Digital Technology Transforming the Banking Landscape

The days of relying solely on physical bank branches are long gone. Advancements in technology such as artificial intelligence (AI), have transformed the way the average person interacts with their finances, allowing for easy access to digital banking services on their personal device.

NTT DATA’s “Intelligent Banking in the Age of AI” report revealed that 96% of banks see the push for AI integration, with a 58% adoption rate as of 2024, up from 45% the previous year. We also see the rise of fintech, insurtech, and wealthtech players.  This underscores the need for financial institutions to overhaul their traditional operating models, which may struggle to meet the customers’ demands for flexible and digital-first experiences.

As centuries of banking traditions are being replaced by new remote relationships based on digital technology, the imperative for banks to adapt and innovate has never been more pressing. Traditional banks need to reevaluate their strategies, to emulate fintech characteristics and transition towards a digital ecosystem.

A recent white paper, “Embracing Insurance Core Modernization for Future-Readiness” released by NTT DATA, revealed that the top challenge in modernizing legacy framework is internal skill. Organizations must approach modernization with a clear strategy, meticulous planning, and the collaboration of skilled technology partners to ensure successful outcomes and maximize return on investment.

Advancing toward digital ecosystems

From NTT DATA’s global banking research report entitled “The Digital Horizon: Banking’s Shift from Mainframe to AI-Driven Cloud Infrastructure”, while the majority recognize the need for digital transformation, 63% of banks still operate on mainframe systems.

Banks today are also finally pivoting from entrenched mainframe systems to adopt AI and cloud technologies, with 91% of them reporting that their AI and cloud initiatives are endorsed by the board, signaling strategic prioritization. In addition, 45% of banks are already integrating generative AI technology into their technology stacks, while a further 30% are in the early stages of looking at it.

These statistics signal the shift in strategic prioritization in banks. To remain competitive and resilient in today’s landscape, banks must adapt accordingly to evolving market dynamics. This entails embracing cloud-based, data-driven customer experience (CX) and employee experience (EX) capabilities. By doing so, banks can effectively navigate the complexities of an intelligence-driven environment while meeting heightened customer expectations and regulatory standards.

Banking as a product-centric ecosystem

Gone are the days when banking was synonymous with a trip to the local branch. With smartphones serving as the primary gateway to financial services, we must recognize the need for banks to adopt a product-centric approach. By reimagining themselves as creators of comprehensive financial ecosystems, banks can meet the diverse needs of their customer base.

A bank’s core banking services encompass a wide array of functions, from bank vaults and deposits to currency exchange, loans, debit or credit cards, and ATM services. Embracing the “hollow-the-core” approach is pivotal in this transformation. This approach involves financial institutions evolving into next-generation financial ecosystems. To better cater to customers’ needs, banks must expand their product catalog beyond core banking products and develop a deep understanding of their clientele.

Banking as a service

Ideally, financial institutions should embrace collaborative, service-based models. A Banking-as-a-Service (BaaS) provider must leverage technologies such as API-first architecture, cloud computing, micro-services, and Kubernetes to facilitate traditional banking services like payments, savings deposits, lending, and customer onboarding.

In the realm of cloud adoption and banking modernization, financial institutions should strategically transition to the cloud with the assistance of third-party solutions providers. This collaboration combines the providers’ expertise in solution development with the capabilities offered by leading platforms, thereby enabling speed, flexibility, and innovation.

By integrating technology into banking services, digital transformation is achieved, enhancing the overall banking experience. Features like account switching services streamline transactions, allowing customers to transfer payment services between banks effortlessly. Additionally, the implementation of open banking revolutionizes financial service delivery, enabling collaboration with third-party ecosystems to comply with regulations like PSD2 and innovate product and service offerings.

This approach facilitates smoother cross-border transactions and currency exchanges while leveraging APIs to fetch and analyze data. Through digitization and self-service capabilities, customer satisfaction is elevated, enhancing overall banking experiences.

Banking as a lifestyle

Beyond mere transactions, banking has become an integral part of everyday life. Thanks to advancements in technology, customers can now seamlessly integrate financial activities into their daily routines. Imagine a world where your refrigerator automatically restocks groceries based on consumption patterns, where you can pay for your morning coffee with a simple palm scan or are billed at exit points for trains.

By envisioning a future where banking transcends providing services and becomes a lifestyle characterized by convenience, accessibility, and inclusivity, changes need to be done slowly but surely within the banking industry. Through initiatives like digital transformation and real-time payments, banks can empower individuals across all demographics, ensuring that no one is left behind in the journey toward financial prosperity. 

In conclusion, the transformation of banking into a digital-first, customer-centric ecosystem heralds a new era of convenience, accessibility, and innovation. As financial institutions embrace product-centric approaches, collaborative service models, and seamless integration into everyday life, they pave the way for enhanced customer experiences and inclusive financial prosperity.

The views and opinions expressed in this article are those of the author and do not necessarily reflect those of CDOTrends. Image credit: iStockphoto/krugli