In recent years, the technological boom has driven the digital transformation in finances. However, although it’s true that new technologies, such as Blockchain or Artificial Intelligence have burst into the financial landscape to offer interesting advantages and functions, it’s also possible to appreciate that, on some occasions, the bank is not taking full advantage of the potential provided by the most disruptive technologies.
In order to know in depth what the current state of the digital transformation in finance is, we have interviewed Daniel Medina, Head of Office in Caja Rural de Navarra and founder of the blog Nuevo Financiero, a digital media of reference that explains in a simple manner new financial products and trends. We will now see what this expert thinks about the new digital solutions, the use the bank is making of them and the future of digital transformation in the financial world.
Addalia: From your point of view, what are the main advantages that digital solutions bring to financial institutions and users?
Daniel Medina: The new technological developments have driven the financial digital transformation. Innovations such as Blockchain, Big Data, Artificial Intelligence, Cognitive System or IoT are revolutionizing the financial world. These are some of the most disruptive technologies in the financial sector and the advantages they have:
- Big Data: It enables Real Time Decisions (RTD) from data analysis. Therefore, it’s an adaptive predictive model, it makes predictions in real time adapting to the changing needs of the client. These are some of its applications in finance:
- Customer segmentation (better knowledge of our customers for a personalized offer).
- Risk analysis and management (better predictive capacity when analyzing and managing risk)
- Detection of fraud and money laundering.
- Artificial Intelligence/ Machine learning: Computer systems that learn automatically on their own (without human intervention). They allow important improvement in the granting of credits and risk analysis, development of automated trading systems (robo advisor quant advisor), as a consultation centre for employees or clients (call center) of a financial institution, detection of default (better knowledge of the client)…
- Blockchain: For many, in the future it will be the most revolutionary technology of the Internet… The applications of blockchain in finance are very broad. Currently, where blockchain has a higher impact in payments or remittance transfers and Cryptocurrency (nowadays they aren’t going through their best moment).
- Biometrics: In finances its esencial to verify the customers identity when carrying out a transaction. Voice signature, facial recognition, fingerprints or iris recognition are the norm. There is no doubt that these technological developments, well implemented, can generate important benefits to financial institutions (client segmentation, cost reduction, risk analysis) and their users (savings in commissions, speed, convenience…)
A: In your opinion, are traditional banks making the most of the potential offered by digital tools in the financial sector? Where do you think banks are at in the implementation of these technologies?
D.M: After the “digital revolution”, so that a certain financial entity can catch up with the new digital client, investment in technology is not the only thing needed, it’s essential to change the paradigm of both the organization and its employees, understanding the new processes and communicating with the clients through channels that they use.
The business models of financial institutions must be adapted to the new peculiarities of customers and the environment. We are in the digital era where the customer has more decision-making power, more information and choice. The digital client is increasingly demanding, values immediacy and things well done. The client has become more than ever the center and their preferences must mark the financial institutions’ policies. In spite of this, there are still rigidities in traditional banking that are not easy to redirect.
Financial institution have been doing the same banking for 50 years (with its differences, of course), they have an existing structure of employees, offices and back office that requieres more time to adapt than new startups (Fintech), more vertical and specialized in a specific niche.
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A: What are your forecasts for the future in relation to the digital transformation of finance?
D.M: Maybe the finance digitalization process won’t be as fast as it seems. Nowadays, there are two very different types of clients:
- The traditional client: Clients that value personalized attention in their financial institution. They like the trust their consultant gives them in the branch office and personal advice in all their financial decisions.
- The digital client: Clients that have decision-making autonomy. They inform themselves a lot about what they are going to hire through social media and specialized blogs. Above all they value immediacy and things well done, they are more demanding qthan traditional clients. We can classify digital and tradicional clients based on the digital generation they belong to (from more to less digital: Digital Native, Millennials, Generation X, Baby Boomers and the Silent Generation).
On the other hand, despite numerous financial regulations in recent years (in 2018 MIFID and PSD2) certain “digital products” such as cryptocurrencies and ICOs have been left out of regulation. In addition, these financial products have acquired a bad image in 2018, due to their strong devaluations (for many, the cryptocurrency bubble). Unlike any stock or company, the value of a cryptocurrency does not depend on its fundamentals (balance sheet, income statement, P/E Ratio, Cash-Flow…). Investment in cryptocurrency is very risky and anyone who invests must be aware of the great volatility of these assets.
As well as these two factors mentioned above (digital generation and legislation and image problems), the one mentioned in the second question should be added. Financial institutions represent 95% of finances and have rigidities that are not easy to redirect (an existing structure of employees, offices and back office that requieres a long time to adapt).
The digital transformation of finance is progressing steadily, but there are still years ahead in which the traditional and digital client will coexist.