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Digital Competition: How Traditional Financial Institutions Can Continue to Adapt in the Face of Neo-Banks

Digital Competition: How Traditional Financial Institutions Can Continue to Adapt in the Face of Neo-Banks

By Halil Aksu, CEO and co-founder of Digitopia

The meteoric rise of the neo-bank has given traditional financial institutions a lot to think about in recent years. Born in the era of mobile banking, the convenience of a digital-first approach can be epitomised by the customer base of leading financial technology company, Revolut. Having only crossed the 1 million customer mark in December 2017, Revolut now finds itself with 15.5 million global users, and this growth is only expected to continue.

Neo-banks are challenging traditional institutions that still operate with legacy systems. They are the “new kids on the block”, capable of quick money transfers and seamless payments, as well as a plethora of other financial services. Competition is fierce, and the COVID-19 pandemic has only increased the pace and scope of change. In response, traditional banks have had to undergo severe digital transformation – and they have certainly stepped up to the plate.

Evolving with the Times

According to research undertaken by Digitopia, in conjunction with UAB Digital, traditional banks have made significant strides in their digital transformation efforts in the last 24 months.

The digital maturity of the banking sector is improving, especially when it comes to the adoption of technology, data analytics, employee upskilling, and customer experience. Judged across six dimensions – technology, governance, innovation, people, operations, and customers – the average digital maturity score for the banking sector sits at 3.27 out of 5. This shows, on average, an improvement of 0.2 maturity points per year.

Digital transformation can develop in multitudes across each of these six dimensions. While further improvement requires defining and following a clear strategy with company-wide roadmap alignment, Digitopia’s findings in digital maturity research point to a few specific areas where the banking and finance industries appear to be excelling the most:

  • Data is being acknowledged as a critical asset and analytics capabilities are developing.
  • Organisations know the importance of prioritising customer experience.
  • There is progress in:
    • Use of technology
    • Integration of processes
    • Employee upskilling
  • Businesses are applying new ways of working.
  • Data-led critical decision making
Halil Aksu

Halil Aksu

Digital Transformation Is a Process

To continue this progression, financial institutions must take a holistic approach in their digital transformation, encompassing six dimensions into their efforts; technology, governance, innovation, people, operations, and customers. There is no way to ‘complete’ a digital transformation. To drive true business value, digital transformation must be regularly measured and benchmarked across each of these six dimensions.

Digital Transformation is a team sport. Each dimension requires equal attention and investment. One must excel across all each of these six dimensions to be successful.

Assessing Digital Maturity is Key

Accurately measuring and benchmarking digital progress is just as important as the digital transformation effort itself. Tracking digital maturity throughout the digital transformation journey enables organisations to consistently and efficiently improve their digital processes.

By following the methodology that the six dimensions provide, businesses will progress. With that said, it is just as essential to measure and benchmark this progress regularly.

Regularly measuring progress allows an organisation to look at the bigger picture and create a competitive advantage. This will allow for an accurate understanding of where the organisation is doing well, and where it must improve. With that knowledge, a business can finally move in the right direction, closer to digital maturity. Eventually, it will find business success.

Developing One Step at a Time

The journey toward digital maturity is complex. It covers a range of business domains and requires harmonious functioning across each one. Over the last two years, many financial institutions have achieved significant digital progress. They have developed a range of digital capabilities and a considerable degree of integration. However, the job is never finished.

Truly digital companies do not limit themselves to using new technology, allowing remote working and process automation. They must rethink their core value proposition and set a clear direction to develop their capabilities while moving towards their goal.

Developing digital maturity takes time and effort, but it is an extremely fulfilling process.

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