They will not completely replace traditional banks. They complement the banking market with customer-focused, intelligent services. Only those traditional banks that ignore the opportunities to work with neobanks will die out.

For this reason, the agenda of banks includes a digitalization strategy that digitizes processes from the inside out. Intelligent content automation as a technology creates the structures necessary to manage, administer, and process information digitally and automatically.

FAQs about the digitalization of banks

What challenges do banks face in the digitalization process?
Challenges for banks to go digital are related to the wide range of services provided, which significantly increases digitalization efforts. Internally, paper-based processes and the reliance on old mainframes are an obstacle to digitalization. A high level of requirements by third parties such as BaFin also slow down digitalization processes.
What is a neobank?
Neobanks are financial service providers that operate exclusively online and offer banking services using innovative technologies.
Are banks in Germany at risk?
Banks in Germany are not at risk as long as they reinvent themselves and keep pace with trends in the financial sector, starting with developing a digitalization strategy.

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