Examples of digital transformation in banking and financial services – shift from traditional to digital banking

Digital banking is no longer optional but a crucial aspect of the modern customer experience. It is also no longer surprising how many different transactions can be carried out online. Gone are the days of solely making deposits and withdrawals at a bank counter or handling loan-related formalities in person at your local branch.

Nowadays, we do everything online: we check balances, we lend money, we save, invest and make business transactions. Many different tools allow us to manage our budget: we can invest online and create savings goals. I use the savings plan offered by my bank. This way I can easily track my savings progress and control how much is left until I reach my goal. Access to banking products and services has never been so easy. Consumers are seeing real benefits: time savings and offers tailored to better suit their needs.

Mobile banking is the future of banking 

Mobile banking is an area that is closely linked to online banking. Nowadays everyone uses their mobile phones on a regular basis. According to Insider Intelligence’s Mobile Banking Competitive Edge Study, 89% of interviewees use mobile banking. The percentage is even higher among the Millennials generation, up to 97%. Thus, to win the mass customer, banks have had to follow this trend as well. The advantages of mobile technology are innumerable, and everything is now available via apps: from socializing to managing money. We can access almost anything we need with one touch of a screen. Mobile banking applications are constantly developed to meet consumer expectations and to facilitate access to the information and services we need the most. In mobile banking, we have access to a wide variety of tools and services: from money transfers, to creating a personal budget and savings goals, to investing serious money. Of course, any tool can be easily customized to suit individual requirements.

Digitalization and Big Data in Banking Digital transformation – he who has the data has the power  

Sources say that 90% of the data in the world has been produced only within the last 2 years. No wonder that modern banks also deal with processing huge amounts of data streams. The problem is no longer the lack of data, but the capability to use it and the knowledge of how to do so. Why is the precise and well-targeted use of data crucial for banks? On the one hand, banks use the potential of the data to help their customers, and on the other hand, they need to respect strict data and privacy regulations. Using modern financial technologies such as Artificial Intelligence and Machine Learning has become commonplace to help clients with their personal finance management (e.g. identifying the gaps and potential risks in their financial situation and offering advice on the best instruments to invest in).

Neobanks are driving digital transformation in banking

The term “neobank” was used for the first time around 2016 to describe FinTech providers that were challenging traditional banks. Historically, banks have been the main partner for business funding. The landscape has changed and the market has become more competitive in recent years, with neobanks emerging on the scene and becoming an attractive alternative.

Neobanks use disruptive technology to serve customers quickly, in areas in which traditional providers have retreated or have not been able to keep up. Statista predictions state that by 2028 the neobank market will reach a value of US$722.6 billion.

Cryptocurrencies

Another important aspect is the use of cryptocurrencies by neobanks. Although this technology still gives rise to extreme emotions, from skepticism to enthusiasm, it is impossible to deny its vast potential. The global cryptocurrency market is predicted to reach $1087 million by 2026. Neobanks can take greater risks and present a competitive offer with the use of this technological trend. This way, they can create a new revenue stream for themselves (e.g. by enriching the offer with an extra paid package), attract new customers interested in cryptocurrencies, and reduce customer retention.

Chatbots

According to market research, by the end of 2019 just 4% of banking and financial institutions had implemented chatbots. Significantly, by the end of 2020 this number had risen to 13%. Why are chatbots so popular? Thanks to algorithms, it is possible to automate certain processes – whether simply an online customer service or investment advice. Such solutions offer greater accessibility of services at lower cost. At Inetum, we also take pride in developing chatbot solutions! For one of our clients delivering AI-based solutions, we are developing a new version of a chatbot and voicebot conversation system.

Biometrics in digital banking

Almost 93% of consumers believe that protecting financial accounts is the most important aspect. Researchers claim that in the future FinTech might become the main industry via the utilization of biometric authentication. 

PINs and Passwords won’t become a thing of the past quickly, but as the number of cyber threats rises, banks see that these methods alone are no longer secure enough. MFA (multifactor authentication), e.g. based on biometric authentication combined with “traditional” methods, can help to protect consumer data better than ever before. Many banks already use methods such as selfies, voice recognition, or fingerprints for identification. However, this trend is strongly dependent on the development of mobile technologies (facial scanners, fingerprint readers, etc.). 

TECHNOLOGY

Read on to discover how Banking-as-a-Platform, Open Banking, RegTech, Artificial Intelligence and Big Data are revolutionizing the FinTech sector.

Read article

The cloud in the banking industry 

Gartner predicts that end-user spending on the cloud might reach almost $600 billion in 2023. For the financial sector, the cloud is a powerful tool. In the banking sector, the cloud facilitates the collection and storage of huge amounts of data that need to be protected and accessible to customers. Cloud-based infrastructure means flexibility and scalability while maintaining security at the right level. According to Markets and Markets forecasts, the average year-to-year growth of financial cloud services will amount to 24%. 

Voice payments 

Have you heard that by 2025  the number of voice assistants might exceed the human population? We use the voice assistants Siri, Alexa and Google Assistant every day, but voice-based services have also entered the financial services sector, aiming to make life easier and payments more convenient. 

As per Capgemini’s research, people speak an average of 125-175 words per minute. At the same time, you can enter less than 40 characters on the keyboard. Using voice-based solutions in financial transactions for filling in forms and completing payment data would lead to significant time savings; indeed, some banks already offer voice payments. The main obstacles to the wider adoption of this technology are customer distrust and security concerns. In order for the service to work well, the language assistant should be capable of recognizing a specific language. For the English language, many bots are getting better and better. In the US market, for example, where banking service providers were the pioneers in using voice solutions, the popularity of voice payments rose from 18% in 2017 to 77% in 2022.  

5 key factors driving digital transformation in banking

1. Customer Demand for Digital Services: The shift towards online and mobile banking platforms reflects a growing customer preference for digital services. This demand drives banks to invest in digital technologies, enhancing the customer banking experience through convenient digital channels.
2. Technological Advancements: The rise of new digital technologies, including AI and cloud computing, has been a major driver of digital transformation in the banking industry. These technologies enable banks to offer innovative digital banking transformation solutions, from digital wallets to banking apps, making banking more efficient and accessible.
3. Competitive Pressure: The banking sector is witnessing a surge in competition with the entry of FinTechs and neobanks. This competition compels traditional banks to embrace digital transformation, adopting digital banking transformation strategies to remain competitive in the digital age.
4. Regulatory Compliance: The evolving regulatory landscape in the financial services industry is pushing banks to adopt digital transformation solutions. Digital systems help ensure compliance, streamline banking processes, and manage risk more effectively.
5. Operational Efficiency: Digital transformation in banking is key to achieving operational efficiencies. Automating banking operations through digital initiatives and platforms leads to cost reductions and improved service delivery, supporting the transformation of the banking sector into a more agile and responsive industry.

These factors collectively contribute to the ongoing digital transformation in banking, ensuring that financial institutions remain at the forefront of innovation and customer service in the digital age.

Benefits of digital transformation for banking

The digital transformation in banking has brought about a paradigm shift, fundamentally altering the landscape of the banking industry. This transformation is not just about adopting new technologies; it’s about revolutionizing the way banks engage with customers and manage their operations. The benefits of digital transformation in the banking industry are manifold. They not only enhance the customer experience but also improve operational efficiencies, drive revenue growth, and ensure compliance with regulatory standards. As we move forward, the banking sector’s continued embrace of digital transformation will be crucial in staying relevant and competitive in the digital age. Here are the key benefits that digital transformation has delivered to the banking sector.

1. Enhanced Customer Experience: The heart of digital transformation in banking is the enhancement of customer experience. Today’s digital banking platforms offer personalized services, allowing customers to manage their finances more efficiently. The use of digital channels has made banking more accessible, enabling customers to perform transactions and access banking services anytime, anywhere.
2. Operational Efficiency: Digital transformation has streamlined banking operations, making them more efficient and cost-effective. Automation of routine tasks, digital channels for customer interactions, and advanced analytics for decision-making have significantly reduced the time and resources required for day-to-day operations.
3. Improved Risk Management: Financial institutions can better manage risks thanks to digital transformation. The use of digital technologies like Big Data and AI in risk assessment and management provides more accurate and real-time insights, allowing banks to make more informed decisions.
4. Innovation and New Product Development: The banking sector has witnessed a surge in innovation due to digital transformation. Financial institutions are now able to develop and launch new digital products and services at an unprecedented pace, meeting the evolving needs of their customers.
5. Increased Revenue Opportunities: Digital transformation opens up new avenues for revenue generation in the banking industry. By offering digital banking services, financial institutions can tap into new customer segments and create more cross-selling and upselling opportunities.
6. Regulatory Compliance: Digital transformation has also eased the burden of regulatory compliance for banks. Digital tools and platforms enable better tracking and reporting, ensuring that banks adhere to the ever-changing regulatory landscape more efficiently.
7. Global Reach and Accessibility: The adoption of digital banking has expanded the reach of financial services. Customers from various geographical locations can now access banking services, breaking the barriers of traditional branch-based banking.
8. Data-Driven Insights: Banks are now able to leverage the vast amounts of data they collect to gain valuable insights. These insights can inform strategy, improve customer service, and drive innovation.

How does a digital transformation strategy apply to banking?

In the realm of financial services, a digital transformation strategy isn’t a one-size-fits-all approach; it’s a tailored journey that uniquely addresses the needs and challenges of the banking industry. This strategy transcends conventional methodologies, delving into innovative realms to redefine banking in the digital age.

1. Embracing Open Banking: Open banking is a key component of a bank’s digital transformation strategy. It facilitates a more interconnected financial ecosystem, encouraging collaboration and fostering innovative financial solutions.
2. Digital Transformation Across Borders: Banks are leveraging digital transformation to expand their services globally. This approach transcends traditional geographical limitations, providing access to financial services to a broader audience.
3. Redefining the Banking Experience: The strategy goes beyond providing online services. It’s about creating an immersive digital experience that integrates financial advice, educational resources, and personalized financial planning through digital channels.
4. Implementing Sustainable Digital Solutions: In the face of environmental concerns, banks are increasingly focusing on sustainable digital operations. This involves reducing paper usage through digital documentation and promoting green banking initiatives.
5. Cultivating Digital Trust: A successful digital transformation also hinges on building digital trust. Banks are investing in secure digital platforms and educating customers on digital safety, ensuring confidence in the digital transformation process.

This strategy represents a dynamic shift in the banking sector, indicating that digital transformation is more than technological adoption – it’s a commitment to innovative, responsible, and customer-centric banking in the digital era.

The strategic role of a financial technology partner  

Existing financial institutions are proving that they are ready for change, even though they deal with legacy technologies and processes that pose significant challenges. To this end, partnerships with financial technology providers are key in the digitization of the banking industry. The landscape of FinTech is being transformed thanks to either high-quality software or low-code technology. Nowadays digital change can be achieved via partnerships with financial technology providers.

At Inetum, throughout 2020 we observed an increased interest in collaboration among financial technology providers and banking institutions. As a technology-focused organization, we also observe the rapid development of FinTechs, which are setting up ever more R&D centers in Europe. One such example is Backbase, an Engagement Banking Platform provider from the Netherlands which decided to build development teams in Poland. Thanks to nearshoring cooperation with a financial technology provider, they were able to achieve their goal and add 40 missing specialists (Java programmers, testers) to their development teams. I encourage you to read the entire story of cooperation between us and Backbase.   

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Summary: trends in banking and digital technologies in 2023

Innovative ideas and new development opportunities are appearing on the market every day to make our lives easier and more enjoyable. And while in many sectors digitization brings the emergence of a new software that streamlines the way we work, none of them has experienced such a dynamic metamorphosis as the Fintech industry. Cryptocurrency, robo-advisors, InsurTech, cybersecurity – the Fintech landscape is changing rapidly and is diving deeper into the behaviors and habits of consumers to meet their expectations. FinTech solutions are also changing the way people do business and handle money daily, and over the next few years, we shall see further significant changes in this industry.

Read our client stories: Fintech Software Development

Now a legal requirement worldwide, KYC standards ensure you identify, verify, and manage risks relating to your customers to guard against fraud, corruption, money laundering, and terrorist financing. But that’s a pretty big job that you can’t do alone! 

That’s why in this article, we’ll give you everything you need to know about KYC, including what it is, why it’s important, and the underpinning things you need to do to meet the standard. At Inetum, we’re experts at helping our clients set up their compliance programs, so to finish, we’ll take you through our solution, kdprevent, and how it can help you master KYC compliance!

Let’s get into it.

What is Know Your Customer/Know Your Client?

Know Your Customer (KYC), sometimes referred to as Know Your Client, is a legal standard for financial institutions and financial services companies, whereby they establish a customer’s identity, assess their risk profile, and monitor their transaction activity to prevent financial crimes such as money laundering, terrorism funding, fraud, and theft. 

The purpose of KYC legislation for banks is to ensure that your customers and beneficial owners of businesses are genuinely who they say they are. While most companies focus on the identification and verification processes for a new customer, financial institutions must also ensure ongoing monitoring protections are in place for the lifetime of a customer’s relationship to ensure risk is continually managed. 

Why is a KYC Process Important For Your Business?

Fail to put adequate KYC procedures in place, and you leave yourself open to steep fines, penalties, and in the worst cases, the removal of your banking license.  

But it’s not just the legal consequences that should make you sit up and take note of KYC, as it’s also important because:

• A solid KYC process helps you manage overall business and customer risk.
• KYC helps improve customer experience by giving all customers the comfort that you take banking seriously.
• Verifying the identity of new customers and storing customer information enables you to drive new product lines.
• It helps you comply with other legislation, such as the Patriot Act in the US and GDPR in the UK & Europe.

Ultimately, KYC in banking is good practice that can underpin all of your financial activities, so it’s worth putting some genuine effort into getting it right!

KYC Compliance & KYC Requirements – Customer Due Diligence, Verification & More

While KYC legislation puts the onus on organizations to manage their own risks and assess compliance, some key requirements exist to meet as a baseline to present financial crime. Let’s look at each of them in turn. 

Customer Identification

KYC requires each organization to have its own customer identification program to guarantee an account owner is a genuine person. In most instances, this will mean capturing a customer’s name, date of birth, proof of address, and national identification number (e.g., passport, driving license) when they open an account. 

Customer Due Diligence

It isn’t enough to capture a customer’s KYC documents, they need to go through a verification process. This is where a Customer Due Diligence (CDD) process comes in, allowing financial institutions to use external data sources, databases, or services to verify the documents provided. 

If, in the event a new client flags as being suspicious or they are deemed to be more susceptible to financial crime, organizations are required to complete an Enhanced Due Diligence to manage the risk further. Typically, this will require capturing further information or documents, or even using a 3rd party to complete a more detailed vetting process.

Ongoing Monitoring

KYC compliance requirements don’t end after the customer onboarding, you need to prove that you have ongoing KYC checks in place to identify, assess, and flag any suspicious activity. This could include transaction monitoring, periodically re-validating customer information, and bank account audits. 

Read also: Fintech – Financial Technology Changing the Banking Sector!

KYC & Anti-Money Laundering (AML) – AML Compliance Explained

You might be thinking that some of these KYC checks and requirements seem familiar, almost like they’re not really new at all? That’s because AML and KYC are heavily linked and work together to identify suspicious activity and fight financial crime – let’s explore the difference:

AML regulations are a broader set of frameworks and legislations that financial service companies need to follow to fight against money laundering. KYC regulations form a critical part of the overall AML framework, specifically driving processes to identify and verify customers’ identities.

KYC and AML go hand-in-hand, and it’s important for financial institutions to comply with both. But it’s worth taking the time to review the regulations carefully, as AML legislation varies from country to country. Therefore, you need to make sure your KYC processes align with each jurisdiction you operate within.

Again depending on the jurisdiction, you must consider your relationships and communication strategy with key regulators and government agencies. This is because these companies (such as the Financial Crimes Enforcement Network in the US, and the Financial Conduct Authority in the UK) can review and audit your approach to KYC and AML at any point, leading to the large fines if they deem risk isn’t being managed effectively.

The Inetum Solution to KYC Verification: kdprevent

While KYC and AML compliance can seem pretty daunting, the good news is that the process can be simple, streamlined, and secure with the support of trusted partner-based KYC solutions. 

At Inetum, we’ve developed a complete digital KYC compliance solution, kdprevent, that provides proven answers to financial institutions, delivering powerful features that satisfy regulatory requirements and optimize the costs of your operation.

“kdprevent’s KYC solution allows our customers to consolidate and enrich their client’s information to visualize it in a structured way. Risk-driven approach, with controlled override possibilities, enables further optimization of ongoing review process. Currently, we are working with customers to digitalize KYC-related interaction between RMs and end clients by extending self-service capabilities of the solution.”

Michał Nowakiewicz, kdprevent Head of Product

Kdprevent has already helped over 50 clients across the financial sector meet many components of KYC compliance through: 

• Internal and external data source integrations that help you identify and verify new customers
• Flexible KYC forms adapting to client-specific information needs
• Risk-driven KYC review process
• Customer relationship analysis to identify potentially suspicious or unknown relationships between customers, borrowers, or account beneficiaries (e.g., cash flow).

Summary

Kdprevent was developed to help you fight money laundering and comply with KYC by helping you give more attention to day-to-day business, identify and manage risks, and, in the long run, reduce the chances and impact of audits, fines, and reputational damage. 

Implementing a solution to support and automate the operations and management of regulatory compliance is a good practice and part of the security procedures. Our kdprevent platform is the answer in terms of risk assessment, KYC, and other areas of Compliance.

Sound interesting? You can find out more about our financial compliance offerings here.

Do you know you need KYC help or you’d like to understand how much does KYC cost? If so, why not contact us at kdprevent@inetum.com or reach out to us at malgorzata.mierzwa-trybula@inetum.com or pawel.osiak@inetum.com to discuss the capabilities of kdprevent?