Digitalization of banks: how technology will "invigorate" the economy

For players in the financial sector, the pandemic has had the effect of accelerating technological disruption within global banks and creating new expectations among customers, but also new forms of competition and opportunities.

Because of its fragile but also essential nature, the financial sector is one of the most regulated there is, between the successive Basel agreements, the European PSD2 regulations governing Open Banking, or the recent ambitions of the Cnil to regulate payments. Faced with these regulatory requirements, data management by banks remains quite limited for the time being. This phenomenon is also accentuated by the role of "trusted third party" granted to banks in the minds of their customers, for whom they must do everything possible to combine the protection of their savings and personal data.

However, in this period of overhaul and strengthening of economies, financial institutions have, more than ever, a key role to play. Because, in addition to supporting the resumption of activities, they must invest in digital to ensure that the local economy follows suit and transforms into a truly digital economy. There are also new types of risks facing the sector that need to be taken into account.

The boost of agility and digitization needed by banks

Stakeholders in the financial sector have always shown themselves to be far ahead in terms of innovation, and this dynamic is all the more meaningful in a context where new technologies are multiplying at the service of companies and where digital transformation is becoming a generalized reflex. Nevertheless, the financial sector is still severely hampered by the massive presence of traditional technological infrastructures that have become obsolete, which adds to the already heavy weight of the regulations in force. This is why embarking on the digital path, by accelerating the adoption of the cloud and new application forms such as SaaS and containers, is becoming an absolute necessity. This is also a strategy initiated a few years ago by the big names in banking in France.

The main challenge for traditional banks and insurance companies today is to gain application and development agility, i.e. to be able to accelerate the creation of applications to respond to the arrival of new professions and new expectations. It is a question of protecting against competition from fintechs and insurtechs which are already encroaching too much on their niche by interfering between them and customers. To do this, they must move towards the cloud, containers, or even DevOps.

The best example to illustrate this situation is to draw a parallel with the way insurers are positioning themselves in the flourishing market of autonomous vehicles: in order to collect data, which feeds the innovation and the development of this type of vehicle , insurers need to develop new products to ensure that they play a central role in this market, alongside car manufacturers, and thus prevent a fintech from positioning itself in their place.

Facing new forms of risk

The dynamics of digital transformation not only bring opportunities to financial institutions but also expose them to more uncertainty and new threats. First of all, they remain at present prime targets for all hackers, due to the very sensitive nature of the data they possess. A quarter of cyberattacks between 2019 and 2020 affected companies in the financial sector according to the Bank for International Settlements (BIS).

In addition to cyber risk and the growing role of fintechs, banks are also constrained by the arrival of new currencies, with cryptocurrencies and NFTs (non-fungible tokens). Customers are increasingly turning away from traditional banks to place their money in alternative financial systems. Faced with the boiling of the financial sector, these new risks and new dynamics must be fully integrated into the way in which the bank reinvents itself. The inability to develop new, agile, cloud-based, easily deployable applications aimed at getting closer to users and their needs could be fatal to the future of banks.

Awareness must focus on the accessibility and protection of their data, real vectors of business progress, guaranteeing the availability, security and reuse of data. By opting for a strategy that allows them to use their saved data and access it easily, financial players can accelerate the marketing of their services and products and thus meet the expectations of their customers. This is also how they will succeed in protecting their data against cyber malicious and ransomware attacks. The challenge is therefore to unleash the potential of data to accelerate innovation, while ensuring their protection.