July 27, 2022

Here's how to reap benefits of the 'digitalization in banking' trend

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It’s not hard to see that digital transformation is a dominant trend driving development in banking, with Chinese banks leading through continuous investment and innovation.
However, even the Chinese banking sector has some way to go before the full power of digitalization in banking is realized. There are three key areas where significant digital transformation can take place.
Accelerating digitalization in banking
1 Returning control over personal data
Ensuring consumers’ data rights can be complex. Traditional brick-and-mortar banks have accumulated extensive data through digital transformation, which can be used freely by the bank or commercial parties, while customers are excluded from reaping the economic benefits their data yields.
One solution in the industry to this problem has been to create data accounts, allowing customers to store their data as currency. Banks can then use the data in these accounts at a price decided by the market.
2 Synergizing digitalization in banking with green development
While digital technology can promote green development, the two initiatives are not always in sync. For instance, digital equipment and services have been the largest source of energy consumption for banks.
3 Fair digitization
One crucial outcome of digital transformation is that banks have been able to meet the financial needs of long-tail customers – the unbanked and underbanked – to reconcile, to some extent, broader economic inequity. Digitalization, however, may also bring about new forms of unfairness.
For example, ensuring banking access to those at the lowest end of the financial spectrum remains challenging. The proportion of internet users worldwide still only accounts for 62.5% of the global population. Any user would need at least an electronic device and network connection to carry out their banking, adding a premium to being able to bank.
Advancing digital transformation
1 Open-source digital technology
Traditional banks are not known for their expertise in digital technology. So, in many ways, open-source solutions are the pragmatic path to following the rapidly evolving trend of digitalization in banking.
Traditional banks should follow this example by strengthening peer exchanges about digital technology and exploring possible ways to make their data and technology available to the public.
2 Regularize application of digital technology in banks
The rules governing the application of digital technology vary from country to country, bank to bank and even within the same bank. For example, some apps adopt near-field communication (NFC), a set of short-range wireless technologies. Others don’t and are instead compatible only with certain smartphones. Neither is the scope of customer information gathered by banks consistent.
3 Recognize potential risks of digitalization in banking
Currently, traditional banks are not sufficiently considering the risks of the digitization process and could learn from the international banks that have gained a reputation for leading digitized operations.
If banks take heed of these areas to accelerate and advance digitalization in banking, they could further reap its abundant benefits.

The original content of the note was published on Weforum.org. To read the full note visit here

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