Since the global financial crisis in 2008 the profitability and reputation of banks has been under pressure. While the banking industry is now regaining its health, the new threat of fintechs and neo-banks is putting more pressure on banks’ profitability.

Banks are large, complex entities with business processes built around technology that can be decades old and have little focus on the customer. Digitizing these processes from the front to the back of the organization, leveraging the vast amounts of data to create a customer-focused outcome, is the goal of digital transformation.

Banks that fail to address this challenge run the risk of falling customer satisfaction and revenue as competitors and new entrants erode their business.

With many financial institutions placing an emphasis on digital transformation over the coming years, what technologies and areas of focus are likely to prove the most significant?

Digital transformation ambitions

As the industry continues to evolve and diversify, achieving digital transformation will be a major challenge for financial services providers, and it is something that many aspire to.

According to the EY Global Banking Outlook 2018, more than six out of ten banks (62 percent) hope to be either digitally maturing or a digital leader by 2020. Less than a fifth (19 percent) of the senior executives at the 221 institutions surveyed said their organization had already reached this point.

Capgemini has digital transformation as its top trend for retail banks in 2018, with competition, customer expectations and cost efficiency the key drivers.

Key technologies and considerations

Banks must prepare for what could be an exciting but challenging future by having clear plans in place regarding their adoption and deployment of new technologies.

Where digital transformation is concerned, it is critical to invest in the end-to-end digitization of both IT systems and business processes. True digital transformation is much more than a mobile app and a chatbot. Taking a holistic, integrated approach to business modernization will put your organization in a stronger position to deliver a customer-centric experience.

Taking advantage of new technologies such as artificial intelligence could also prove particularly important over the coming years. AI-based processes such as machine learning and pattern recognition are proving increasingly important to fraud prevention and stronger cybersecurity, which global banks identified as their number one priority for 2018 in the EY survey. AI also helps financial institutions provide proactive advice and notification to customers, as well as improved customer engagement with tools such as chatbots.

The appropriate use of data is a major consideration for banks today – specifically how it is collected, stored and applied. This concept could take on some brand new dimensions in 2018, owing to the implications of PSD2 – which mandates increased data-sharing between banks and third-party service providers – and the EU’s forthcoming General Data Protection Regulation.

With so much to take into account – from evolving technologies to changing customer expectations to new regulatory demands – it has never been more important for banks to come up with the right strategies for digital transformation and innovation.

As with any technology, it is critical to have a clear strategy supporting digital transformation to ensure that the overall transformation objectives are achieved and old systems and processes are not simply replicated in new technologies. Those that get their plans right and make the most efficient use of resources are the most likely to achieve digital leadership and prepare their business for the future.