Digitalization and Effect of Banking Sector

Digitization is the process of converting information into a digital format. However, adopting current technology and software is only one component of digital transformation in banking; it is also necessary to evaluate management processes, communications, and organizational culture. Internet banking, innovative software, and databases provide 24-hour consumer transaction services, increasing the sector's competitiveness.

These services include transferring funds between bank accounts, viewing and managing bank account details, getting transaction information, checking balances, managing loans, and paying bills. Digital banking in Sri Lanka offers easy and secure financial services from home, anytime, utilizing personal computers or laptops and bank mobile apps on smartphones and tablets.

The banking sector frequently provides Internet Banking Services to both retain existing clients and attract new customer base. Just launching a digital product to the market is not effective and banks need to always concern about the quality expected by their customers. According to Saha & Zhao (2005) managing the quality of the services, which holds an important place in customer satisfaction, is one of the key challenges of the Internet as a service delivery channel. Sri Lankan customers are very much concerned about the security of their transactions and with the growth of digital banking, the risk of cyber-attacks and fraud also increases and that has created a kind of reluctance to engage in digital transactions.

Therefore, to preserve client data and retain trust in digital services, banks should invest in strong cyber security measures and improve platform quality.

                        (Digital Transformation Framework)

Challengers of Digitalization

1. Security and Privacy Concerns: As more transactions mov

   e online, ensuring robust cybersecurity becomes critical. Banks must protect customer data, prevent fraud, and secure digital channels.

2. Legacy Systems Integration: Many banks still rely on legacy systems that were not designed for digital operations. Integrating new technologies with existing infrastructure can be complex and costly.

3. Change Management: Employees need to adapt to new processes and tools. Change management is essential to ensure a smooth transition and minimize resistance.

4. Customer Experience: While digitization enhances convenience, banks must balance it with personalized customer service. Striking this balance is challenging.

5. Regulatory Compliance: Banks must comply with various regulations related to digital transactions, data protection, and anti-money laundering. Keeping up with changing regulations is a constant challenge.

6. Infrastructure Investment: Upgrading systems, training staff, and maintaining digital infrastructure require significant investments.

7. Digital Divide: Not all customers have equal access to digital services. Ensuring inclusivity and bridging the digital divide is essential.

8. Competition from Fintechs: Fintech companies offer innovative digital solutions, challenging traditional banks. Banks must stay competitive by adopting similar technologies.

9. Data Management: Handling vast amounts of data generated by digital transactions requires efficient data management and analytics.

10. Operational Risks: System failures, outages, or cyberattacks can disrupt services and harm the bank’s reputation.

Benefits of digitalization for Banking Industry

•  User experience: As digitalization has advanced, institutions have been able to improve the user experience in a holistic manner, as well as the evolution of multichannel banking towards a customer-centric model.

•  Increase in the number of clients: Faced with a loss of trust in traditional banking and a rise in consumer use of banking applications and online banking, financial institutions have recently increased their customer base. With the rise of Fintech in the sector, it is evident that banks will need to adapt the way they do business in order to retain consumers.

• Increased process efficiency: Banks hope to improve the efficiency of their manual operations by implementing various cutting-edge technologies such as electronic signatures and the development of banking applications for smartphones. In this way, they want to eliminate human error in dealing with clients. According to the corporation, rectifying this type of error typically costs three to four times as much as implementing a digital process. Digitalization of procedures provides significant advantages because all data and signatures are captured correctly the first time.

• Better data-driven judgments: As banks become more digitally integrated, data becomes one of the most valuable assets for making dynamic decisions based on huge volume of information available to organizations. Technologies such as Big Data enable banks to make decisions or enhance procedures based on data available to their customers. Large technology businesses have recently presented a significant challenge to banks since they have access to more data and a thorough understanding of the technological solutions they provide.

• Cost Reduction: Another benefit of bank digitization is that it saves money for both institutions and clients by allowing them to use new payment methods and conduct cashless transactions. 

Application of Maslow Hierarchy with Digitalization 

 

Conclusion 

That the introduction of banking innovations is the outcome of the mutual integration of two global trends: societal digitalization and fintech adoption. These are global trends because they are irreversible and combine with globalization and informatization, virtualization, and the construction and connectivity of networks, among other things. This suggests that the transformation of the economy's banking sector as a result of the introduction of banking innovations into bank activities is a systemic and large-scale phenomenon, representing a new stage in banking development. The effect and development of banking innovations, as well as the penetration of digitalization into all sectors of banking, will ultimately result in the transformation of the economy's banking sector. 

The digitalization of banking provides major benefits for end users, banks, and the government. Innovative and technological development in the banking sector lays the groundwork for the establishment of an excellent financial system, which ultimately leads to the development of socioeconomic development. In the process of developing optimal innovative and technological strategies for the development of banking services and technologies, it is necessary to calculate positive benefits, but it is also necessary to forecast potential negative consequences and take into account the requirements for a safe transition of banking operations to digitalization and electronic settlements.

Reference:

- Saha, P., & Zhao, Y. (2005). Relationship between online service quality and customer satisfaction: a study in internet banking. Lule University of Technology MSc Program in Electronic Commerce

-Author. (2021). Digitalization is a turning point for the banking sector. Available website: Digitalization is a turning point for the banking sector | Passionate In Marketing 

- Konnur, S. (2017). Maslow's Hierarchy of Digital needs.