Digital Transformation in Banking
Banks are modernizing systems, simplifying operations, and scaling services using process orchestration.
Introduction
For centuries, banks have been providing financial services that help people, communities, and organizations grow and thrive economically. The systems that enable these critical services evolved over time from manual work to mainframe computing to core banking systems that power multiple business processes. Today, banks are embracing digital capabilities, such as cloud computing, artificial intelligence, and process orchestration, to enable banking automation that is fundamentally transforming workflows and customer experiences.
[ 96%]
of all IT decision-makers and business leaders say automation is vital to digital transformation
What is digital transformation in banking
Digital transformation in banking is an operational approach that uses intelligent, cloud-based, digital technologies to increase automation, orchestrate processes, and prioritize digital front ends. It’s also the “secret formula” that gives banks the ability to connect with and service customers in fast, intuitive, frictionless ways through websites, mobile apps, and chatbots. Organizations across the financial sector, from retail banks to corporate banks and capital markets, are undertaking digital transformations to modernize their aging legacy systems and automate high-volume, complex process flows across their people, systems, and devices.
Benefits of digital transformation in banking
- Automate efficiency and optimize operations with process orchestration
- Rapidly deploy new banking automations to speed time to market
- Deliver seamless experiences that make it easier to connect with and service customers
Total shareholder returns
[ 8.1%]
Digital leaders
vs.
[ 4.9%]
Digital laggards
Challenges of digital transformation in banking
As a long-established regulated industry, banks face multiple challenges within their digital transformation journeys, including:
- A variety of legacy, bespoke, and point solutions that run business-critical processes but lack end-to-end automation
- Complex, siloed, nonlinear processes with diverse endpoints, including manual work and third-party data or services
- Compliance with national, regional, and local regulatory rules that are constantly evolving
- Ability to meet customer preferences for seamless, personalized, digital-first services
[ 26%]
Consumers likely to switch banks because of a poor service experience
Modernizing legacy banking technology
Digital transformation projects in banking are significant activities that require careful planning, execution, and monitoring. They also require the right technology. To succeed at digital transformation, banks are implementing technology that is:
- Composable, cloud-native, and scalable – software components serve as reusable building blocks that can be deployed in a virtual network in combination with other business applications and services, as needed
- Adaptable – built on an open architecture for modularity, extensibility, and interoperability
- Collaborative – has a user interface that aligns business and IT with a common model and language, like Business Process Model and Notation™ (BPMN™) and Decision Model and Notation™ (DMN™)
- Capable of connecting multiple process endpoints – to tame complexity with from end-to-end with business process orchestration
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Examples of digital transformation in banking
Banks and other financial institutions are using digital technology to transform their most mission-critical operations, including:
KYC automation
Know Your Customer (KYC) procedures are due diligence requirements that help banks verify the identity of customers, assess risk, and comply with Anti-Money Laundering (AML) regulations. KYC activities may include tasks such as gathering information from internal and external sources, verifying information, and applying decisioning models to help determine risk. Banks are digitally transforming these tasks to automate these interconnected tasks and processes, such as:
- Verifying identity
- Collecting data
- Assessing risk
- Monitoring transactions
- Auditing and reporting compliance processes
Omnichannel customer onboarding
Onboarding is the process of setting up a new account and guiding customers through the initial steps of using a product or service. It’s also the bank’s opportunity to make a great first impression with their customer.
Omnichannel customer onboarding is the ability to perform these tasks on and across multiple business channels, such as mobile apps, websites, call centers, or in person – making it possible, for example, for a customer to start a form on a bank’s website and to complete it with a customer service representative over the phone. Traditionally, onboarding activities involved a high amount of manual data entry and work across several departments.
Digital transformation and banking automation are helping banks improve customers’ onboarding experiences by coordinating tasks, including:
- Triggering KYC/AML processes
- Automatically assessing risk and decisions
- Synchronizing backend data systems and sources
- Providing real-time updates and notifications
- Personalizing products, services, and recommendations
Loan origination automation
In a competitive lending marketplace, speed can be a bank’s differentiator. The faster and more accurately banks can complete loan origination activities, such as data collection and verification, credit scoring and risk assessment, decisioning, approvals and compliance, the quicker they can close the contract with a customer.
Digital transformation helps banks speed their process from end to end and reduce risk by automating tasks, including:
- Digital platforms for online applications
- KYC/AML procedures
- Underwriting decisions
- Document management
- Auditing and regulatory compliance
Mortgage automation
Similar to loan origination activities, banks that make the lending process fast, easy, and transparent can gain an advantage over their competition. That’s why banks are using digital transformation to improve mortgage application, decision, and servicing processes, including:
- KYC/AML
- Digital platforms for online applications
- Document verification
- Property appraisal and assessment
Trade lifecycle automation
In the trading lifecycle, it’s essential for banks and financial institutions to transmit data accurately and swiftly across channels and platforms. In reality, it’s not that easy. Organizations are optimizing their operations by using investment banking automations to integrate with trade partners through APIs, digitize trade documentation, automate risk assessments, incorporate blockchain technology, monitor trade activity and enable mobile application solutions.
With digital transformation, organizations are improving:
- Electronic trade capture
- Straight-through-processing
- Post-trade workflow automation
- Integrations with clearinghouses and other third-parties
- Monitoring and reporting
- Document and account management
- Advanced analytics for actionable insights
Trade financing
Trade financing is a complex activity involving multiple stakeholders, regulations, and documentation. To mitigate risk and deliver the most value to their customers, financial firms are taking advantage of banking automations to help evaluate credit risk, reduce fraud, and manage a long paper trail of documents.
Using process orchestration, banks are coordinating systems to optimize:
- Digital trade and financing platforms
- Cash and treasury management Risk analysis and due diligence
- Electronic documentation and account management
- Real-time payments and next-gen technology, such as distributed ledger
Banking compliance automation
Globally, banks face a long list of national and international regulations they must comply with, such as Know Your Customer (KYC), Anti-Money Laundering (AML), Foreign Account Tax Compliance Act (FATCA), Payment Services Directive (PSD2) and Securities and Exchange Commission (SEC) rules – and supervisory activities are expected to increase. Compliance with industry regulations is important for banks, not only to avoid potential fines but also to instill trust and confidence with consumers.
To be more compliant, banks are applying advanced analytics and process automation capabilities to digitally transform daily operational tasks, such as:
- Transaction monitoring and analysis
- Security monitoring
- Audit trail management
- Automated regulatory technology
Credit card payment automation
As consumers are using credit cards to purchase and pay for goods and services, banks are seeking to create a competitive advantage by streamlining payment processing and ensuring credit card transactions are secure.
To enhance customer experience and improve services, banks are implementing retail banking automations to optimize:
- Fraud detection and prevention
- Contactless payments
- Mobile wallets
Customer support
Banks are driving better, more individualized customer experiences through digital transformation. From 24/7 account access to virtual assistants, AI-enabled call centers, and personalized recommendations, customers are benefitting from banks with IT infrastructures that connect diverse data sources, orchestrate processes across various endpoints, and integrate with customer relationship management (CRM) systems.
By implementing a digital-first approach to customer support, banks are improving:
- Customer service availability and response times
- Self-service capabilities
- Personalized service and support
- Service consistency and quality
What’s next: Trends in digital transformation in banking and the future of digital transformation in banking
Banks that are further along their digital transformation journeys are taking advantage of agile, digital IT infrastructure to innovate and adapt more quickly to industry and market trends, including:
- Open Banking – using secure APIs to share permissible data and services with third-party developers, FinTech organizations, and other third-party entities to support Banking-as-a-Service
- FinTech and RegTech – connecting with solutions like payment platforms, mobile wallets, robo-advisors, cryptocurrency exchanges, and Insurtech products and services
- Hyper-personalized experiences – applying machine learning and decisioning to suggest the next best action for each individual customer
- Advances in cybersecurity capabilities – enhancing the ability to detect, prevent and respond to cyber threats using advanced methods for authentication, encryption, monitoring, and incident response
- New ways of working – using AI and machine learning as a “co-pilot” for employees to augment capabilities and address a tight talent market
- Data-backed insights – ensuring the massive amount of data processed by the bank is used to improve efficiency or develop new products and services
Intelligent automation in banking
Many digital transformation projects in banking prioritize the implementation of a platform for intelligent automation, also called intelligent process automation. These centralized platforms use advanced technologies, such as AI, machine learning (ML), robotic process automation (RPA), and natural language processing (NLP), in combination with business process management (BPM) to accelerate decision making and orchestrate disparate, complex processes from endpoint to endpoint.
Intelligent automation helps banks:
- Automate tasks to improve efficiency and productivity
- Identify process gaps and bottlenecks
- Mitigate inefficient processes and risks
- Adapt quickly to changing business or regulatory needs
- Increase overall quality and accuracy of tasks and processes
- Enhance customer and employee experiences
Technology for digital transformation in banking
Digital transformation isn’t one technology, but the strategic use of a combination of digital technologies, such as AI, machine learning, cloud computing, real-time analytics, robotic process automation, low code, and API integrations. Together, these technologies help banks create a smart, scalable infrastructure that fosters collaboration, orchestrates processes, and supports continuous improvement.
Hyperautomation technology in banking
Banking operations are complex, and even with successful digital transformations, financial organizations may be tasked with managing multiple banking automations. Hyperautomation technologies help banks choreograph advanced workflow patterns to further optimize these automations.
The key is using a process orchestration platform that can connect to various endpoints to more efficiently connect and coordinate systems, applications, data, and manual processes.
Additional Resource
Dive deeper into hyperautomation.
The Ultimate Guide to Building Your Hyperautomation Tech Stack
Strategy for implementing digital transformation in banking
As with any new project or technology that fundamentally changes how a business operates, it’s critical to consider a number of items before embarking on digital transformation:
Identify the goal or result you want to achieve and list each task and process required from end to end to achieve that result.
You need to fully understand and describe what works, where the gaps are, and what an optimal process looks like. If the existing process is bad, map out the improvement and align the business and IT on what’s needed before automating it.
Start with a simple process that can make the most impact across an organization.
The advantage of digital transformation is that it enables the reuse of application components. For example, the same change of address or credit check process can be used across other business applications with minor modifications.
Replace legacy systems with a composable architecture, such as microservices.
This will give you the greatest agility to adapt and change as business needs change.
Establish a modern data architecture that illustrates how data is used across systems, applications, and business processes.
Use APIs to connect data from multiple sources.
Leverage low-code tools that allow business users to collaborate with IT professionals on new application processes and business solutions.
Reuse application components to speed development and maximize resource utilization.
Once you’ve built out the mission-critical processes for your banking automations, apply process orchestration to manage them efficiently.
Establish a Center of Excellence to drive governance and consistency across the organization.
