The battle for the digital iron throne

The truth is that banks, especially in recent history, are an essential factor in any society. Banks' stability and activity can be used to measure the strength and level of development of the society or country itself. Thus, the world's largest banks come from the most powerful governments and have a long tradition and long-term stability, the most crucial factor for their success. However, the modern era is inexorably changing our lives, and banks today must move away from their traditional operating model because the "Winter" of digital transformation is coming, or rather, it's already here.

For years, the Serbian banking sector has been considered a fundamental and stable pillar of the entire economy, not only overcoming the crisis that marked the beginning of the 21st century but also achieving significant growth in profits and balance sheet assets in the years that followed. However, the banking sector had to undergo substantial transformations and adapt to market conditions. To reduce operating costs, banks reduced the number of employees by around 6,500, while the number of branches sector-wide decreased by almost a third. Finally, due to market consolidation, the number of banks has been reduced to 25, considering the last transaction in which NLB acquired Komercijalna Bank.

This was only possible because banks had successfully transformed themselves, become more efficient, and significantly digitized their operations. Digital transformation has become a crucial part of banking strategies, and the Covid-19 pandemic has only accelerated the inevitable change.

The digitization of the banking sector opens up many opportunities for banks and clients. Just a few years ago, it was impossible to imagine getting a loan online or the existence of banks that conduct all their transactions exclusively on online or mobile platforms. This trend is accelerating today, especially considering the past year and the impact of the Covid-19 pandemic on the market. It is expected that digital banking will generate around $8.5 trillion by 2025, with an annual growth rate of about 4 per cent.

Digital transformation is a process of constant technological development in which all companies must follow trends and use all available tools to increase process efficiency and profitability. Examples of these tools include "machine learning" and "big data." But to be more concrete, here are some of the primary benefits of digitization in the banking industry:

Customer Experience: Advancements in digitization have allowed banks to enhance the customer experience significantly, moving toward "omnichannel" experiences and customer-centric models. This involves using technological solutions that enable data analytics to create services tailored to the customer's needs.

Increased Customer Base: Given the growing preference for digital banking among customers and the emergence of new alternative institutions (which are not yet available in our market, such as N26 or Revolut), banks must respond with their technological platforms if they want to retain their customers or acquire new ones.

Process Efficiency Improvement: Manual processes in banks are increasingly being digitized. With the advent of electronic signatures, digital onboarding for new clients, and robotic process automation (RPA) or data processing automation, banks can improve their performance and make cost-saving measures that directly impact profits.

Cost Reduction: One of the most significant benefits of digitization in banks is cost reduction, both for the bank and the customer, as every digital transaction, regardless of type, is much cheaper than an "analogue" one.

Better Decision-Making: With greater digitization, data becomes one of the bank's most valuable assets. Based on extensive customer data, banks can react dynamically concerning loans and the overall services offered to the customer.

Banks must make significant investments in their digital operations in the coming period. To use another analogy from Game of Thrones: "Winter is coming." The era of summer and traditional banking is over. If banks want to remain in the market, they must digitize, both externally and internally. A significant battle for customers awaits them, and with digitization, they can win it.