- Oct 09, 2019
Evolution in financial services
- Aug 05, 2019
- 113 views
Financial services are changing, and you certainly must have realized that. Today, we no longer see only traditional financial institutions, but also a movement to create new technology-based companies in the provision of financial services.
With the emergence of new technologies, the banking sector has developed a series of solutions that aim to improve and support its customers, working directly with their preferences.
This means that a new trend is forming with a financial system that adapts what the client expects, in order to keep his account and not lose it to other institutions. Understand this whole new scenario here:
The history of the financial system
According to history, today's banking system came to many years ago. It is known that credit and loan operations have existed since the time of the Phoenicians, about 1000 years BC.
However, our current financial system began to be drawn during the crusade period, with the Knights Templar. This monastic entity issued check-like papers, which could be discounted at any of its "banks," ensuring the safety of money during a trip.
Over time, other initiatives began to emerge, until, in 1406, the first bank of history was inaugurated in Genoa, Italy: Banco Di San Giorgio.
After that, similar institutions emerged until we reached the current global banking system around the world. However, this development has not yet been completed and much is still expected in terms of innovations and new technologies.
How Digital Transformation hit banks and financial services
The concept of digital transformation can be considered as a process in which institutions use technology to guarantee their results, increase their reach and improve their performance.
Banks are companies that emerged long before the information age and the internet, and because of this, have suffered greatly from the digital transformation that has occurred with other markets.
This is because, for a long time, this type of institution did not innovate. This difficulty of seeing IT not only as a support, but a strategic means of business transformation, opened the door to the emergence of Fintechs, which we will discuss throughout this text.
By losing market share and feeling that customers were turning to more modern and value-giving solutions, most banks, which had not yet developed digital transformation strategies, turned to these new features.
Currently, financial institutions not only lead many aspects of innovation, but always seek to be a reference when we talk about digital transformation and new technologies. This attitude is due to the increase in competition brought about by the emergence of Fintechs and the globalization of services.
The focus of financial institutions is to provide their products and services in a fully digital manner, allowing them to be hired through the internet, mobile devices and personal computers.
It should be remembered that a bank maintains a large set of services and products, not only the customers' account (which is one of the main services) but also loans, financing, investments and others.
This initiative aims to add value to the user, who values their freedom to manage their finances from any location, without the need to travel to an agency to take any action regarding their account.
Digital transformation is not only linked to customer service and the satisfaction of its needs, but also to the use of technologies that allow us to conduct business in the best possible way.
Banks are extremely complex institutions and therefore, without specific technology and systems, their management would be virtually impossible. Nowadays, relying on intelligent systems not only improves resource management, but also enables better use and application.
One of the major problems faced by banks over time, and which has not yet found a solution, is the fact that many institutions still deal with giant data-loaded mainframes managed in Cobol, a legacy programming language.
The first step in the search for a complete digital transformation within banking institutions involves the transformation of this system and the search for alternatives that replace these databases.
Yesterday x Today
Today, banks are urgently seeking to move all services that were previously available only physically, through hiring an agency, to their digital platforms.
Avoka, the US provider of digital business, surveyed how it is in 2018 the ability to digitally reach customers across major US, European and Australian banks. According to this report, about one-third of the institutions are already capable of delivering a large part of their products to users through digital platforms on mobile devices.
This indicates the pursuit of providing digital services to its users and demonstrates that some of the leading banks have already seen the importance of online presence. However, a large part, two-thirds of the institutions, still have problems in offering their individual services to digital clients, which directly impacts their results.
The dropout rate among consumers attempting to open a digital account in these institutions is as high as 90% in some cases, demonstrating the urgency of investing in digital processing to avoid customer circumvention.
According to data from the Avoka report, only 66% of the products presented by the banks were considered ready for digital marketing. Of these, 25% were related to wealth and business, showing even more unprepared when the products were aimed at companies.
Advantages of digital banks for customers
However, some important steps have already been taken for banks to migrate their product and service model. The digital transformation that is taking place right now in these financial institutions and the supply of digital products brings a number of advantages to customers, who today can count on much more mobility in their finances. Understand the following key benefits:
Find the right product
One of the great difficulties when seeking the care of a bank without knowing the products that it offers, is to be hostage to what the attendant is willing to present.
As each of the bank's employees seeks to meet their own product sales goals, not always what is being offered is the best option for the customer seeking a solution.
With digital transformation and direct access to all the product options offered by the bank, the customer can choose, among all of them, the one that best fits your demand.
This allows a greater study on each of the items, and if any specific questions arise, then the customer may seek the help of an attendant, who can also be online, without the need to go to an agency.
To have more mobility
The main point when thinking about digital products within financial institutions is mobility, that is, the idea of freedom of movement and being able to access finance at any time, no matter where in the world you are.
This model of mobility was born with the smartphone and its Internet access. However, due to security measures, and even some lack of vision of some institutions, the technology was slow to be developed.
Today, most banks already provide applications that can be installed on mobile devices and used to perform some basic tasks of a digital account.
Have personalized service
Big Data is a data storage technology that can be used to improve the relationship between the company and the customer. This is because the institution can store thousands of information about the consumer, facilitating the technical analysis of their preferences and assembling a personalized catalog of products.
Several banks are already using this technology for the suggestion of investments according to the personality of their clients.
Another successful application in Big Data that has direct relation with the personalized service, are the chatbots, systems of artificial intelligence, that rely on algorithms of learning of machine, programmed to simulate the human interaction. They can serve customers, take simple questions and identify situations in which it is better to pass the care to a human through real-time analysis of this large database.
Manage your finances with more freedom
One of the key promises of digital transformation for customers is the ability to fully manage their finances digitally, avoiding travel to the agency in any situation.
Since the emergence of the internet and new technologies, consumers are giving more value to their freedom and appreciating the possibility of carrying out all their activities by remote means, using a personal computer or mobile device.
The digital transformation of financial institutions allows much of their lives to be digitized, minimizing the time needed to spend on those issues and thereby ensuring a better quality of life.
Pay Less Tariffs
This is another point where many customers are looking for digital products. With a totally online service, the need for opening and maintaining branches is diminishing.
This is one of the major costs of a banking institution, and without it, it is possible to reduce considerably the fees charged for digital products.
There are also so-called digital accounts, which are open for free and have some products linked to them, without tariffs, and are only charged when they go beyond a specific number of services use of the account.
And what are the advantages for banks that decide to adopt digital?
Banks are always in constant evolution, from the time of the emergence of the first financial institution in Italy to the present day. The goal is to always be available and deliver the best services, thus raising the maximum of clients and maximizing their profitability. Among the advantages of digital transformation for banks, we have:
Better customer relationship
One of the difficulties of companies today, not being different for banking institutions, is to maintain a customer relationship focused on positive experiences. This lack of interaction, coupled with the low availability of digital services, has a direct impact on the rate of customer abandonment.
The solution would be the investment of the institution in solutions of the aforementioned Big Data. In this case, specifically, this technology is able to store all the preferences of a particular client and use them, when necessary, through artificial intelligence systems. In this way, the institution could provide customized products to its client, ensuring their satisfaction and improving the relationship with the bank.
Lower dropout rate
The consumer of the new era does not want to be held hostage by analogue banking services. He does not want to waste time with queues, solving stressful situations in front of employees he does not know and who often have no empathy.
It is because of this that digital products are so appealing to the new generations of consumers who cherish their time and freedom. Being served quickly and simply is what most of them seek today.
As a result, banking institutions that can deliver all the wishes of customers can "garner the laurels" of their digital presence efforts.
Increased investment and organizational capacity
In addition to customer service, when we talk about digital transformation we are also dealing with the use of technologies at the core of the business. For many years, financial institutions have used legacy and outdated technologies.
This situation is one of the main impediments to the provision of quality digital services to its customers. The search for digital transformation must also reach the interior of these institutions by providing new models that allow modernization.
As a result, banks will be able to maintain a greater capacity for investments and organization, being able to maximize their revenues and raise a larger number of clients, expanding their market presence.
The challenges to be faced
One of the main challenges in the international banking sector is mainly the existence of giant mainframes, based on Cobol, for the storage and processing of financial information.
This situation was formed by the lack of vision of the bank managers, who did not realize that the technology would continue to evolve, and invested heavily in something that was simply outdated.
In this way, the problem, which for a long time has been ignored, has become the "stone in the shoe" of most banks, and still has no concrete solution. Many experts think that the ideal is to freeze this information and keep it in the background, as there is no more space to try to transport them to another type of storage.
Another challenge that has yet to be overcome by financial institutions is meeting the demands of digital products by their customers. As seen, there are still very few institutions that are really concerned about this, and consumer evasion can become ever larger.
The role of Fintechs in this new scenario
The gap left in the digital environment by traditional institutions has for a long time opened up a fundamental space for the emergence of the so-called Fintechs. These companies, which are Startups, have a special focus on their business model and financial services optimized through technology. Most of them set out to provide their clients with what they do not find in an ordinary bank.
When we think of the study presented earlier, you may have wondered what the fate of all the clients that evade financial institutions. After all, even if many people do not like banks, we all need to use their services on a daily basis to receive amounts, make payments on accounts, use credit cards, insurance and other activities.
Fintechs are the premier destination for customers looking for innovative solutions that are capable of meeting their digital needs.
We can say then that the Fintechs are responsible for adopting the orphan clients of the traditional financial sector who do not adapt to the services provided by these institutions.
Among the products offered by Fintechs, we have digital accounts, credit cards, peer-to-peer investments and various other services. In fact, they often share their customers.
Traditional banks x Fintechs
What is at stake here is a billion dollar market, and because of this, many banks are already chasing after the loss and investing in digital solutions, providing online services to their customers in search of keeping all their consumers happy.
On the other hand, more and more Fintechs have emerged exploring services that are lacking in the current financial system, and showing themselves as better alternatives to customers.
Nubank is one such company. It offers a non-annuity credit card, one of the main customer complaints regarding the use of this product. In addition to maintaining a simple and fast application that allows control of all expenses, increase and decrease of limits and other functionalities.
Banco Original is a financial institution born in the digital era and offers all its products only online, without agencies or physical presence. All customer issues can be resolved through your app or telemarketing.
These two examples above are just a few of the ones that exist today, competing directly with traditional financial institutions for customers looking for banking services.
Fintechs have, for the most part, better rates and quality of services compared to common banks, however, there is still some resistance from the average consumer to adopt these Startups as financial institutions.
This is mainly due to the number of clients born out of the digital age. With this, the weight of the traditional banks' name and the security they pass, still holds many customers in relation to the best services offered by financial startups.
Of course, banks are responding to the loss of consumers and seeking to offer more and more services online. Most seek support in strategies of digital transformation to recover the lost space for Fintechs.