By Craig Holmes – Over the past few years, organisations across sectors have embarked on their digital transformation journeys at a moderate pace following industry predictions. The pandemic fast-tracked digital transformation as companies looked to emerging technologies in order to avoid business interruptions and ensure business continuity.

The banking sector was no different, digital transformation and adoption are the foundation of banks’ priorities as the use of digital channels and customer self-service continue to grow at a rapid pace. In this fast-evolving environment, banks are embracing hybrid-cloud solutions, AI, and emerging technologies to become more agile and benefit from new market opportunities – while remaining secure and compliant.


The new digital face of banking

While the world assesses the overwhelmingly negative economic impacts of the pandemic, it is important to note that challenges stemming from Covid-19have also acted as a catalyst for positive change, such as the shift towards digitisation, cashless payments, and e-commerce.

Lockdowns and social distancing drove consumers online en masse; where even the non-tech-savvy and consumers of all ages discovered and embraced the convenience afforded by digital channels.

According to McKinsey, digital payments have become the new preference for consumers, and in 2020 alone, over $490-billion in transactions occurred through digital payment channels in sub-Saharan Africa.

In South Africa, e-commerce transactions are expected to be R225-billion by 2025.  Simultaneously, banks have seen a significant increase in the use of financial technology platforms and applications, and a continued decrease in branch openings.

The demand for contactless payment cards or digital wallets is increasing – driven primarily by high smartphone penetration and technologically savvy millennial populations with a high desire to try new solutions.

The taste for tech solutions by this demographic has also opened doors for challenger banks – digital-first and branchless banks that live only online.

With the continent largely made up of young people, there is great demand for inclusive financial solutions, and in this environment, innovation and improved customer experience have quickly become a competitive advantage for banks.

Digital transformation will not only improve customer experiences, but will also enable more efficient, cost effective processes within banks. Tokenisation through blockchain offers real-time, secure, and transparent processing of assets such as credit letters increasing efficiency.

With user-friendly interfaces, enhanced data analytics, IoT devices, robots, and the use of artificial intelligence (AI)-enabled chatbots, banks are increasingly in a position to proactively assist customers, predict market trends, and deliver simpler, more personalised banking experiences.


A path to traditional banking innovation

Emerging technologies and innovations present a wealth of new opportunities for open banking as traditional banks collaborate with fintechs in secure financial ecosystems to bring innovative products and services to market.

Fintech start-ups and challenger banks are able to quickly create and implement new applications and functions to make services more accessible and personalised.

While banks can leverage their trusted status to become the hubs around which an ecosystem of fintechs offers a variety of niche, innovative services. To customers, the ecosystem appears to be a single cohesive brand offering a broad range of products and services.

But behind the scenes, multiple fintechs are seamlessly integrated and interconnected through a hybrid cloud platform and APIs.

This “platformification” of banking, underpinned by hybrid cloud and AI, gives financial institutions the flexibility to rapidly innovate and stay competitive.

By using an open, hybrid multi-cloud architecture, traditional banks, challenger banks and fintechs gain agility and scalability within a secure environment, without impacting legacy infrastructure investments.

While the cloud offers clear advantages to banks and most are actively using cloud services, few have actually moved mission-critical regulated workloads to the cloud to date. In many cases, this has been due to concerns about whether cloud environments complied with stringent security and regulatory requirements.


Secure hybrid cloud to support financial services agility

However, there have been rapid advances in cloud security and compliance in recent years. Not only have some public cloud service providers built advanced security and resilience into their offerings, but the emergence of hybrid cloud models delivers even greater security and compliance for regulated and risk-averse industries.

A hybrid cloud approach offers a mix of public cloud flexibility and private cloud security to enable both compliance and the freedom to extend beyond the data centre to innovate in the cloud. In a hybrid approach, an on-premise cloud can be optimised for operational availability and stability, while an off-premise cloud can be leveraged for the speed and agility essential to enriching customer engagement.

In addition to fast-tracking innovation, hybrid cloud models reduce costs, drive efficiency, spark innovation,are safer and allow financial institutions to “keep their own keys” to sensitive data.


Fast forward for banks

It is important for banks to continue to re-examine their strategies and tools that will set them apart. Innovation often creates superior long-term benefits and practices.

The digital revolution induced by the pandemic has led digital banking to become the norm and the new ways of interacting with banking services are only going to intensify.  T

hanks to the mainstreaming of advanced digital technologies, the future of banking across Africa is dynamic and exciting.

Now is the time for financial services institutions to prepare for the new era of banking by becoming hybrid cloud ready, embracing AI and emerging technologies and building a strong ecosystem of partners – be they fintechs, startups, challenger and neo banks – to be able to offer an array of services to their customers at a quick pace and lower cost.


Craig Holmes is the technology leader at IBM Southern Africa