In banking and the broader financial sector, digital transformation is a multifaceted process that involves the adoption and integration of digital technologies and innovative strategies to revolutionize the way that financial products and services are delivered.
Digitalization: Foundational knowledge
Digitalization – developing processes and changing workflows to convert analog data and improve manual systems – has changed industries drastically, and banking is no exception. Today’s finance professional needs to understand how digitalization has evolved banking processes and how this has, in turn, influenced the development of new business models.
You should be able to:
- Identify how the emergence and growth of digitalization in banking led to the development of multichannel and omnichannel banking
- Recognize the business models that have emerged in banking as a result of digitalization and enabling legislation
- Identify the importance of cybersecurity and digital resilience in the implementation of digital banking processes
Digitalization: Open Banking and Open Finance
Open banking – the sharing of customer financial data with third parties with customer consent – is a transformative initiative in banking, finance, and potentially beyond. With roots in the EU’s second Payments Services Directive (PSD2), open banking has become something of a global phenomenon, promoting competition and innovation in the financial sector and disrupting legacy business models.
You should be able to:
- Identify how open banking works and how the model has evolved and developed in various jurisdictions around the world
- Recognize the key considerations relating to data privacy, data security, and the technology architecture used to facilitate open banking
- List how open banking presents banks with the opportunity to monetize their data and capabilities
- Recognize how open banking is evolving into open finance and how ultimately this could be expanded into a much broader open economy concept
Digitalization: Banking as a Service and Banking as a Product
The provision of financial services has traditionally been the exclusive domain of banks. However, the arrival of open banking and the general availability of customer data opened the door for new business models. This has led to banks collaborating with FinTech companies to offer products and services that an increasing number of customers desire. These collaborations take the form of Banking-as-a-Service (BaaS) or Banking-as-a-Platform (BaaP).
You should be able to:
- Recognize BaaS and explain how it works
- Identify the risks associated with Baas and the regulatory considerations
- Compare the characteristics of BaaS against those of embedded finance
- Recognize BaaP, explain how it works, and list the benefits for the different participants
Digitalization: Embedded finance
Embedded finance is an umbrella term that describes the integration of various financial products and services into the business, platforms, and applications of nonfinancial entities. It enables customers of these entities to access these products and services – such as payments, lending, insurance, and investing – without leaving the platform or app they are using, thus providing them with a more convenient and integrated experience where they can undertake their core activities and financial transactions in the same place.
You should be able to:
- Recognize embedded finance, how it evolved, and its drivers
- Identify the different business models for embedded finance and its applications
- Recall how embedded payments work and their benefits
- Identify embedded lending and its benefits
- List the other types of embedded finance
By Ruairi O'Donnellan of Intuition.
