Financial services play a critical role in the global economy. If the crisis of 2008 taught us anything, it is that if the financial sector does not do its job properly, there will be instability. It is therefore important that financial service providers innovate to best align themselves with the evolving needs of businesses, consumers, and regulators.
In addition, the COVID pandemic has amplified expectations for digital transformation. More than ever, going digital is critical to the resilience and competitiveness of banks and financial players in local markets. Here is an overview of key findings from several recent studies on digitalization in the financial sector.
Where does the financial industry stand today in terms of its digitalization?
With digital transformation a business imperative across all sectors, most financial services firms have begun their modernization process, either by taking a few experimental steps or by developing a true strategic roadmap. More than half of the firms in a recent survey said they have established an action plan to achieve their digital goals.
Most financial firms recognize the importance of having a management function to guide digital efforts. More than three-quarters of financial firms have in fact already created a management function that coordinates digital initiatives, and many financial firms already have a digital innovation steering committee in place, 54 percent are using external consultants, and 60 percent are hiring new employees with the expertise to implement and drive these processes.
What are the challenges facing the sector?
Lack of vision among decision makers is a major problem for most organizations. In addition, under-prioritization (61%), as well as poor communication and project management (53%) are seen as challenges.
It is the responsibility of management to build a corporate culture around innovation and digitalization, engage employees, and make digital innovation an integral part of business strategy. 73% of organizations cited a lack of skills or insufficient training as the top barrier to implementing a new digital initiative. While hiring new talent can contribute to overall digital competency, companies must also ensure that current staff receive the training and resources they need to remain effective as their roles change due to digitalization.
Agility for financial firms
Agility refers to the ease and speed with which an organization can adapt its processes, integrate new technologies, and achieve digital transformation.
When asked how they rate their company’s digital capabilities relative to their industry peers, only 23% of financial institutions surveyed said they considered themselves better than their competitors, and only 10% defined their current level of agility as excellent.
Revenue growth from digital investments
Boosting business growth and time-to-market were the top priorities cited by financial CEOs surveyed about their competitive digital strategy in a recent McKinsey survey. All industries share the urgent need to gain market advantage through digital acceleration. In this context, an organization’s ability to respond to change becomes a true differentiator. 71% of respondents highlighted agility to meet changing customer needs as the top concern.
Digital investments are rewarded with a positive return on investment
That’s why most companies prioritize growth and speed of innovation over cost. This strategy appears to be a success when you consider the impact of digital investments on firms’ revenue.
Three out of four financial firms that have been actively working on their digitalization have seen revenue and profit growth of 1-9% after one year, and they expect an increase of more than 10% in the next 18-36 months.
Digital transformation focuses on the journey, not the destination. Going digital is not a project with a start and end date, nor is it a one-time task. With technologies constantly evolving, companies need continuous learning and investment.
Today’s businesses are competing not only with their peers, but with all the digital experiences their target audience interacts with. Even a decade ago, digital transformation was seen as a strategic move to get ahead of competitors. Now it’s about evolving or dying.
Enterprise-wide digitalization in banking and financial services is complicated. But in the long run, it will drive innovation and revenue growth.
Would you like to start your business digitalization process? Contact Enkronos today.