What comes under the scope of digital transformation? How does it differ from digitization and digitalization?
Digital Transformation vs. Digitization vs. Digitalization: Decoding the Concepts
The term digital transformation captivates every enterprise leader. Given the hype from software vendors and analysts, it’s hard to find an enterprise technology today that doesn’t self-endorse as a critical component of digital transformation.
While everyone seems to agree that digital transformation involves employing technology to accomplish business goals, there are differences of opinion among companies on what digital transformation is and isn’t. For a few, it means getting into e-commerce or moving into a cloud database. Some consider digital transformation as the adoption of advanced technologies like the Internet of Things or Artificial Intelligence to become more competitive.
With a lot of uncertainty prevailing on digital transformation’s scope and purpose, let’s take a closer look at what digital transformation means and not.
Digitization, digitalization, and digital transformation: Don’t confuse them
An excellent example of digitization is the conversion of paper-based forms and documents into electronic spreadsheets. Digitization enables businesses to cut costs to become more efficient. However, that’s the only competitive advantage it offers, either getting better or cheaper. Exactly what Microsoft Office did during its initial days by helping us compose and save documents easily.
With Big Data, Cloud Computing, and DevOps becoming ubiquitous, digitalization advanced businesses’ need to expand their online presence. A field service provider who never relied on software to run her company is now using an FSM suite to manage accounts, send invoices, create and schedule work orders, and generate reports. A digital strategy- such as a website or a mobile app- is inevitable for a business to stay connected with its customers in this digital world.
In addition to cost reduction and differentiation, digitization and digitalization are intended to simplify what a business does without drastic augmentation.
Digital transformation shifts the focus from the engineering mindset to the experience mindset. Peloton bike that offers an immersive cardio experience is a recent example of digital transformation. Peloton’s latest $2300 exercise bike streams customized workout content to its users through the large 22″ touch screen attached to it. Peloton applies user data tracking, engagement, and experience to replicate the studio-grade experience. This appeals to a vast customer base.
When most of the outdoor gyms were shut down due to the COVID-19 pandemic, Peloton transformed the indoor exercise experience for their customers with personalized content streamed live as well as on-demand.
“Digital transformation can simply be defined as the application of new and emerging technologies to make fundamental changes to your business model.”
Digital transformation: Three areas of focus
“It’s not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change,” wrote Charles Darwin in 1809. For businesses, keeping up with the change is no longer an option but a condition. How can business leaders seize the opportunity and lead the change?
1. Build and deliver customer-centric experiences
Digital transformation reimagines and redefines the customer experience. It isn’t easy to find a sector that is not disrupted by technology today.
Dairy farming, one of the most traditional industries that still follows farming practices passed down from generation to generation, is now embracing emerging technology to get smarter.
“Connected cows” – cows wearing pedometers and Fitbit-style necklaces to monitor feeding habits, acid monitors to detect digestive problems, and other cow-monitoring mechanisms to oversee milk production, smooth calving process, and ensure cattle health is an example of digital transformation in a traditional industry. The “connected cows” farming has led to greater crop yields and simplified the management of larger livestock herds.
Doesn’t emerging technology improve the farmer’s experience who first checks out her mobile or PC before heading to the stable in the morning?
2. Make the best of advanced technology
The early IT activities were focused on cutting costs and reducing human efforts by building relatively simple applications. With the growth and complexity of computing platforms and software applications, businesses have been showing the hunger to find the next big thing in technology that can enhance not just what they deliver but how they deliver. The ubiquitous digital assistants such as Apple’s Siri, Google Now, and Amazon’s Alexa can understand and recognize the context and enable businesses to improve customer interactions by not just being responsive but proactive.
Oncologists and pathologists use machine learning to discern patterns in symptoms to detect cancerous tissues or analyze bodily fluids. Mixed reality (MR) technology that breaks the barrier between physical and digital worlds is now getting mature enough to take digital data and place it in our actual environment. Ohio-based Case Western Reserve University uses Microsoft HoloLens devices to study human anatomy where an entire class can view the same life-sized 3D image at once. IoT applications that gather data continuously are programmed to improve the quality and productivity of life, society, and industries.
Robotic Process Automation, Blockchain, Augmented and Virtual realities, Artificial Intelligence- are all emerging technologies that enable digital transformation by enhancing customer experience. With numerous open-source libraries made available by tech providers like AWS, IBM Watson, Google Cloud, and various other vendors, it’s now possible for anyone to experiment and create POCs free of cost. The democratization of technology accelerates digital transformation.
3. Culture, organizational structure, and processes
“Transformation isn’t a plan or program; it’s a chain reaction of experiments,” says Joris Merks-Benjaminsen, Head of Digital Transformation at Google.
Fostering an environment of openness, business leaders can create a culture that allows ideas to flourish. Fluid structures, tools, and workplaces encourage employees to think outside the box and embrace change. Predictive models solely based on past experiences will only have a short-term impact. If you can offer more flexibility in the design and logic of a business case, people are more likely to invest their time, effort, and skills in things that matter for transformation.
Enterprise leaders can make way for transformation by:
- Supporting people focus on the future by establishing a stable long-term vision that includes well-defined challenges for them to work on.
- Implementing tools that facilitate cross-team collaboration and encouraging everyone to connect irrespective of hierarchy or position in the org chart.
- Adopting a “test and learn” approach, including “learning from mistakes” and rewarding experimentation. Small gestures of appreciation like awards and incentives inspire employees to practice acts of innovation.
Passionate leadership that cares about the customer and stimulates forward motion by encouraging entrepreneurship will successfully ride the transformation wave.
What digital transformation means today
Before Netflix, we used to scour shop racks in search of tapes, discs, and DVDs. Today, Netflix has transformed our content consumption experience by leveraging AI-driven content recommendations, live streaming, and endless libraries of digital content served upon our personal devices, topped with personalized suggestions, reviews, and attractive subscription options.
Digital transformation is not about how your business can sell more products to more people. It’s about making your customers spend more than they would otherwise. Rather than repositioning your brand as a seller of your products, you should aim at transforming to be a solution provider that helps solve your buyers’ woes and enhance their experience. If the first wave of transformation brought businesses online, the current wave of transformation requires businesses to innovate their selling process and offer new services and products that can solidify customer loyalty.
Need help with your digital transformation goals?
Fingent is setting up practices to actively leverage third-party developer innovation to reduce the time-to-market for our customers and us. One of our products, InfinCE, is empowering small businesses to achieve digital agility without the need to own infrastructure or an IT practice. ReachOut, another product, has digitized several field service businesses through automation of manual operations, digital inspection forms and checklists, and intelligent scheduling.
Fingent’s team is highly experienced in helping businesses solve their digital transformation challenges. We have partnered with businesses worldwide in their digital transformation projects. We can help you define your vision and create robust digital transformation plans that enable your business to transform and grow. To take advantage and get the ball rolling, please get in touch with Fingent.
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Embedded finance, aka embedded banking, is transforming the financial services distribution model. E-commerce companies, Point-of-Sale systems, ride-sharing apps, food ordering apps, and other digital financial service providers consider it a revenue opportunity.
Is 2021 the Beginning of the Embedded Finance Era?
With over $7 trillion in revenue, embedded finance has generated a significant buzz in the FinTech market. Sadly, the financial services industry has not upgraded its core business model in years, and the COVID-19 pandemic has made the need even stronger than before.
While banks and insurance companies have spent exorbitant amounts of money digitizing their existing processes, it is high time that they invest fully in creating digital business models to recover the economic crisis.
Embedded finance helps businesses overcome digital adoption barriers and offer outstanding financial services to customers. While embedded finance will benefit the economy globally, its potential implication for the FinTech industry is massive.
Fingent’s FinTech application development services continuously provide financial service and technology innovations, valued by global financial services institutions.
What is Embedded Finance?
Embedded finance is the amalgamation of a non-financial service provider with a finance service. It allows enterprises to create new revenue streams and reinvent the services they offer their customers. It is beneficial to both the enterprises as well as users. In most cases, it is easier to buy products from one single source instead of interacting with many other businesses over the day.
FinTech is already growing at a significant rate, and the pandemic has caused more people to use day trading platforms from lending sites to stocks.
As the world will start incorporating FinTech in their lives, embedded finance opportunities will increase in the future.
What are the opportunities for Embedded Finance?
The most significant advantage of embedded finance is that it streamlines financial processes. Previously, there was a gap between a consumer and the service provider or seller. So, the consumer would often approach a lender or a bank to bridge the gap. However, with embedded finance, the need for a third-party bank or lender is eliminated. Here are a few examples to understand how embedded finance can help you.
Read more: FinTech Innovation: What Is In Store?
1. To make payments
For some consumers, paying with cash for a purchase hurts, making them reconsider a purchase. Embedded systems help eliminate this pain. A consumer using a mobile app with an embedded payment program can tap a few buttons and make a purchase instead of digging into their wallets for cash – for example, a ride-sharing app like Uber. So, when you book your ride, you don’t have to pay the driver cash or pull out your debit or credit card at the end. Instead, you complete the transaction in the app after you reach your destination. You can also use the embedded system to order your favorite cold brew or lip-smacking snack from Starbucks. The mobile app allows users to order and pay for their best-loved delicacies. Starbucks’ online ordering system also rewards customers with redeemable points for every purchase.
Before embedded finance, a person had to apply for a bank loan or open a credit card if he/she needed to borrow money. However, with an embedded system, a person can apply for and secure a loan at the time of purchase.
Klarna and AfterPay are examples of embedded lending. These programs split an online purchase into smaller monthly payments. For instance, a payment of $100 can be divided into four installments with $25 each.
The need to consult an insurance agent or broker for purchasing an insurance policy is eliminated with embedded insurance programs. In the past, buying insurance was needed to buy a car or a house. Also, it was a completely separate part of the process. Some companies have now found ways to speed things up and increase their bottom line by embedding the action of applying for an insurance policy into making a necessary purchase.
For example, Tesla offers an insurance program that allows people to purchase an appropriate amount of coverage almost instantly. Additionally, the insurance available directly from Tesla costs less than a policy from a third-party insurance provider.
Most people feel investing is a complicated process and prefer to stay out of it. However, embedded banking programs help simplify the investing program.
For example, Acorns is a program that invests your spare change by rounding up purchases, thus making investing seamless and touch-free. It doesn’t require you to manually pay back the money since the app takes care of that. They adjust their portfolio according to the market, and so you don’t have to pay attention to the values of mutual funds or stocks.
How can enterprises use embedded finance or banking in their products or services?
Organizations can embed finance or banking in several ways. Even companies that are not in the FinTech industry are seeking ways to offer financial services. For instance, Shopify is offering lending services and bank accounts to companies. Organizations like Udaan and Grab have also started financial services like Udaan Credit and GrabPay.
In some cases, companies can act as connectors between financial services and non-financial businesses. For example, organizations can use a data transfer network by Plaid to offer financial products.
Another option for companies is that they can work with businesses that embed the required infrastructure into their products or services. With an increasing number of transactions and payment processing, the platform ecosystems can expand quickly, giving rise to the need for external financial services.
How is embedded finance beneficial to companies?
1. A new revenue system
Most customers show displeasure when redirected to multiple applications or experience a failed transaction due to timeout. The best resolution to this issue is to have a single unified flow in the customer journey. Customers would stay loyal to a brand if they have an easy-to-use eCommerce website.
Companies can charge a small fee as a commission on such transactions. It helps companies to have a new revenue opportunity without investing in bringing in new customers.
2. Increased hit rate/footfall
Embedded finance products can boost footfall if they can provide an overall improved experience. Given the cut-throat competition, customer loyalty can decline when a better product is launched in the market. Consumers will not hesitate to switch their allegiance to a competitor as long as they get what they need.
Companies can expect an increase in hit rate and better scope of converting users to potential customers with embedded finance products. If the transactions are smooth, the conversion rate will improve.
3. Use existing resources
Organizations need not worry about the expenses and resources needed to acquire new customers or procure high-level infrastructure. By including a financial angle to create an embedded product, you can modify the current systems.
4. Improved customer experience
Embedded finance helps companies create a unified journey for their customers. Offering more services to the customers will eliminate their need to deal with a third-party vendor for completing their transactions. It will result in higher profits. The direct connection between the customer and the company will help improve the customer experience significantly.
How will embedded finance change the future of the FinTech landscape?
With the evolving nature of technologies, embedded finance will persist due to its customizable nature. It will give rise to new opportunities and reduce the gap between various industries and their interactions.
Companies must be open to collaborating to build a bigger market, survive, and stay ahead of the competition. Software solutions providers and technology companies like Fingent play a crucial role in boosting the financial services landscape. Contact us to know more about our FinTech software development services and solutions.
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What Is Next For Financial Technology Innovation?
User Experience is the King. The more demanding UX gets, the higher is the rate of fintech innovation. Until recent years, the FinTech industries had seen growth in mobile banking and increased technology investments. For instance, Mastercard is a rapidly evolving FinTech innovation, and its overall investment is estimated to be $16.6 billion.
In this regard, it is required that Governments take up a holistic approach to create business environments to enhance FinTechs. FinTech firms not only provide new market solutions but also increase the efficiency of the banking and financial industry verticals.
Regulatory Barriers For FinTech Innovation
Hedge funds, personal loan providers, and many other firms in the financial sector can be developed by preventing regulatory barriers that slow down FinTech innovation. In the recent past, the following were some of the potential barriers to the growth of FinTech innovation:
- Technology – For a company to be successful, it needs to know which technology would be beneficial for them. For instance, online trading provides people with access to their profile from their smartphones or computer systems. This is an example of a trial and error method in technology solutions that can be a potential barrier to some industries.
- Capital – Emerging markets need good investors. Top investors hesitate to invest in new markets. The market in which you operate is another key factor. There must be a streamlined system of funding to disrupt this barrier.
- Degree of Market Play – It is important to get a significant level of trust in the market in order to get close enough to banking institutions. Such high entry pressure is another potential barrier.
- Numerous Mobile Banking Services – There are multiple mobile banking applications on the rise that allow account management and other financial transactions online. This becomes difficult to choose between the lot.
- Increased Technology Investments – According to recent research on FinTech Global, the investments have doubled from $19.9 billion to $39.9 billion. FinTech attracts numerous investors who are interested to invest in the latest technology trends.
FinTech Innovation: What’s In Store For The Future?
The future of FinTechs largely relies on technology breakthrough ideas. Let us look at the major drivers for FinTech Innovation:
‘Regulatory Sandboxes’ To Understand Regulatory Boundaries
The idea of a ‘Regulatory sandbox’ was initiated back in 2015 in the UK. The purpose was to speed up the product development of FinTechs. The purpose also included establishing quick launch cycles. Companies allow testing of their solutions in a controlled environment. These regulatory sandboxes allow testing for a specific duration, say 6 months and is performed without the regular imposing of regulatory costs and difficult procedures immediately.
With this, the innovators can test their solutions and see the possible regulatory boundaries that evolve. This can also help firms make critical decisions on regulating new solutions and services in the future.
Some countries like the UK promote additional environments for sandboxes such as tax policies for creating business solutions, tax deductions, training, regulation, protection of rights to do business, etc.
Right Solution: Enabling FinTech innovations, need the solving of numerous challenges by market governments. FinTech can be supported directly. Early adoption of FinTech and incorporating policies, improving digital connectivity, implementing payment channels, etc., can be done to create a FinTech enhanced environment.
Customer Service With Better Technology For Increased Value
Firms that provide global services require the help of technology to increase their efficiency and largely reach their customers. Financial establishments require a medium for easy communication with their customers to provide a better user experience.
Different industry verticals can look up to technology for operating with reduced costs and better business processes. This brings upon good prospects for FinTech innovations.
Right Solution: Providing good customer experience requires technology implementation. It can help streamline various business workflows and also increase business value.
The best solutions that can be leveraged from technology is as follows:
1. Artificial Intelligence: Customers need better UX. Businesses have realized that chatbots and other AI integration in their services increase value. In addition to reducing the workload of employees, optimizing expenses, managing resources, and many other huge benefits, it also gathers large volumes of data to provide critical insights for businesses to make important decisions.
2. Blockchain: To be able to record transactions without the intervention of a central authority is the power of most of the cryptocurrencies. FinTechs on Blockchain has been the most disruptive technologies in the financial industry verticals. Blockchain is the most suitable medium in which (AML) Anti-Money Laundering can be applied. Blockchain technology offers faster transactions, greater anonymity, and better data management.
3. BigData: There is no bigger tool than BigData that banks can leverage to provide a better service to customers. There is approx. 2.5 quintillion bytes of data being generated across the globe. FinTech companies can leverage BigData for use in customer segmentation, managing risks, detecting fraudsters, better compliance and by offering personalized services.
Digitizing Industries For Increased Value
FinTech Digital Revolution provides new innovations with the digital offering for financial services. Current technologies have proven to be very effective and powerful to safeguard transactions. Another benefit is that the transaction costs are considerably lower with the decentralization of blockchain which has made FinTechs reasonable.
Cryptocurrency along with the evolving FinTechs shape the whole economy by building layers of new business models.
According to the latest Statista reports, FinTech adoption rates were as huge as 69 percent back in 2017 which is 2018, the total investments touched $111.8 billion.
Sharing Of Technical Know-How Among Various Industry Verticals
Financial Institutions and FinTechs can both benefit from sharing of technical knowledge. Financial service companies can scale and traditional banks can improve innovation and also reduce costs out of leveraging technology trends.
Traditional banks can leverage their huge data assets which in many cases remain unutilized. Data sharing can be performed with transparent terms that can help manage risks, provide enhanced customer service and provide cost-effectiveness. Banks thus obtain the chance of increasing revenue and FinTechs get access to a huge customer base.
There are many more strategies that FinTechs have to improve their customer base and operating efficiencies. To find out how many more aces FinTechs have up their sleeves, drop a call to our IT experts and strategists right away!
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The impact of mobility goes much more than facilitating on-the-go online transactions. Mobility powered digital commerce has the potential to give a big boost to financial inclusion, throwing open banking facilities to people hitherto cut off from the same. At a macro level, it can propel growth, boosting the economy and the GDP of the country itself.
“Emerging economies,” such as India, Brazil, Philippines, and others are neither here nor there in terms of the economy. While such countries do have a strong banking system, generally the system is archaic in nature, with limited number of savings and credit products, and high fees. Moreover, a good chunk of the populace and small businesses, 1.6 billion people and 200 million micro, small and mid-size businesses to be precise, do not have access to such credit and savings products altogether. The mobile phone is a panacea to such woes, offering both the deprived and those already in the conventional banking system access to digital finance.
Digital payments and financial transactions, conducted through smartphones and other mobile devices are now a vital cog in the financial infrastructure of modern, developed economies such as the US and the Eurozone.
How Digital Finance Benefits
Digitization of financial transactions extends the traditional mobility benefits to finance, facilitating anywhere, anytime transactions, and flexibility in sending and receiving payments. It improves efficiency of the process, and offers a world of convenience as well. This apart, the widespread adoption and use of mobile phone powered digital finance is a win-win for everyone.
- Individuals and small businesses gain easy, wider, and often cheaper access to loans, over and above traditional and informal sources. McKinsey estimates an additional $2.1 trillion of loans would be available to individuals and small businesses, from current levels.
- Loan providers not just gain access to a whole new customer base, but also stand to save $400 billion a year in direct costs, considering digital accounts are 80% to 90% less expensive to service compared to traditional accounts. Overall, financial services providers could increase their balance sheets by an estimated $4.2 trillion.
- Digital finance can reduce leakages in collection of taxes, delivery of public services and transfer of subsidies. Governments gain a potential by $110 billion per year on these fronts.
- Service providers, such as telecommunications companies, payments providers, financial-technology start-ups, retailers, and others have a huge business opportunity on their hands. Even within banks and financial service providers, digital finance offers a new level playing field, giving everyone a more-or-less equal opportunity to establish dominance.
Consider the case of a farmer in rural India, who travels for kilometers and spends almost the whole day, just to make a utility payment. The same farmer gets paid just once or twice a year, during the time of crop harvest, but has no access to banks, to save the money. His business is highly risk-prone, at the mercy of monsoons or droughts, but he has no access to insurance. The smartphone can transform his life, by allowing him to accept payment in bank account, make utility payments in just a few minutes through the mobile wallet linked to the bank account, and likewise buy crop insurance on-the-fly.
Digital finance also allow small businesses integrate themselves to the formal mainstream economy, without being dependent on the local middleman. For instance, 70,000 small e-tailers from remote and desolate rural communities in China now sell on the Taobao marketplace, accepting payments digitally.
At a macro-level, digital financial inclusion has the potential to increase the GDPs of emerging economies by around 6%, or by $3.7 trillion, by 2025. This figure equals the size of Germany’s GDP. The resultant growth has the potential to employ 95 million people. The potential however varies from country to country, with countries such as India, Ethiopia and Nigeria having the potential to add as much as 10% to 12% to their GDP, whereas countries such as China, Brazil, and Mexico could add about 4% to 5% to their GDP.
The Long Road Ahead
Realization of such benefits was a long drawn out process in the developed countries, with digital finance maturing over time, in sync with the development of mobile internet infrastructure. Emerging economies can gain similar benefits while fulfilling the pressing need of financial inclusion, without going through similar efforts, since the mobile infrastructure is already in place in most parts of the world. About 80% of adults in emerging economies already have a mobile phone, whereas only 55% of them had a bank account, as on 2014.
However, there is still considerable ground to cover in most emerging economies before they can realize the full benefits of digital finance.
- Individuals may need to purchase a smartphone, or would need to upgrade their mobile phones. While this may sound obvious for the urban educated elite, it is still a tall ask for the rural poor, the primary targets of financial inclusion.
- Mobile service providers may need to roll out 3G and 4G networks over a wide area, before mobile powered digital finance can become widespread.
- Businesses would need to roll out digital financial products that offer better value and cost less than conventional financial tools and products. If they import digital financial products from the developed economies, they need to localize it as well, and ensure it meets local compliance regulations.
- Digital payments could unlock new finance and business models, such as peer-to-peer lending. There is a pressing need for regulatory innovation to facilitate such new models.
- There is also a need to change behavioral patterns and preferences, to make digital finance acceptable. NGOs or other agencies need to take the lead in educating the masses on smartphone usage and how to gain benefits from digital finance.
The onus is on the governments and stakeholder businesses to make a concerted and coordinated effort in such direction.
Efforts are already underway in several emerging economies to facilitate digital finance. For instance, in India, the “Pradhan Mantri Jan Dhan Yojana” (PMJDY) aims to establish the backbone of digital payments initiative by opening bank accounts for all citizens.
However, much work still needs to be done. Financial and banking apps emerge as major conduits for digital finance transactions. Players who aim to grab a pie of the lucrative digital service market need to roll out intuitive apps that enable various possibilities and make digital transactions easy. It pays to partner with an established provider who have considerable experience in developing financial apps and software. We fit the bill perfectly on all counts, offering app and software solutions to enable your business gain new ground.