As the world gets used to the “new normal” induced by COVID-19, most consumer services have taken the digital route. Among them, financial services have been the top adopters of digitization. With people relying more and more on online banking apps and portals, financial institutions have no choice but to digitize their processes end to end.
While changed consumer behaviour presents a huge business opportunity to the financial sector, it is not devoid of challenges. In an ideal state, the growing demand for digital products, applications, and services would mean increased revenue and market share for the traditional finance industry.
But the truth is far from it.
While core financial services have been digitized, there are many back- and mid-end services that are still stuck in a rut. From account opening to loan approval, there are many processes that start off at digital touchpoints but culminate with manual, pen-and-paper processing.
This way, the digital chain in financial services gets disrupted. The “right here, right now” advantage of digitization loses significance when consumers have to wait for facetime with financial advisors.
To be fair, banks and FIs are working overtime to meet evolved customer demands and needs. In this post, we will talk about financial services that have been the focus area of digitization and automation.
Let’s get started.
1. Commercial and Small-Scale Business Lending
All over the world, governments are offering stimulus packages to businesses affected by the economic slowdown. Many businesses have had to revamp their infrastructure and systems to make way for the changing ecosystem. They need funds promptly without too much paperwork. That’s where digitized financial institutions can expedite the lending process.
For instance, the Office of Management and Budget in the US has allowed e-signatures in the loan application step. They have, in fact, taken out official orders to encourage staff to use e-signatures as much as possible to simplify processes.
At the same time, there is a spurt in the number of financial frauds where miscreants assume fake identities and siphon funds as loans. To avoid these pitfalls, a double line of defence is recommended. Double authentication in the form of facial recognition with document verification can fail-proof your systems.
2. Consumer Lending
There is a global recession in the making. Household budgets are in the red after layoffs and pay cuts. That’s why global banks like Goldman Sachs have allowed their consumer borrowers to delay their loan instalments.
According to American Banker, “Many banks are also working to identify emergency borrowing needs – and using digital platforms to provide advice and process loan applications.” Despite all these empathetic steps, financial pressure on solopreneurs, workers, and small businesses is going to mount. The number of personal loans, debt consolidation loans, and bridge loans are multiplying.
Digital-savvy lenders and financiers are reprioritizing their processes by focusing on mobile channels. In this area, two new developments are visible on the horizon – mobile e-signatures and mobile shielding. Since many consumers have started banking and borrowing through phones and tablets, mobile-first lending can make their transactions seamless and painless.
Mobile e-signature, as the name implies, creates a digital trail for tracking signatures while maintaining compliance. Mobile shielding covers due diligence to protect banking applications from tampering, instructions, and breaches. By these two advancements, banks and FIs can ensure data security and compliance without disrupting the user experience.
3. Account Opening
Even in this crisis period, banks have reported a 300% increase in account-opening numbers. The increment is primarily because of increased loan applicants.
To accommodate the heightened demand for new accounts, banks and FIs have transitioned to online mechanisms. According to American Banker, Citi’s commercial clients have “strongly gravitated toward digital onboarding.”
While techno-savvy banks and FIs are making hay while the sun shines, their technically-challenged peers are in for serious troubles. According to a Litico survey from mid-March 2020, 82% of people are hesitant to visit bank branches during the outbreak. However, the same survey reveals that 63% are more inclined to try an app.
This is good news for FIs that already own mobile apps or are in the process of building one. They are poised to earn a competitive advantage and increase their market share.
In a recent ISMG banking industry survey, 68% of FI respondents have identified digital account opening as a priority initiative for their institution this year. To make room for greater customer volumes, they have expanded budgets for tech stacks like ID verification, machine learning, and digital signature.
To prevent fraudsters from intercepting security, banks and FIs are exploring safeguards like two-factor authentication and biometric scanning. Using these next-generation methods of identity verification, these institutions are able to offer mobile banking to customers without compromising on their security.
4. Account Maintenance
Customers need to maintain or update their account from time to time. Priorly, they would have to visit their bank to create fixed deposits or add nominees to their accounts. Most procedures were incomplete without hard copy documents and signatures.
But with banks opening for limited hours and people hesitant to visit banks for health concerns or restrictions, digital services have come in handy. With e-forms and digital ID verifications, banks and FIs are well-equipped to serve customers in the comfort of their homes.
Fraud prevention in the form of account takeovers has emerged as the biggest threat during this time. In this kind of cyber attack, unauthorized users permeate bank security and infiltrate accounts. Once there, they can easily siphon funds, change account settings, and block payments, much like the real owner.
Fraud prevention platforms have cropped up to safeguard FIs against such threats. They closely monitor suspicious account activities and take necessary preventive action timely.
Ready to Go Digital?
Apart from the above use cases, digitization is also being abundantly applied to employee-facing processes. From payroll to attendance, everything is recorded and tracked without human intervention.
The best part is that these systems can be tailored to suit your organization’s specific needs. Another great thing is that they can be scaled up with ease to accommodate more data and user volume. This can help you save a lot of time, effort, and resources, keeping the quality and output intact.
Still, there’s a lot that needs to be done with regards to personalization of financial services. Currently, only 52% of banks offer personalized services in digital formats. This is a huge turn-off for discerning customers with high standards of customer service and support.
Another area where digitized services are falling short is the speed of transactions. Presently, too many regulatory stipulations are bogging down the speed at which financial transactions come through. For click-happy customers, slow speed is a reason enough to abandon the transaction altogether.
However, there’s a lot going on in digitization and financial services are bound to catch up with other more digital-savvy business areas soon.
Can you think of other applications of digitization in financial services? Share your thoughts in the comments below. And state tuned for more cutting-edge information.
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