Updated on 27/04/2022
Digitalisation is a fact
Although the road to digitalization in the banking sector is winding, it is possible to identify some trends that will guide the digital challenge in the coming years and that will decide who will be able to remain on the market and who will exit
Identifying trends is never easy. It’s not easy to get the forecasts right, so the act of trying to predict what might happen may seem like a presumptuous intention.
For many industries, nothing has been more challenging than the path that has led to digitalization in recent years and the increasing role of IT in banking sector. For this very reason, in this post, we’ll take a look at what is happening in the banking sector, starting from some relevant data, and trying to unite them together in a consistent manner.
In this way, we hope to provide an overview, while avoiding risky predictions and false visions.
First, we must acknowledge an important reality: digitalization is a fact and the role of IT in banking sector is always more important.
In just a few years, a large number of economic sectors have undergone a digital transformation that has completely changed many aspects of how they do business. Just think of how the use of entertainment content has changed with the advent of platforms such as Netflix. Consider the economic impact that companies such as Glovo, Foodora, and Deliveroo have had on the food sector, opening up new business models that were unimaginable until a few years ago.
Everywhere there are tangible traces of this transformation, which has affected not only companies, but also customers, who in a short time have become more demanding, wanting a customer experience that is fluid, simple, fast and one that is possible within a screen of a smartphone or tablet.
1. The digitalisation of the role of IT in banking sector
For years, the financial sector has shown little openness to digital transformation, even though it has sensed its potential. Thanks to the proverbial distrust of Italians to changes (especially when it comes to financial services), the banking sector has accumulated, compared to other sectors, a certain delay in the process of digitization in the banking sector and digital communication. However, there are many signs that this gap can be closed in the coming years.
Let’s start from the data
One of the most important lessons from the digital era is that you must always start from the data. Data has become a sort of currency that also allows prediction of behaviors and needs, which companies can utilize to build effective marketing strategies with which to provide relevant content for consumers.
- The number of Italians who use the internet is increasing: more than 50 million. This means that 9 out of 10 Italians surf the internet during the day (source: goodcom.it);
- The same amount of Italians access the internet at least once a day and on average stays connected for about 6 hours a day, watching mainly video content and frequenting social platforms;
- Moving on to the theme of the support used, mobile use is becoming increasingly relevant: 93% of Italians own a smartphone (source: ansa.it);
- Going into more detail in the banking sector, 94% of respondents have an account with a financial institution. To this is added that 41% of Italians carry out banking directly from mobile, for example to manage their accounts and pay bills.
We can derive from this the first relevant trend for the banking sector: the digitalization has influenced and continues to influence the needs, expectations, and behaviors of customers, including in the area of financial services.
2. Transversal transformation
Continuing the analysis of the relevant data, it is necessary to underline another aspect: Italy is giving feeble but encouraging signs of digital transformation. In fact, in 2021, the digital market grew by 5.5%, compared to the previous year. It is estimated that in 2023 it will continue to grow by 5%, reaching the figure of 87,328 million euros, compared to 79,286 million euros this year (source: inno3).
While this shows us that digital growth is too weak to bridge the gap with other countries, it also suggests that something is changing, especially in the mindset of entrepreneurs.
Many IT managers in the banking sector, in fact, have been in favor of simplifying production processes using the latest generation of ICT (ie a set of technologies that allow the exchange and management of data in digital format)
In addition, 80% of entrepreneurs are perfectly aware of the potential and opportunities offered by new technologies such as AI, Internet of Things, the cloud, and blockchain and for this reason, thousands of companies are engaging in concrete digital projects.
One of these movers is Intesa Sanpaolo, which at the end of 2018 announced an investment of €2.8 billion by 2021 to implement an effective digital transformation, thus aiming to integrate the various channels offered to customers and convert 70% of its activities to digital.
A focus of investment in particular, it should be noted, will be mobile banking services, given the increase in financial applications. In particular, 54% of those who own a device declared that they had downloaded their bank’s application and 51% of these are equipped with applications for payment in physical stores. Let’s remember this figure, because we’ll refer back to it later.
The second trend that can be identified is that digitalization, even if slowly, is destined to establish itself also in Italy, evidenced by increasing investments in technologies that will allow companies to meet the needs of customers.
3. Customer experience
As we mentioned, the number of people who use apps to perform banking operations is increasing. In addition, despite the financial crisis, the level of confidence of Italians in banking institutions is still high. This means that banks still have a very high pool of potential customers.
A second interesting fact concerns the number of branches. According to research on branch locations for Italian banks, the number of branches has dropped drastically in recent years. During 2020 there was a reduction in the number of bank branches active in Italy, from 24,312 at the end of 2019 to 23,481 at the end of 2020 (source: bancaditalia.it).
The cross-referencing of this data suggests that the way that customers relate to banks is changing and that each bank is beginning to adjust the ways they reach customers and how they promote their services to customers.
As mentioned above, the customer-user has become more demanding, mainly because of digitalization. Google, Amazon, Facebook, Apple have established a certain standard that consumers now demand. For this reason, banks are paying more and more attention to the customer experience, considering it a necessary lever to increase customer satisfaction and retention.
It is therefore necessary to know the habits and needs of consumers and build around them a truly quality consumer experience, which necessarily passes through the dematerialization of processes and services.
Here’s the third trend: Customer experience becomes a central part in marketing strategies, because the customer not only wants to buy a product, but wants to be at the center of a unique and personalized experience.
4. The dematerialized bank: an oni-channel model
To meet these specific expectations, as well as for reasons of economic sustainability, banks are digitizing a large part of their processes, thus redesigning the entire operations of the sector, through the innovation of products, services and channels.
To do so, the watchword is undoubtedly omni-channel.
In other words, banks have begun to take advantage of the various touch points opened up by digitalization to reach the customer more effectively, adding to the real experience in the branch also the most convenient and simple guaranteed by digital technologies.
In this way, the customer experience is enriched thanks to the integration of analog and digital channels, which together allow companies to outline more effective marketing strategies in terms of targeting and content construction.
The fourth trend in the banking sector is omnichannel: rethinking the concept of proximity and presence of the territory, banks are developing a more effective and integrated way to reach their customers, combining traditional channels with digital channels.
5. FinTech and the open bank: a new business model
In parallel with the development of an omni-channel approach, the most innovative banks have already begun to change their organizational structure in order to pursue increasingly efficient operational models that are responsive to customer requests, both in B2C and B2B contexts.
To do so will require using customer data in order to create services capable of innovating the value proposition and enriching the customer experience.
Banks have been forced to put themselves at the heart of this new open model not only in order to maintain market share, but also because of new European regulations: in particular, the directive on payment services in the internal market, the PSD2 (Payment Services Directive 2), the Open Banking Directive and GDPR (General Data Protection Regulation).
The third parties to whom this opening is made are, almost always, Fintech. Moreover, alliances have become necessary for many credit institutions and this is demonstrated once again by the data.
In the first nine months of 2021, more than 410 million euros were invested, more than double the previous years which instead recorded 157 million in 2019 and 171 million in 2020. These numbers show two things that could also form two trends.
On closer inspection, it was not only predictable but also desirable that there should be an interested peace between banks and fintech. Both traditional banks and fintech start-ups have, in fact, understood that a head-on collision would be harmful for both, The former do not have the skills to effectively implement a digital transformation in a short time and the latter are not yet able to provide the most sophisticated services and products.
Hence, the choice by many banking groups to ally or buy some of these startups.
In Italy, too, there is no lack of examples of investments put in place to implement international or individual cooperative projects of this type: some of the main banking groups, such as Intesa Sanpaolo, Mediolanum and Unicredit, are the most active: just to name a few.
Moreover, as mentioned, the collaboration with these entities is an unmissable opportunity for banks to get in touch with more digitally advanced realities, From which you can learn the technologies to improve the customer experience and provide increasingly competitive services.
6. Artificial Intelligence
In this sense, a relevant example is the application of Artificial Intelligence within customer care as a tool to guarantee customers advanced and continuous assistance.
Although robots cannot perfectly replace the human component, in the future there will be a massive use of increasingly sophisticated chatbots in bank to customer communication.
This is also demonstrated by research from Accenture: in a month, 1 billion messages are exchanged with brands on chatbot applications across the world.
Here’s the sixth trend: Artificial Intelligence will be an area of interest for banks because it will allow them to automate some aspects of their rapport between customers.
7. The cloud
Another example of digital innovation resulting from the market changes imposed by Fintech is the cloud.
The cloud computing market grows year by year, as well as improving its performance. This will make it an essential tool for every credit institution that wants to make its operational organization more efficient and streamlined.
However, the adoption of cloud technology by banks is part of a broader trend regarding the dematerialisation of internal processes.
8. The dematerialized bank
On the one hand, by dematerializing its internal procedures, the bank will be able to implement a much more streamlined and effective organizational model. To understand this, it is sufficient to consider the example of the management of information and documents .
By converting documents from analog to digital format, each credit institution can organize them in a more orderly and secure way, thus achieving considerable savings in terms of energy and money spent.
Moreover, dematerialization will also be the key to making the bank more responsive and able to respond promptly and even anticipate the needs and requests of customers. It is this aspect of Fintech that customers particularly appreciate: the fact that they can benefit from a fast, fluid service, that is easy to use and available 24 hours a day. In a word: mobile.
Among other things, dematerialization has already begun to bear fruit, allowing the bank to provide some innovative services, such as digital checking and online underwriting.
Both represent the dual aspect of dematerialization, which on the one hand, makes the bank’s business organization more efficient, and on the other, allows it to build a customer experience with high added value (which in this case responds exactly to the logic of omnichannel distribution).
Dematerialization is undoubtedly one of the most interesting and important trends that will affect the banking sector in the coming years: here is the eighth trend.
In conclusion
As we mentioned in the beginning, forecasting such a complex issue as digitalization is difficult but the role of IT in banking sector is increasing in importance.
However, the coherence of the overall picture is immediately apparent, also in light of the data from which we started: customers require a certain type of customer experience that is more fluid and tailored to their digital habits.
This customer experience is made possible by technologies that enable creation of internal models that are consistent with customer requirements, which gives banking institutions the opportunity to streamline their operational processes and external processes aimed at the customer.