Digital Transformation in the Financial Sector: The Past
Laying the Digital Footprints for the Modern Era of Finance
It is a common misconception that the digital transformation of banks and other financial organizations is a recent phenomenon. The truth is that the trend towards the digitalization of the financial sector can be traced all the way back to the early 1960s. It is during this time that the first computers and digital accounts stored in databases occurred. Then, with the invention of the ATM in 1968, the way customers accessed their money significantly improved, enabling self-service for the most frequent banking transactions — simply withdrawing funds.
The electronic stock market was the next disruptive innovation in the financial industry — the 1971 opening of NASDAQ’s first fully automated stock market in the world changed the industry forever. The main idea of the innovation was to increase transparency in trading, allowing interactions between investors in a secure, fast and clear way. The establishment of a Society for Worldwide Interbank Financial Telecommunication (SWIFT) in 1974 allowed countless financial organizations to send and receive information about transactions in a standardized, reliable and secure environment. As a secure messaging network, it allowed users to send payment orders quickly from one place to another, changing modern banking around the world.
In the 1980s, online banking started to emerge which made it easier for people to manage their money and access financial accounts. The Bank of Scotland began to offer its customers Internet banking services during this time, then the first online banking website was introduced by The Stanford Credit Union, contributing to the creation of personal finance software. All of these innovations allowed financial institutions to offer their services online. As this practice became more commonplace, a new shift occurred as online banking started to move to mobile environments. This helped set up the concept of the mobile payment, which has fundamentally changed the world of finance.
Digital Transformation in Finance: The Present
The Trends Shaping the Industry as We Know It
Looking back at the history of financial services, we start to see the emerging trend of digital transformation in the financial industry as a means of solving existing pain points. In turn, this practice has helped drive the innovative development of the entire sector forward.
Today, mobile apps are widely used in financial organizations, and the trend of developing new financial mobile solutions seems to grow at a constant pace. Today there are hundreds of payment, saving, budgeting and document processing apps that help users manage their personal finances in a more convenient and user-friendly way.
Cloud computing is the next growing trend in finance and has led to increased application performance and productivity while staying in-line with security and compliance regulations. Many financial organizations have made the move to the cloud to create more accessible, cost-effective and scalable applications.
The next disruptive technology is Blockchain. This tech has moved beyond its association with Bitcoin and is seen as a valuable asset for digital payments, loan processing and the acceleration of payroll operations around the world. For the financial sector, using blockchain solutions has made it possible to process a large amount of complex business data faster.
Lastly, machine learning and artificial intelligence have made it possible for financial organizations to provide better customer service while staying cost efficient. For example, AI-powered chatbots can answer common customer questions and tasks. By taking care of these processes that used to be manual, financial organizations not only lower costs but provide the 24/7 customer support that consumers demand.
Digital Transformation in Financial Industry: The Future
The Tech of Today Building the Innovations of Tomorrow
While connecting the past and present, it is always exciting to get a glimpse of the future of digital transformation in the financial sector — even if the future can sometimes seem like science fiction. For example, Bill Gates made a number of predictions in 1999 which at the time seemed outlandish, but today are a reality. Gates famously predicted, “People will pay their bills, take care of their finances, and communicate with their doctors over the internet.”
In the future, expect to see automation become more deeply involved in digital transformation of financial operations. Robotic process automation will eliminate many routine tasks, increasing the efficiency of many financial organizations. This trend will affect employees who will need to adjust to new business processes and learn new skills, fundamentally changing the financial workforce and industry overall.
In the future, machine learning and artificial intelligence will provide ideal customer support and services. Physical currency will come close to extinction, and almost all money transactions and operations will be done online. As a result, brick and mortar banking as we know it will become a thing of the past.