Rishi Agrawal is the global delivery head of 3i Infotech.
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Right now there is a lot of confusion when it comes to the difference between digitization and digitalization.
Digitization refers to the conversion of analog information into digital formats, while digitalization is the use of digital technologies to transform business processes and operations. The coexistence of digitization and digitalization has been crucial across industries for traditional and large corporations, as they have to meet the evolving needs of customers, partners and employees.
Digitization and digitalization have transformed the banking industry, especially those we’ve seen in India, enabling banks to offer more personalized services to customers, streamline operations and reduce costs.
The Rise Of Digitalization From Digitization In Banking
The early 2000s marked the beginning of a significant shift in banking operations, with the widespread adoption of digitization, and subsequently, online banking has taken a primary seat through mobile adoption. According to a report by Statista, the number of online banking users worldwide is expected to reach 3.6 billion by 2024, up from 2.4 billion in 2020. In recent years, mobile banking has gained traction as customers increasingly seek convenience and accessibility. According to a report by Juniper Research, the number of mobile banking users worldwide is projected to surpass 1.75 billion in 2023, up from 800 million in 2019.
New Paradigm In Banking
The new paradigm in banking is “banking is necessary, not banks.” The key enablers for banking are digital infrastructure, robust access to capital and funding, and fintech partnerships. Technological developments have changed the way banks and customers interact, and several new entrants have disrupted traditional business models. Banks must reaffirm their role in the global financial system and break down the traditional value chain, replacing it with a more future-friendly set of business models.
Fintech In Banking
The rise of digitization and digitalization has enabled banks to offer more personalized services to customers, streamline operations and reduce costs. For instance, digitalization has enabled banks to automate many of their processes, such as account opening, loan processing and customer service. This has led to improved efficiency and reduced costs, allowing banks to pass on the benefits to customers in the form of better rates and fees. Digitization has also enabled banks to collect vast amounts of data on customers’ financial behavior, which can be used to offer more tailored products and services.
The shift toward digitalization has also brought new challenges for banks. With the increased use of digital channels, there is a growing risk of cyber threats and data breaches. Banks have had to invest heavily in cybersecurity measures to protect customer data and prevent cyberattacks. Moreover, the shift toward digitalization has also raised concerns about financial inclusion. As banks move toward digital channels, there is a risk of leaving behind customers who lack access to digital technologies or are not comfortable using them.
Digital Maturity And Top Investment Priorities
Companies that have already undergone the arduous process of digitization would conceivably have more access to data on disruptive trends and are more likely to be agile enough to respond to them.
Digital native players may see exponential growth due to the ease-of-use and simplified solutions they offer. Customers are becoming less and less “brand loyal.” Instead, they are choosing products based on capability preferences, and in many cases, they are using embedded services from third-party providers without even noticing them.
Digital native organizations in the banking space are offering UPI payments, mobiles apps and social media payments to grow faster compared to traditional banks. Traditional banks are trying to enter into the same segment but are facing the problems that come with late entry.
Business Composability In Banking
Banks with high composability have managed very well during the pandemic and have captured the market from their peers who could not embrace digital fast enough. The pandemic has provided a great opportunity for traditional banks to recompose their processes and technology to make sure their customers are not impacted.
The future of banking is likely to be shaped by digitalization, whereas banks have to keep digitization top-of-mind to make sure all generations of customers are supported.
The coexistence of digitization and digitalization has been crucial in enabling banks to meet the evolving needs of customers and the rapidly changing business environment. While digitization has enabled banks to offer more personalized services to customers, digitalization has transformed banking operations, leading to improved efficiency and reduced costs.
However, the shift toward digitalization has also brought new challenges, including cyber threats and concerns about financial inclusion; challenges are, as always, opportunities in disguise for improvement and growth.
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