The Imperative of Digitalization in the Banking Sector: A Professional and Banker's In-depth Analysis

 

In the financial landscape of the 21st century, digitalization has become not just an option but a matter of survival for both banks and bankers. It is not merely about technological advancement but a revolutionary restructuring of overall banking operations, customer service, risk management, and business strategy. The leap from traditional physical banking systems to the cutting-edge digital era holds profound strategic importance, which is detailed in the following points:

1. Elimination of the Need for Physical Account Opening:

There was a time when customers had to physically visit a bank branch, wait in long queues, and complete extensive paperwork to open an account. However, digitalization has completely transformed this practice. Now, customers can easily open an account from home or through any other digital medium. Banks have provided facilities to open new accounts via online portals or mobile banking apps, which saves significant customer time and leads to a substantial reduction in the bank's operational costs. This has lessened the compulsion for banks to expand expensive physical branches across the country, allowing them to focus their investments on technology development and product innovation. For bankers, too, their job nature has shifted. Instead of spending time on routine, manual tasks like account opening, they now need to focus on higher-value activities such as assisting customers with digital onboarding processes, educating them about digital products, and providing complex financial advice.

2. Expansion of Marketing Efforts Through Omni-Channels:

In traditional banking, marketing activities were confined to limited means such as distributing flyers, advertising in newspapers, or putting up posters within branch premises. However, in the digital age, the dimension of marketing has expanded significantly. Banks now use omnipresent digital channels for the promotion of their products and services, primarily including websites, mobile banking apps, social media (Facebook, Instagram, LinkedIn), email, SMS, chatbots, and contact centers. This helps banks reach their target customers more effectively and cost-efficiently. For example, a bank can use machine learning to analyze the digital behavior, spending habits, and interests of its customers, and based on that, send targeted advertisements for personal loans or credit cards. Bankers, too, must now not only sell products but also understand digital marketing trends, analyze data obtained from customer online activity, and accordingly present financial solutions tailored to customer needs.

3. Digital Availability and Verification of KYC/AML/CFT and Loan Documents:

Regulatory requirements for Know Your Customer (KYC), Anti-Money Laundering (AML), and Combating the Financing of Terrorism (CFT), along with loan application processes, historically involved extensive paperwork and manual verification. However, digitalization has transformed all these processes into a digital format. Necessary documents (e.g., citizenship, passport, proof of income) can now be submitted digitally and automatically verified from various digital data sources (e.g., government databases, credit bureaus). This helps the bank reduce the time and human resources spent on document management, minimizes the possibility of errors, and overall reduces the risk of fraud and financial crime. For bankers, instead of sifting through physical files, their focus now shifts to monitoring digital verification processes, ensuring data security, and utilizing 'digital forensics' knowledge, if necessary, to detect suspicious transactions.

4. End of Manual Processes and Dominance of Digital Payment Systems:

In traditional banking, a large amount of manual work was involved in account operations, loan processing, trade finance, and other financial services. However, this system has been completely transformed. Money transfers are now happening not through bank branches, but via mobile apps, various software, and digital wallets (e.g., Google Pay, Facebook Pay, Alipay, eSewa, Khalti, IME Pay). The very concept of a customer's 'account' has started to center more on digital wallets rather than directly with the bank. This has led to a significant reduction in the bank's operating costs, drastically increased the speed of transaction processing, and virtually eliminated human errors. Banks are now compelled to collaborate with these digital wallet providers or develop their own robust digital ecosystems to remain competitive in the market. For bankers, too, instead of handling manual calculations or spending extensive time on paperwork, they must now understand the complexities of digital payment systems, the operation of wallets, and be able to resolve technical issues related to various payment gateways.

5. Digitization of Currency and New Opportunities:

We have entered an era where not only physical currency but also digital currencies, such as cryptocurrencies (e.g., Bitcoin, Ethereum) and virtual digital currencies, are becoming increasingly prevalent. This is a significant shift for the financial system. Banks must now accept this new reality and develop new systems and policies for the management and transaction of digital currencies. This also creates opportunities for banks to provide new types of services, such as crypto custody, digital currency exchange, or blockchain-based trade finance. Bankers, too, must now possess fundamental knowledge not only of fiat currency (regular notes and coins) but also of blockchain technology, cryptocurrencies, and virtual currencies. They must be able to advise customers accurately on the risks, opportunities, and future implications of these new asset classes.

6. Widespread Use of Digital Payment Service Providers and Wallets:

Currently, over 90% of financial transactions are conducted not in cash but through digital payment service providers or mobile wallets. Customers now prefer digital payments for everything from grocery shopping to large mall purchases, online shopping to bill payments. This has compelled banks to seamlessly integrate their payment systems with these digital platforms. Any bank that fails to provide a good digital payment experience risks losing a significant portion of its customers and transactions. For bankers, this is a crucial change where they must now understand the features of digital payment systems, teach customers how to scan QR codes or make payments via mobile banking apps, and be able to resolve any problems that may arise with digital payments.

7. Digital Service Providers Possessing Larger Volumes of Data than Banks:

Nowadays, e-commerce companies, social media platforms, and digital payment solution providers often have access to far more detailed customer behavioral data (e.g., what a customer buys, from where, how much, when, and what locations they visit) than traditional banks. This data allows for in-depth analysis of customer interests and needs. For banks, this is both a challenge and an opportunity. They must strengthen their data analytics capabilities, using their existing transactional data combined with new sources, to analyze customer behavior and spending habits to develop targeted and personalized financial products. Bankers must now acquire fundamental knowledge of data analysis. They should be able to interpret insights derived from data to understand customer financial needs and provide appropriate solutions.

8. AI and Machine Learning Replacing Conventional Bank Processes:

Traditional banking processes such as data preparation, processing, analysis, and decision-making are now being revolutionized by Data Analytics, Artificial Intelligence (AI), and Machine Learning (ML). AI-powered systems can analyze millions of data points in a short time to detect fraud, assess credit risk, forecast market trends, and recommend products tailored to customer demands. This brings an unprecedented increase in the bank's operational efficiency, reduces costs, and makes the decision-making process more accurate and faster. For bankers, their role shifts from manual and repetitive tasks to interpreting AI-generated analyses, making strategic decisions, and providing more personalized and valuable advice to customers.

9. Development of Pre-Approved Services and Smart Financial Solutions:

Thanks to digitalization, banks can now offer highly personalized and efficient services like pre-approved loan products based on real-time credit assessments, accurate financial projections, instant remittance services, and streamlined bulk transfers (e.g., 'mud transfer' for large inter-bank transfers). This has made the customer experience incredibly smooth and fast. Banks are discovering new revenue streams and increasing customer satisfaction through these automated and personalized services. Bankers must understand how these automated systems work, explain the terms of pre-approved loans, and be able to troubleshoot technical issues with instant payment or remittance services.

10. AI and Data's Ability to Understand Customer Needs and Provide Tailored Service:

AI and data analysis systems determine "what, who, when, and how" to serve the customer. They ascertain whether a service request is genuine, eligible, and procurable. These technologies understand the customer's interests, desires, feelings, and even their digital and physical footprints (online searches, purchase history, location data), allowing them to grasp needs, priorities, capacity, ability, and even predict past, present, and future financial behavior. For example, if a customer has repeatedly browsed real estate websites, AI can recommend to the bank to offer them a home loan. This helps the bank deepen its relationship with customers and provide appropriate services at every stage of the customer lifecycle. For bankers, their role now centers on building deep relationships with customers based on the rich insights provided by AI, solving complex problems, and providing human-centric advice.

11. Failure to Embrace Digital Transformation Leads to Elimination from Banking:

Ultimately, ignoring or resisting the importance of digitalization, AI, data analysis, and machine learning in the banking sector is tantamount to professional suicide. This challenge applies not only to banking but to virtually any service industry. 

Those who do not embrace this digital transformation cannot survive in the competitive market.

 * For the Bank: 

Banks that fail to invest in digitalization cannot reduce their operating costs, cannot attract new customers, and will eventually lose market share. They are bound to fall behind in the competition by being stuck with outdated technology and processes.

 * For the Banker: 

Bankers who do not adapt their skills to the needs of the digital age will find their roles progressively obsolete. As traditional manual tasks become automated, bankers must learn new technologies, become proficient in data analysis, collaborate with AI tools, and develop the ability to connect with customers in new ways. Otherwise, they risk losing their jobs.

Conclusion:

Digitalization is not just a 'trend' but the inevitable roadmap for the future of the banking sector. It helps banks become more efficient, secure, customer-centric, and profitable. For bankers, it is an opportunity to elevate their roles from traditional tasks to more intellectual and strategic functions. Embracing and moving forward with this change is the key to the sustainable success of both banks and bankers.

Author:Surya Prasad Sharma

Biratnagar (02/05/2025)

(edited by AI Tool)