Digital transformation in payments and finance

Digital Transformation and Financial Services in the Pandemic

by Ana Păstrăvanu

For the past few years, digital transformation has played a significant role in business strategy for many companies in any industry. A turning point in this process was the Covid pandemic, which has profoundly impacted both consumer behavior and businesses. The shifts that we are now witnessing are unlikely to be transient but rather new realities that need to be addressed on many levels within companies but also by the regulatory bodies.

Even before the pandemic, 2020 was expected to be the year of digital products. Although 2020 will always be associated with the pandemic, in years to come we may also look back on it as a time when rapid shifts were witnessed, businesses and consumers finding new ways of working together and new ways to do business, to transact. The value and significance of digital are now intersecting with a sense of assumed urgency. Be it to ensure that employees are able to work from home (or from anywhere) or consumers are given the same level of convenience when shopping, the security and accessibility of all types of interactions and exchanges in the digital space are now paramount.

Digital transformation in online payments.

Digital transformation reaches an unprecedented level

Personalized, real-time, seamless customer experience (CX) is not something new when it comes to consumer expectations. In particular, gen Y and younger are demanding experiences that complement their digital lifestyle. In this respect, digital capabilities, data-driven business models, and customer-centric approaches have been embraced for the past years by businesses in every sector. Initially driven by the demands of customers, this trend has been accelerated by the pandemic.

As Deloitte’s 2020 report on challenges to digital transformation shows, core business improvements usually show in business performance within a few months, but transformational breakthroughs take 5 to 10 years up until visible benefits start to emerge. Moreover, in recent months, it has become clear that digital transformation is no longer a “nice to have” but generally considered a critical enabler of any business strategy. True digital transformation goes even beyond focusing on consumer needs and responding rapidly to any sudden changes in the market. The business model and organizational culture are usually the levels where any transformational, innovative change is refined, consolidated, and ultimately assimilated into the core of the business. Now, with a post-pandemic future still unclear, we need to find new ways of working, transacting, and building capabilities to ensure business continuity and relevance.

On European ground, we see that digital transformation is safeguarded and complemented on a regulatory level. The European Commission has recently proposed an ambitious reform of the digital space, a comprehensive set of new rules for all digital services that operate in the European Union: the Digital Services Act, with the mission to ensure a safe and accountable online environment, and the Digital Markets Act, whose purpose is to create a fair and open digital market. The new rules are said to protect consumers, foster innovation and competitiveness, and support the scaling of smaller platforms, SMEs, startups by lowering compliance costs and streamlining access to consumers.

This “Digital Decade”, at least in Europe, will bring new opportunities for companies in many industries, but we expect to see a lot going on in the financial space. Payments become ubiquitous, “anywhere commerce” is closer than ever, access to investment and loans is prone to more disruption are just a few aspects that demonstrate how dynamic this space is.

Financial services industry’s take on digital transformation

Pre-pandemic, especially in the fintech space, we were already accustomed to developments towards innovation and consolidation. Endowed with a huge consumer base, big tech players are constantly eyeing the financial products and services space, and relatively recently we’ve seen big corporates and regulatory bodies showing interest in digital currencies. In this landscape, the digital native businesses, such as neobanks, have proved so far very efficient in rapidly increasing their customer base and offering customer-centric propositions. Take for example Nubank, who is said to have reached 25 million consumers in Latin America, Monzo, Revolut, or n26. Their simple, customer-centric business proposition has enticed especially the younger generations with services such as overdraft cushions or early wage access. Even though many still struggle to improve profitability, their success in reaching a huge customer base is unprecedented. As we can easily see, the experience is perceived as gaining more value than institutional stability; a recent study even shows that nine out of 10 banks, fintechs, PSPs, and payment intermediaries agree that customers’ expectations have changed and that convenience is now key.

This current digital vision in the financial services space is accelerated by the pandemic, when mere expectations, “nice to have’s” are turned into an actual need for more accessibility, stability, security, and convenience. Many companies in this space are better able to serve customers, collaborate with partners, and respond to change as they have embraced new ways of implementing their technical infrastructure. The way some fintech companies are scaling nowadays is due to their digitally native nature. So far, when it comes to infrastructure, cloud computing has proven to be the foundation that positions a financial company as a serious competitor in this ever-changing, demanding environment.

Digital transformation in mobile payments.

Initially, financial institutions have adopted the cloud beginning with proofs of concepts (PoCs), Software as a Service (SaaS) solutions, or front-office functions but not necessarily core functionality. As cloud became more mature, companies have started moving even core processing to the cloud. Public cloud providers like AWS and Microsoft Azure are sometimes proactively developing services specifically for the financial sector, hence the value it can bring to any innovation and transformational change in finance. Keeping up with innovation is easier when you can count on the resiliency and availability of the public cloud environments. Moreover, the benefits it brings are usually difficult to mimic in an on-premise environment. Recently, Azure Quantum, the public cloud ecosystem for quantum solutions, has been opened for business, allowing the building of solutions based on the most recent innovations.

What makes cloud even more applicable when it comes to core transformation in financial services is its relevance for legacy systems as well. In the case of banks and other FIs, legacy platforms have been around for decades. Due to their product-centric approach, traditional players often layer new models on top of the old ones, which has led to complicated business processes that are difficult to automate. Even so, a lot is going on in this space, as we see banks moving core infrastructure to the cloud. Recently, Deutsche Bank announced its intention to replace large parts of its core banking system with alternatives powered by Google. The bank moves to the cloud in a bid to modernize its internal systems, thus making sure it stays relevant in this ever-changing space.

Final thoughts

Businesses that embrace the idea of a digital future are the ones that will be able to navigate any market changes. In the financial space, the gaps between traditional players and challengers have not disappeared entirely, leaving a lot of room for new opportunities and innovation that brings benefits to consumers.

At Maxcode, we’re open to discussing your digital transformation and innovation journey and provide technical know-how and support. Contact us to learn more on how to offer smarter and relevant solutions to your clients or consumers.

Ana Păstrăvanu, Marketing Specialist at Maxcode

About Ana Păstrăvanu

Ana is a marketing specialist at Maxcode, with a focus on writing and shaping quality content related to the industries our company is active in. Her experience as an editor and researcher on financial developments has helped her better understand the market and develop her passion to follow new trends and analyze them in order to provide relevant and actionable insights.

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