Digital transformation (DX) is crucial for finance businesses to remain competitive in a constantly evolving market. In a 2019 survey, a whopping 97 percent of financial services companies said that they were pursuing digital transformation — whether in the early steps of formulating a DX strategy or actively in the implementation stage.
But as technology advances at a breakneck pace, how can financial services firms keep up with the curve? Which tools and technologies should businesses in the finance sector focus on for their digital transformation initiatives?
In the previous article in this series, we explored four crucial trends in digital transformation for finance: fintech, customer experience, artificial intelligence, and the shift to online services prompted by the COVID-19 pandemic. This article will finish up with three more digital transformation trends that are critical for any forward-thinking financial services company.
A “blockchain” is a shared, decentralized digital ledger that records a series of immutable transactions. Participants in a blockchain network must confirm any changes to the ledger, making it extremely difficult to alter maliciously.
Although NFTs (non-fungible tokens) and cryptocurrencies such as bitcoin are the most visible use cases of blockchain, the technology also holds great potential for digital transformation in finance.
Market analysis firm Global Market Insights predicts that the blockchain industry will generate $16 billion in revenue by 2024, with many applications growing at a blistering annual rate of 85 to 90 percent.
In financial services, for example, one of the most promising blockchain use cases is KYC (know your customer). Financial institutions must obey KYC guidelines and verify their customers’ identities to guard against fraud, corruption, and money laundering.
Traditionally, customers must go through the KYC process every time they begin a relationship with a new financial institution. However, if KYC verifications are stored on a blockchain, customers will have to undergo this process just once, making businesses faster and more agile.
Another compelling use case of blockchain is payment processing. Users can transfer money on a blockchain in just a few clicks and then verify that the transaction has occurred by consulting the ledger’s contents. There’s no need for multi-day waiting periods as in traditional banking, where transfers must first pass through an automated clearing house (ACH).
6. Big Data
Big data — i.e., datasets that are too massive or complex to be analyzed by human beings — has never been bigger. According to one estimate, financial and securities organizations manage an average of 3.8 petabytes (3,800,000 gigabytes) of information. What’s more, with 2.5 billion gigabytes of new data created each day, wrangling all this data will only grow more challenging for financial companies without the right digital technologies.
The use of big data in finance is crucial for AI and machine learning applications that require large quantities of information to train accurate models. However, big data is also valuable in itself for financial services firms: it can help predict customers’ behavior, develop new sales and marketing strategies, and uncover hidden trends and insights.
For example, accounting firms can use big data to automatically identify outliers and abnormalities during the audit process. They can then flag these issues and zero in on them for further analysis, saving a great deal of time and effort.
7. Robotic Process Automation (RPA)
Repetitive manual processes are the bane of every employee. Not only are they highly prone to errors and inaccuracies, but they also occupy valuable hours of work, distracting from higher-level, revenue-generating activities. However, the same thing that makes these processes so tedious for humans — repetition — also makes them a prime candidate for automation.
Robotic process automation (RPA) is a digital technology that allows organizations to automate many simple tasks through purpose-built software robots. These activities may include responding to messages, communicating with other applications and systems, verifying transactions, and more. RPA is a highly effective technique: 86 percent of companies say that RPA met or exceeded their expectations for improving business productivity.
How can financial services companies leverage the power of RPA? The potential use cases include:
Automatically processing employees’ purchase orders and submitting them for approval.
Performing basic account reconciliation tasks during financial consolidation and close.
Generating dashboards and reports and sending them to the desk of key decision-makers in the organization.
The blockchain, big data, RPA, and more: financial services companies need to understand the valuable role emerging technologies can play for their business. With so many digital transformation projects that fail to achieve their goals, organizations must thoroughly prepare themselves for the obstacles they’ll face ahead.
DigXchange is a forum for business and technology executives to share their experiences and advice for enacting digital transformation initiatives. Our ongoing series of events and webinars have helped countless leaders connect and learn on the topic of DX — and then put their knowledge into practice.
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