Benefits of Digital Transformation in Finance Industry
With the paradigm shift in technological advancements, the world has evolved to the global era of digitization. Today, innovative technologies are continuously driving change in every industry. Smart use of technologies has become an integral part of our daily lives, like using mobile phones to automate our daily processes, data analysis for extracting insights and other multiple use cases.
Digital transformation is a result of the implementation of such revolutionary technologies. Digital transformation in finance refers to restyling of financial services by utilizing technologies to make the existing system significantly better.
The most visible modernization has occurred in the finance industry. Marketsandmarkets’ forecast for the global digital transformation market says that its market size will reach 1009.8 billion USD by 2025 at a CAGR of 16.5%. The most significant drivers of the digital transformation market growth are increased use of mobile devices and increased cloud services adoption.
The article explains the importance of digital transformation in the financial sector and discusses the technologies that reshape finance functions.
What does digital transformation in finance mean?
The integration of technologies to meet the changing requirements and improve operations and services is called digital transformation in finance. The integration leads to fundamental changes in financial institutions’ processes and delivering value to their customers.
Digital transformation helps financial services companies improve their customer experience in multiple ways, including simplifying banking processes and attracting new customers. Customer centricity and a clear focus on customer’s needs are the keys to accomplish the task of attaining customers’ attention.
What is the importance of digital transformation in the finance sector?
Digital transformation is essential in the financial industry because it provides multiple benefits, as enlisted here:
Standardization: With digitalization, the financial processes are set to follow the definite standard, leading to overall improved performance of the system.
Automated functions: The adoption of technical tools aims to automate the processes that were performed manually till now. Automated services such as procurement orders, invoice generation, KYC verification, and money remittance have improved financial institutions’ productivity and efficiency.
Faster performance: Using Big Data analytics and other Machine Learning tools, processes like a budget prediction to finish month-end cycles within time become more accessible and faster.
Insight-driven functions: Artificial Intelligence and Data Analysis aim to provide insights on the financial models based on the data collected.
Technologies that reshape the financial services
A few powerful technologies that have contributed to digital transformation in the financial sector are:
Cloud
The adoption of cloud in finance has brought a noticeable swiftness and acceleration into the system. The SaaS-based cloud applications for business processes like HR and Accounting have transformed financial institutions’ working scenarios.
Security and compliance are crucial problems of financial services/ solutions. Cloud-enabled applications provide increased security to the entire system and scale data for critical functions like consumer payments, credit scoring, statements and billings.
The cloud’s intrinsic features such as resource pooling, availability, on-demand service, security, and easy maintenance are the primary reason for its growth and popularity among various organizations.
Robotic Process Automation
RPA also referred to as software robotics, is an innovative technology that allows automation of digital tasks. It is extensively used to streamline enterprise operations, increase productivity and reduce costs. RPA enables bots to emulate and integrate human actions interacting with digital systems to execute business processes.
Financial institutions utilize the RPA technology to automate transaction processing and communication across various systems. Robotics in finance used mainly for:
- Treasury processes
- Budgeting, planning and forecasting
- Billings and accounting
- Inter-company transactions, allocations and adjustments and journal entry
- Reporting- internal as well as external finances
Data visualization
Graphical representation of data through visual elements like graphs, charts and maps is termed data visualization. Tools for data visualization like Tableau and Power BI provide an accessible way to observe and understand data patterns, trends and outliers.
Data visualization is the key to gain insights into financial data. Analysts can easily track and predict organizational performance based on the data patterns. It helps to track both financial and non-financial KPIs. By correlating KPI metrics and data analysis, team performance is highly improved.
Financial institutions are mainly benefitted from the ability of data visualization techniques to reveal patterns and anomalies. Trending data is easy to see and analyze with charts or graphs rather than fixed data points. The ability to dig deeper into data patterns allows better decision-making.
Such advantages of data visualization provide businesses a true competitive edge.
Blockchain
Blockchain technology stands out of all other technologies that have disrupted the finance industry. It has completely revolutionized the economy and changed the way of transaction processing.
Blockchain is a distributed technology that acts as a decentralized database and provides absolute security to its financial data. It implements advanced encryption algorithms to safeguard data and verify transactions. It ensures that only authorized users can edit the data using the private key.
Smart Contract is the most effective application of Blockchain in the finance world. Smart Contracts help to automate the execution of commercial agreements and transactions. Blockchain entertains no middlemen; thus, Smart contracts tend to become more secure than traditional contracts.
The other applications of Blockchain in finance include one-time KYC verification, fraud reduction, efficient trading and many more.
Conclusion
Financial institutions need to focus on business outcomes rather than digital activity. Therefore, the digital transformation of basic economic activities is critical to enhancing its overall productivity and profitability. Integration of innovative technologies into financial services offers robust, secure and flexible solutions for empowered customers.
