Photo : Messenger
What's the difference between a digital and digitized bank? The key difference between digital banks and digitized banks is when the technology was introduced. With digitized banks, technology comes second. It’s layered onto existing banking systems as an afterthought to improve customer experience. Digital banks are born digital.
Digitization in banking has many benefits for both the banks and the customers. Some of the benefits are: It lowers the operating costs for the banks by reducing the need for physical branches, paper-based transactions, and manual processes. It improves the customer experience by providing convenience, speed, security, and personalization. It enables data-driven decisions by using analytics, artificial intelligence, and machine learning to optimize products, services, and operations. It increases the customer base and loyalty by offering innovative and customized solutions, such as digital wallets, mobile banking apps, and online platforms. It supports green development by reducing the environmental impact of banking activities, such as energy consumption, paper waste, and carbon emissions. Digitization in banking is a necessary and beneficial trend that can help the banking sector to grow and thrive in the digital era.
The digitalization of decision-making processes and various operations helps to maintain a customer base and increase banking business using new electronic channels and online lending. In general, this contributes to an increase in the efficiency and competitiveness of banks, as well as a decrease in the time for customer service. Creating platforms for banks increases their attractiveness for customers and stakeholders of an interconnected business, thereby providing opportunities for creating an ecosystem of banks. Social factors and the development of new digital information technologies have a positive effect on investments in banks. The prospect of creating new services for small businesses, such as online accounting, operational accounting, taxation, profit forecasting, and the creation of ecosystems, makes it possible to take into account the needs of customers in the future. However, digitization of data creates about 70% of digital risk for banks. According to the analysis, 22% of banks around the world have invested more than 25% of their annual budget to digitize risk management. An improved regulatory framework will allow faster digitization of banking services. Diversification of bank risks is one of the main methods for the sustainable development of banks in the global economy.
In this situation, risk diversification management requires a new strategy in the context of digitalization. Diversification of the risks of the loan portfolio allows one to increase profits and reduce the overall risks of banks. An analysis of the impact of various diversification strategies of operational risks in developing countries (Philippines, Vietnam, Malaysia, Indonesia, Thailand) shows that banks have become more competitive and financial institutions have become more sustainable. In the banks of Indonesia and Thailand, diversification most positively affects banks’ work and risk management. In the Philippines, asset diversification has a positive effect on efficiency, but does not affect profitability. In Malaysia, the diversification of assets negatively affects profit, but increases efficiency and positively affects risk management. In Vietnam, diversification has no practical effect on bank performance due to an underdeveloped market. Asian banks do not diversify lending activities to increase profits in the context of liberalization. Asian banks diversify interest-free assets and services that are not related to lending in order to increase profits. The Asian experience is useful for developing countries in terms of gaining additional knowledge about the impact of risk diversification of the banking system, because these countries have liberalized their financial sectors. Diversification of the investment portfolio in the stock market can be used to increase portfolio returns and reduce the risk of lower share prices. Therefore, income from activities in the stock market is the reason for diversification in order to increase the efficiency of banks and reduce risks. Diversification of bank risks and activity helps attract investment and reduces the impact on interconnected markets. Previous studies of Chinese banks have shown that geographic diversification of banks increases market share, net margin, and non-interest income, as well as increasing operating costs through expansion. In the modern world, insufficient attention is paid to research related to the impact of digitalization on the effective operation of the banking system and the cooperation of FinTech companies with banks. Providing complete cybersecurity for mobile banking creates the prerequisites for online fraud, which could make smartphones less reliable in the future. The goal for the development of bank cybersecurity is the creation of a mechanism for protecting information in the banking sector. Most small commercial banks do not have sufficient resources for cybersecurity. The main problem in the area of cyberattack risks for banking institutions is certain regulatory and supervisory requirements to regulate such risks. There is a need for changes in regulatory documents in order to develop the banking sector and effective risk management. The mobile payment ecosystem, with which each client can independently control his/her own information, has not been practically clarified in previous studies. To facilitate access to a large amount of online information 24 hours a day, further studies of the cost and logistics of providing electronic banking services are required. Round-the-clock banking services will reduce staff costs and increase access to banking services. Particular attention in Europe is paid to the digitalization of online bank accounting. The introduction of common payment standards in the Eurozone and the creation of a single pan-European payment area the Single Euro Payments Area (SEPA) facilitate the provision of banking services throughout the European Union. The introduction of the Payment Services Directive PSD2, the entry of Google and Apple into the payment services market, and the continuous growth of the FinTech industry are forcing banks and other financial institutions to strengthen the integration of operations with innovations. It is extremely important for existing banks to implement flexible working methods to meet constantly changing and growing customer expectations, as a result of which so-called “electronic banking” has appeared, which represents a multifunctional system of informing the client and remote management of his/her accounts.
Electronic banking services include:
1. account statements for a customer;
2. information on banking products (deposits, loans, securities);
3. applications for opening deposits and obtaining loans and bank cards;
4. internal transfers to bank accounts;
5. transfers to accounts in other banks
6. currency conversion. If the first two types of services can be carried out using only mobile communications, the rest, as a rule, require an internet connection.
The diversification of banking risks in sustainable financing also has a positive effect on the capitalization of banks. Diversification of risks will allow banks to increase cash flows and receive additional income. For the development of socio-economic activity, the digitalization of banking processes is important in order to create new economic relations and stimulate development. However, in the context of digitalization, the threat of cyberattacks creates problems for customers and undermines the reputation of banks. In the context of globalization, financial institutions need to attract additional investments to manage cyber risks and build relationships with stakeholders to exchange information and cover the risks associated with cyberattacks, and thereby contribute to sustainable growth of finances.
Enhanced Customer Experience, digitization has made banking easier and more convenient for customers. Customers no longer have to wait in long queues at the bank or worry about bank hours. With the help of online banking and mobile apps, customers can perform banking transactions anytime, anywhere. With mobile banking, the transactions have also become quicker. Earlier, it used to take 3-4 days for banks to transfer money given by customers to other accounts. But today, with online payment methods, this process is being done within seconds. People can check their account balances, transfer money, pay bills, and apply for loans from the comfort of their homes or offices, efficiently and receive quick responses.
AI-driven customized services empowering customer service.Digitization has enabled banks to leverage the power of data analytics and artificial intelligence (AI) to make better business decisions and offer personalized services to customers. By collecting and analyzing customer data, banks can tailor their services to meet the specific needs of each customer. Banks can collect and analyze vast amounts of customer data to gain insights into customer behavior and preferences while improving customer experience and developing new customized products and services. Banks are also using this data to offer customized investment options based on a customer's risk tolerance, investment goals, and financial situation or offer personalized loan options based on a customer’s risk analysis, requirement and repayment strategy. This personalized service not only enhances customer experience but also helps build customer loyalty.
Innovation boosting new-age business model operations. Digitization has spurred innovation in the banking sector, leading to the emergence of new business models. The rise of the fintech industry in India is being witnessed by all. These fintech companies have different working structures and service models than the traditional banking model by offering innovative products and services that are often more customer-centric and cost-effective. These companies leverage digital technology to offer services such as peer-to-peer lending, digital wallets, automated portfolio and wealth management and crowdfunding. Banks are also partnering with fintech companies to enhance their services and reach new customers. Fintech NBFCs are addressing the issue of traditional banks reach. These NBFCs are working towards making their services available in all areas of the country, including the rural areas, and encouraging financial inclusion in the process. This can be a game-changer for the banking sector as it continues to become more accessible and efficient.
Hyper automation can help banks collect and analyze vast amounts of customer data, including spending habits, transaction history, and account balances. Using this data, banks can offer personalized banking experiences to their customers, such as customized product recommendations, targeted marketing campaigns, and tailored financial advice. AI is also being used to automate routine tasks and improve decision-making. Hyper automation can be used to detect fraudulent activities in real-time by analyzing large volumes of customer data. This can include using machine learning algorithms to detect patterns and anomalies in customer behavior and flagging suspicious transactions for further investigation.
Blockchain technology can potentially revolutionize the banking industry by providing secure and transparent ways of storing and transferring information and assets. It has the potential to improve the efficiency, security, and transparency of banking processes, while reducing costs and risks. Blockchain can be used to create a tamper-proof digital identity for customers, which can be used to verify their identity in a secure and efficient manner. This tamper-proof feature makes it an effective tool for preventing fraud by providing an immutable record of transactions. Blockchain technology can be used to streamline trade finance processes by enabling the secure and transparent sharing of information between banks, importers, and exporters. One of the biggest advantages of this technology is its ability to comply with KYC/AML regulations by providing a secure and transparent way of storing and sharing customer information.
The Internet of Things (IoT) technology has the potential to revolutionize the banking sector by improving operational efficiency, enhancing customer experience, and enabling innovative services. One of the primary applications of IoT in banking is the use of sensors to collect data from devices such as ATMs, point-of-sale terminals, and mobile banking apps. This data can help optimize operations and enhance cyber security. These sensors can be used to monitor the performance of ATMs and alert maintenance teams when there is an issue. This can prevent downtime and ensure that customers have access to banking services around the clock. Another application of IoT in banking that we could experience in the coming future is the use of wearable devices such as smartwatches and fitness trackers to enable contactless payments. Additionally, with the integration of hyper-automation and blockchain technology, it will become easier for banks to ensure a robust security to protect customer data and prevent cyber-attacks.
The banking sector has been evolving to better serve the customers, boost financial inclusion and keep up with the changing times. With the integration of digitization, there is vast potential for the services this sector could provide, revolutionizing how we do banking and boosting the economic growth of the country through credit access, innovation and risk mitigation.
Messenger/Sun Yath
