Digitization in banking | Balancing on the border

Digitization in banking: a blind run or a well thought-out pursuit? In times of a pandemic, the border line is extremely thin.

Until recently, only a few, usually the biggest players in the banking sector undertook the time-consuming and often very costly process of digitization in banking. Today, in times of a pandemic, the term digitization in banking industry is ever-present and used by virtually everybody.

There would be nothing wrong with this if it were not for the fact that COVID-19 has forced financial institutions to accelerate significantly in this area, and the trap of digitization in banking as an end in itself is lurking at every step. In order to avoid this trap, it is important to focus not only on what effect the digitization in banking industry should have, but also on how to achieve it.

A pandemic in the eyes of banking industry

Economic instability, the always present threat of lock-down and bad public sentiment have a negative impact on banking. Customer relations, which have so far been built mainly through the employees of bank outlets, are transferred to remote channels.

Customers are no longer as sentimental as they used to be, and the reason for changing their financial services provider can be mundane. In order to retain current customers and acquire new ones, banks have to start the quest for digitization in banking industry. There is a long way to go and the time is short. Such pressure is favourable for good, well-informed decision making.

More than micro, not yet large

Susceptibility to error can be particularly strong in banks building strategies to increase market share in the SME segment. A strategy based not so much on creating a deposit or credit offer, but rather on extending the functions of electronic banking.

Although the differences between the needs of SME and corporate clients are blurring - both of them are now interested in obtaining funds for trade activities or debt recovery - you just cannot offer both of them the same products. The expectations of SMEs are completely different from those of the big players: intuitive and automated processes, short time to launch a service or ease of use of interfaces. The key factor is user experience; if it is not satisfying, they may decide to chose another bank's offer.

Business management centre

Today, we can hear better and better the voice of small and medium-sized enterprises demanding business intelligence and AI solutions. Solutions that help to analyse current and future cash flows, obtain data from financial and accounting systems in order to prepare input for bank scoring mechanisms, or gather information about accounts in various banks and make payments from these accounts from one place.

The most innovative e-banking IT tools available on the market support financial institutions in defining needs and recognising subtle differences in expectations of particular customer segments. Moreover, they allow for the creation of an ecosystem of services, thanks to which it is possible to comprehensively manage a business using one tool - electronic banking - and in only one place. This is the right digitization in banking industry.

100 trillion on the table

The World Economic Forum reports that by 2025, the digital transition will add US$ 100 trillion to the world economy. According to The Financial Brand, 75% of the world's organizations indicate the transformation of digital banking as the top priority for 2021, and 88% expect to improve customer experience and build the customers involvement.

However, the line between effective and bad ideas is extremely thin. McKinsey reports that 70% of digital transitions fail - mainly due to low employee involvement, inadequate management support and, above all, a focusing on 'what' to achieve rather than 'how' to do it.

Digitization in banking is not an objective for its own sake. It is a path that should give predefined and expected results if it's followed. Otherwise, McKinsey's numbers will grow worryingly.

Jakub Pluta, Business Development Manager, Comarch