Digital Transformation in Finance: 3 Ways to Keep Pace With the 4.0 Trend

Vũ Khôi

Author at Wotech Electronics Blog

Today, the financial services industry is undergoing constant transformation, and fintech startups have "risen to prominence" to become the industry's "locomotive." Fintech companies keep finding new directions with customer-centric criteria, leaving traditional financial companies struggling to keep up. According to a recent report from Altimeter (an economic forecasting firm), as many as 68% of traditional companies report that they are only in the early stages of digital transformation in finance. So the sooner companies join in and accelerate their digital transformation, the more revenue and market share they can win back from fintech startups.

The State of Digital Transformation in the Finance Sector

Fintech Startups Are Taking the Lead

In 2019, KPMG reported that investment in fintech startups reached 135 billion dollars. These companies are growing strongly in both scale and revenue. According to CB Insights, 68 of them have achieved "unicorn" status, with valuations of at least 1 billion dollars. These companies include consumer banking, payment solutions, insurtech, and trading. Notably, fintech startups are all disruptive, customer-centric, and digital at their core.

A prime example is Chime, a neobank startup specializing in digital money management and debit card services. The company has seen its transaction volume triple and revenue reach 14.5 billion dollars this year. Or take Robinhood — a commission-free brokerage platform — whose average trading volume surged by June, surpassing all traditional brokerage firms.

The Opportunity for Digital Transformation in Finance

Most traditional financial companies are still in the early stages of digital transformation. According to Altimeter's research measuring digital transformation in finance, traditional companies typically follow a five-stage model. First, companies make projections about what might happen when investing in digital. Next, they develop digital platforms for more comprehensive investment. At this stage, they seek to understand the customer journey and improve employees' digital skills. From there, they build out operations and digitize them at scale. Fourth, they integrate these platforms to use data more strategically and consistently. Finally, they leverage data and AI to deliver an excellent experience for their customers.

However, in reality only 25% of the companies in Altimeter's study had passed stage 3 to reach the final two stages. Financial services executives say they are "stepping" very slowly in digital transformation. About 68% of the traditional companies in the study said their company is still in the first two years of its transformation journey, and only 38% said they had entered the third stage (building operations). With digital and technology as widespread as they are today, transforming too slowly will reduce customer satisfaction.

That said, effective digital transformation in finance is not out of reach for traditional businesses. For example, Marcus, the consumer banking platform of Goldman Sachs (a multinational investment bank), also grew rapidly during the pandemic. Its growth reached more than 27 billion dollars from 500,000 customers. This is proof that traditional companies are all capable of successful digital transformation.

>> See more: What Is Electronic Finance? Benefits, Current State, and Digital Financial Systems in Vietnam

3 Ways for Traditional Companies to Catch Up With the Digital Transformation Trend in Finance

According to an in-depth survey on digital transformation in finance of 600 executives, including 137 working in financial services, there are 3 ways businesses can successfully transform.

Partner With Fintech Startups

Fintech startups are leading today's digital transformation trend in finance. Therefore, rather than carrying out digital transformation slowly and gradually on their own, traditional financial companies can also choose to partner with fintech startups. According to Dr. Can Van Luc, an economist working at the Bank for Investment and Development of Vietnam (BIDV), quite a few credit institutions are now partnering with fintechs to create ecosystems and leverage each other's advantages. For example, open banking — simply put, a banking ecosystem in which the bank is the main pillar, surrounded by satellites: fintechs and other organizations and service applications such as healthcare and education.

Prioritize Developing New Ways to Reach Customers

To "survive" the current economic and health crisis, managers have realized that their digital transformation in finance should focus on improving business operations and managing more nimbly and flexibly. Businesses can study and consider reaching customers through new digital channels. Because today, in modern society as technology develops, more and more consumers are engaging in online shopping and using financial services online instead of going to a physical point of sale or trading floor.

Social media

We have witnessed the success of the Biti's brand after reaching young people with campaigns that made a big splash on Facebook, YouTube, and more. Another prime example is The Coffee House chain, which attracted a great deal of attention thanks to its campaign promoting a friendly coffee space on social media. Therefore, in the 4.0 era, social media is fertile ground that helps businesses reach customers more easily. Financial companies can create their own social media channels to reach customers more easily, as well as capture their needs in time to offer suitable products and services.

E-commerce platforms

Shopee, Lazada, Tiki, and more are all famous e-commerce sites receiving hundreds of thousands of visits and purchases a day. Therefore, reaching customers through e-commerce channels is one of the most effective solutions. Traditional financial companies can partner with e-commerce platforms to offer deals that attract customers and promote their brands effectively.

Dedicated mobile apps

Businesses pursuing digital transformation in finance should not overlook the extremely important customer channel of mobile apps. These apps help customers engage more deeply with the company's services, while creating a convenient, seamless service experience.

Use Enterprise Management Software

The main reason businesses transform slowly in finance is that their access to technology and digital tools is still limited. Traditional financial companies that want to transform digitally must learn about this new territory step by step. As mentioned above, about 68% of the traditional companies said their company is still in the first two years of its digital transformation journey.

That is why, rather than researching digital transformation on their own, businesses should use software designed for enterprise management. It helps businesses unify their systems for business operations and company management to transform digitally more quickly. With well-known software such as Salesforce, Zoho CRM, Sugar CRM, HubSpot CRM, SimERP, and more, accelerating digital transformation in finance is no longer a thorny problem.

Conclusion

The global economic and health crisis has affected how we think about digital transformation in finance, in tourism, and in other economic sectors. This article is intended to highlight the questions that leaders in traditional financial companies should be asking, in order to accelerate the transformation process and achieve growth.

As a comprehensive, highly flexible solution suited to every field and industry, SimERP has been and is partnering with many customers to drive their digital transformation journeys. We are always ready to advise your company on ways to accelerate digital transformation and deliver high business performance. Please contact us to learn more details.

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