Digital Transformation Strategies in Finance and Banking
During the Discussion on Digital Transformation Strategies in Finance and Banking, I highlighted how banking has digitally transformed in the past few decades and the future of the industry. The session saw five stages of transformation in banking in Nigeria:
1. Manual Processing and Arm-Chair Banking (until the 1990s) – This was characterized by paperwork; transactions by cash and cheque; cheque clearing as long as 21days and short as 5 days; accounts were categorized into savings, current, fixed deposit and domiciliary; branch banking with no interconnection; customers looked for banks, banks didn’t look for the customers; international transactions were decentralized and limited in scope with travelers’ cheque.
2. Semi-Manual and Mechanized Processing, still a closed system (the 1990s) - Same as earlier but with the introduction of adding and posting machines with gears by Olivetti, Burromat, IBM, etc.
3. Computerized Processing and Introduction of Business Development (2000 – 2020)- Introduction of computers for efficiency; Interconnection of branches; Automation of Interbank settlement; marketing and product development – banks looking for customers; Payment cards and Alternative Delivery Channels – ATM, Online Banking, Mobile Banking, USSD.
4. First Phase of Digital Banking and Entry of FINTECH –full automation of internal processes and enhancement of the alternative channels to improve customer experience which has become a competitive tool. Unbundling of banking activities commenced as intermediation activities are licensed to other financial institutions and FINTECH.
5. Second Phase of Digital Banking and Full Disintermediation is the future - Platform rising, API, Open Banking will democratize banking business as customer ownership will be decentralized. Payment card will be endangered as payment will be possible on platforms and in-app including chat apps like Whatsapp. Banking will soon be redefined with no reference to bank.
When asked how can banks and Fintechs balance the need for innovation and digital transformation with the need to maintain security and regulatory compliance, I used a car illustration. Imagine a high-capacity, beautiful and luxurious car with just one pedal. If the only pedal is an accelerator, will you drive it? Definitely, it is a destructive journey. That is idea, innovation and digitization without control. On the other hand, if the only pedal is a brake, will it move? Definitely, it will not achieve its capacity. That is how strict control, extreme security measures and high-hand regulation will stifle innovation and digitization in banking. Therefore, robust risk management is imperative, digital transformation should be compliance-by-design, collaboration with the regulators, investment in security, continuous training and awareness, and third-party due diligence would provide the balance.
