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. In Italy, at least, the banking sector has been somewhat delayed in embracing this process, while it has been more fully embraced in other parts of the world. However, there are many signs that this gap can be filled 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.
- According to research from 2018, the number of Italians using the internet is increasing sharply: more than 54 million. This means that 9 out of 10 Italians surf the internet daily (wearesocial.com).
- The same percentage of Italians access the Internet at least once daily and on average stay connected for about 6 hours a day, mainly watching video content and accessing social platforms.
- At the same time, usage of mobile devices is becoming increasingly important: there are, in fact, almost 86 million connections via smartphone for each Italian.
- In the banking sector, 94% of respondents have an account with a financial institution. In addition, 41% of Italians make banking transactions directly from mobile phones, for example to manage their account and pay their 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 showing weak but encouraging signs of digital transformation. In 2018, the digital market grew by 2.3%, substantially confirming the trend of the previous year. It is expected that in 2019, the investment will be at 2.8% and will reach 3.1% in 2020.
In terms of total value, research predicts that in 2019 the digital market will exceed €72 million, and will reach €74.5 million by 2020. 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 business people.
In fact, many IT managers, including in the banking sector, have shown themselves in favor of simplifying production processes using the latest generation of IT (i.e. a set of technologies that allow the exchange and management of data in digital formats).
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, from 34,000 in 2010 to 24,000 branches estimated to remain operational in 2020. A reduction of 10,000 units in 10 years.
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.
According to a report by the Fintech and Insurtech Observatory of the Italian university, the Politecnico di Milano, one in four Italians used at least one Fintech service in 2018 and were satisfied with it.
Not only that.
In the last three years, Fintech start-ups in Italy have raised about €25 billion and growing in terms of market relevance, although not at the level of other companies. In the world, in fact, the importance of the sector is even greater: in the first half of 2018, investments more than doubled, going from $22 billion in the second half of 2017 to a record of $57.9 billion. Also in the first half of 2018, the total number of venture capital transactions in the sector increased to 653.
These numbers show two things that could also constitute two trends:
Fifth trend: Fintech companies have become definitively relevant, to the point of having established traditional banking groups in some sectors of the market, mainly thanks to their digital know-how. Many banks have understood the strategic importance of investing in this area to remain competitive in the market; for this reason, in the future, the number of cases of collaboration or acquisition of Fintech start-ups by banking groups will increase.
On closer inspection, it’s no surprise that there would be a connection between banks and Fintech.
Both traditional banks and Fintech start-ups have understood that a head-on collision would be detrimental to both, since the former do not have the expertise to effectively implement a digital transformation in the short term and the latter are not yet able to provide the most sophisticated services and products.
Hence, the choice by many banking groups to ally themselves or to acquire some of these start-ups.
In Italy, too, there is no lack of examples of investments made to carry out international or individual cooperative projects of this type: some of the main banking groups, such as Intesa Sanpaolo, Mediolanum and Unicredit, to name but a few, are more active.
Moreover, as mentioned, collaboration represents for the banks an unmissable opportunity to get in touch with more digitally advanced organization, from which it is possible to learn which technologies are available 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.
It is estimated that by 2020, the computing power used for the cloud will be greater than that used for all proprietary data centers. This will make it an essential tool for any banking institution that wants to make its operations more efficient and streamlined.
However, the adoption of cloud technology by banks is part of a wider trend towards dematerialization 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.
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.