MANAGERIAL FINANCE
(FIN745)
GROUP ASSIGNMENT
TERM PAPER ANALYSIS
GROUP B – DIGITALIZATION OF BANKING IN MALAYSIA
ALL SET “READY”
PREPARED FOR:
DR. NOR HALIDA HAZIATON MOHD NOOR
PREPARED BY:
MOHD SYAFIQ BIN MOHD SIDIK 2022203128
NURFAZILA SHAZWANI BINTI MOHD ZULKIFLI 2021166031
NURFAZILA SHAMIMI BINTI MOHD ZULKIFLI 2021500161
TABLE OF CONTENT
TITLE PAGE NUMBER
1.0 INTRODUCTION……………………………………………………… 1
1.1 What is banking?…..………………………………………………….. 1
1.2 What is digitalization?………………………………………………... 1
1.3 What is digitalization of banking?.………………………………….… 2
2.0 EXAMPLE OF DIGITALIZATION OF BANKING TREND……… 3
2.1Artificial Intelligence (AI) and Machine Learning (ML)………..…...... 3
2.2 Orchestration platforms …………………………………………..…… 4
2.3 Digital Wallet…………………………………………………….……. 4
3.0 EXAMPLE DIGITALIZATION SERVICE NOWADAYS................ 5
4.0 WHY WE AGREED WITH DIGITALIZATION IN MALAYSIA 5
BANKING?..............................................................................................
4.1 Cost saving………….…………………………………….……………. 6
4.2 Improve useability……………………………………………………… 7
4.3 Greater personalization……………………………………... …………. 8
4.4 Wow- features………………………………………………...………… 9
4.5 The digital world is the future………………………………................... 10
4.6 Improves the relationship with customer……………………………….. 12
5.0 CONCLUSION…………………………………………………………. 13
6.0 REFERENCES……………………......................................................... 14
1.0 INTRODUCTION
1.1 What is banking?
Banking is the process of accepting deposits from the general public that can be repaid on demand
or in another way, as well as the withdrawal of funds via checks, drafts, orders, or other means.
An essential component of the contemporary economy is banking. But over a lengthy period of
time, modern banks' characteristics and operations have changed. These days, banks deal in
foreign exchange as well. The research of Cao (2022) also mentioned that bank is a type of
financial organization that handles advances, deposits, and other associated services. It is a
financial institution that takes deposits from savers and disburses loans to borrowers. A bank is a
type of financial organization that receives deposits and uses them as a means of funding loans,
either directly through lending or indirectly through the capital markets. Customers with capital
surpluses and those with capital shortages are connected through banks.
Because of their power within an economy and financial system, banks are typically subject to
strict regulations in most nations. The majority of banks use a system called fractional reserve
banking, in which they lend out the remaining money for profit while holding only a small reserve
of the deposited cash. They are typically subject to minimum capital requirements, known as the
Basel Accords, which are based on an international set of capital norms (Cao, 2022).
1.2 What is digitalization?
The process of converting an analog system to a digital one is called digitalization, or digital
enablement. Put another perspective, digitalization is the process of converting an analog process
to a digital version without causing any modifications to the process itself (Gartner, 2022). It has
been determined that the biggest technology development affecting business and society at large
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is digitalization. Businesses are under continual pressure these days to employ digital technologies
and modify their business strategies to fit this new world. Going digital, though, has certain
advantages, but there are fees and expenditures involved as well (Matt, Pedrini, Bonfanti, & Orzes,
2023).
1.3 What is digitalization of banking?
A digital bank is one that conducts business online and offers its clients services that were
previously exclusive to bank branches. To service clients through online channels, digital banking
entails digitizing all conventional banking goods, procedures, and operations (Phuong, 2023).
Usually, they consist of the activities in addition to standard banking services that are accessible
around-the-clock on computers, smartphones, and other suitable smart devices, all without
requiring a consumer to physically visit the bank.
In light of this, digital skills are necessary to maintain the banking system's digitization. Users of
digital banking benefit from the advantages of digital technology as well as the simplicity of
financial transactions. Customers using digital banking can access financial information via mobile
devices, utilize credit cards for online purchases, manage their accounts remotely, transfer funds
to other banks, and do simple online banking operations without physically visiting the bank. Since
its inception, digital banking has developed in a beneficial way. The increasing number of people
using digital banking is evidence of this.
2.0 EXAMPLE OF DIGITALIZATION OF BANKING TREND
The process of switching from outdated, analog services and processes to more contemporary,
digitally-focused systems is known as digital transformation in banking. The ultimate purpose of
digital transformation is to create company value by embracing innovation, increasing efficiency,
and improving customer experiences. Below is the example of digitalization of banking.
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What are the banking tech trends for 2023?
2.1 Artificial Intelligence (AI) and Machine Learning (ML)
Machine Learning is a subfield of Artificial Intelligence, allows software applications to generate
more accurate predictions after analyzing vast volumes of data, significantly lowering risk for
banks and other financial organizations. AI combines computer science and strong datasets to
enable problem solving. The necessity for banks to use AI and ML has grown significantly as a
result of the rise in loan default, credit card fraud, identity theft, and money laundering.
These are the first trend that is already well-established in today's world. Streamlining expenses
and internal procedures is a top priority for many businesses, and the foundation of these efforts is
the use of AI and machine learning technologies. Artificial intelligence and machine learning tools
can help businesses make better, more educated decisions, offer more individualized customer
experiences, and automate a lot of laborious, manual work that employees would otherwise have
to handle. The digital transformation of banking will still heavily rely on artificial intelligence and
machine learning.
Figure 1: The benefits of Artificial Intelligence and Machine Learning
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Figure 2: The key uses of Artificial Intelligence and Machine Learning
2.2 Orchestration platforms
This is another thing that 2023 is probably going to see more of. As per Gartner, "Efficiency risk
management are enhanced through orchestration solutions throughout digital user journeys.
Leaders in risk and security management should employ journey-time orchestration features to
lower complexity, lower risk, and provide a more dynamic user experience. Orchestration is an
essential component of any digital transformation project, serving as a vital link between the many
components of the digital user journey.
2.3 Digital Wallet
Digital wallets will also be something to keep an eye on. Digital wallets are the next development
in contactless payments, allowing users to pay with a wave or tap of their smartphone while making
purchases in-store, online, or through an app. With e-wallets, users may swap out all of the physical
components of their wallets for digital versions, including loyalty cards, credit and debit cards.
The cards are now kept in the customer's E-Wallet on their phone rather than being physically sent.
Technology advancements like the Blockchain of Bitcoin allow for the delivery of digital services
that are safe and secure to access.
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3.0 EXAMPLE DIGITALIZATION SERVICES OF BANKING NOWADAYS
It goes without saying that digital banking software simplifies the use, management, and
accessibility of all conventional services. The customers mostly does not need to go to the bank as
they can just settle their things by themselves anywhere and anytime they can using their own
gadget. Compared to traditional systems, digital banking systems are far more versatile and enable
banks to add and expand functions considerably more quickly. High-level process automation,
web-based services, and APIs are the foundations of digital banking, which offers banks and their
clients’ exceptional cost-effectiveness, security, and flexibility. The customer journey can be
totally digital thanks to modern banking systems. Below are the example of bank services that the
customers can settle by themselves due to digitalization of banking:
a) Obtaining bank statements
b) Cash withdrawals
c) Transfer money
d) Checking/savings account management
e) Opening a digital bank account
f) Loan management
g) Bill payments
h) Cheques management
i) Transaction records monitoring
4.0 WHY WE AGREED WITH DIGITALIZATION IN MALAYSIA BANKING?
We support and welcome the digitalization of banking in Malaysia since we think it would benefit
both the clients and the institution as a whole. These are the benefits of digital banking that are
most important.
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4.1 Cost saving
Because digital transformation enhances operations and corporate processes, it can lower total
costs. Employing current technologies, optimizing workflows, and automating repetitive tasks can
help businesses cut expenses related to labor-intensive manual labor and ineffective procedures.
For example, conventional banks devote a great deal of time and money to bookkeeping and
checking. Operating costs are greatly decreased by digital banking software by doing away with
superfluous back-office procedures. Digital banking systems automate many of the tasks
connected with regular financial transactions, saving banks a great deal of labor. Digitalization
lowers the number of parties and steps in transactions, which lowers the possibility of expensive
financial errors.
Example of case study
Title of article: Digitalization and bank profitability (evidence in Vietnam)
Authors : Quang Thi Thieu Nguyen, Ly Thi Hai Ho, Dat Thanh Nguyen (2023)
The purpose of this study is to look into how digitalization has affected Vietnamese banks'
profitability. The study shows that digitalization has a favorable effect on bank profitability. The
outcome holds up well to several metrics in real-world situations. It should come as no surprise
that smaller banks and banks with a larger share of state ownership are less profitable than their
competitors. Digitalization does, however, contribute to these banks' increased profitability. While
there are not many cross-national academic research, banks and private consultancy businesses
have produced a ton of work. According to Citi (2019), digitalization might result in a 30–50%
reduction in bank operating costs, primarily from fewer branches and staff. Increased profitability
is linked to digital maturity in between 2011 and 2017, the average return on equity (ROE) of
digitally advanced banks increased by 0.9 percent, while the ROE of less digitally advanced banks
decreased by 1.1 percent. This profitability divergence is predicted to continue in the coming years.
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This paper explains the effect by demonstrating how digitalization boosts non-interest income for
banks by diversifying into non-traditional products and services and dramatically lowers bank
costs in terms of the cost to income ratio. This is the prove which shows that digitalization helps
the bank to increase the profit.
4.2 Improve useability
It consists of mobile banking, virtual or online banking, and several other digital solutions that
make banking more practical, safe, effective, and efficient. Database useability makes sure that
financial organizations' solutions are as simple to use and intuitive as possible. Digital banks and
their clients can open accounts in a matter of minutes from any internet-enabled device thanks to
integrated KYC and AML protocols. People who are not bank customers can obtain financial
services thanks to ID verification systems and risk assessments, which help banks serve consumers
more swiftly and efficiently. The availability of personal banking around-the-clock is one of its
main benefits. Customers can now access a variety of services and complete any transaction from
any location.
Example of case study
Title of article: Digital Banking Usability Perceptions
Authors : Hussein (2023)
Numerous academics have defined digital banking, and the majority of them concur that a variety
of end-user banking services are made possible by the usage of distinct technologies. It includes
virtual or online banking, mobile banking, and a number of other technological innovations that
improve the usability, security, efficacy, and efficiency of banking. In digital banking, usability
ensures that products from financial institutions are as easy to use and intuitive as possible. This
entails making certain that the user interface is simple to use, that the user experience is dependable
and safe overall, and that the user is eager to return to the facility.
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Furthermore, both consumers and financial institutions profit from the use of digital banking. On
the one hand, financial institutions will have more satisfied and devoted clients, while consumers
will benefit from a convenient and secure banking experience. It will also assist financial
organizations in cutting expenses and improving productivity. In conclusion, a safe and convenient
banking experience depends on the usability of digital banking. Furthermore, it would enable
financial institutions to guarantee that their clients are satisfied with the digital banking services
they provide.
4.3 Greater personalization
In the banking industry, personalization refers to providing a customer with a valued service or
product that is tailored to their individual needs and past customer information. It can contribute
to the development of trust, which in turn can generate income. Enhancing digital banking usability
requires personalization. Consumers must to have the option to alter the user interface to suit their
requirements and tastes. For example, they ought to have the ability to configure their dashboard
to show the most pertinent data, such account balances, recent transactions, and forthcoming
payments. As a result, customers might be able to save time and obtain the information they need
more quickly. Artificial intelligence (AI) and machine learning (ML)-driven personalized
strategies are made possible by digital banking software. Banks are able to provide their clients
with timely access to pertinent financial solutions, interactive tools, and educational materials.
Among the various technologies that assist in informing and engaging clients are automated
budgeting, spending analytics, and savings reminders.
Example of case study
Title of article : Personalization of Financial Services and Products using Digitalization
Technologies
Authors : Rysin, Prokopenko, Muravskyi, Pechenko, Holiachuk & Zinchenko (2023)
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The article's objective was to develop and test a possible assessment model for the personalization
of banking products through digitalization technology. The research employed expert surveys and
visual modeling techniques. Using a Ukrainian bank as an example, the experience and nuances
of utilizing digital technologies were examined, and the suitability of their implementation in
banking operations was assessed. It is decided whether or not the examined bank's operations could
benefit from the application of particular technology solutions for the personalization of banking
goods and services. In order to improve the personalization of banking goods (services), the
investment budget for the installation of digital technologies was allocated using the Markowitz
Model. It was demonstrated how the actual application of digital technology and digitization tools,
through the personalization of the customer experience, could increase this bank's competitiveness
in the fiercely competitive market for banking goods.
4.4 Wow- features
It means that, digitalization increased the functionalities of bank. Many functions that traditional
banks just cannot provide are now available in digital banks, such as the ability to purchase gold
and crypto currencies or make direct stock market investments through the banking app.
Customers of online and mobile banking can rapidly adjust transaction limits, security settings,
and even choose whether to enable NFC or magnetic stripe payments by themselves. Digital gold
also is one of the example of the new feature that the bank can offer to the customers due to the
digitalization of banking.
Example of case study
Title of article: Digital Gold: The Modern Age Investment Phenomenon
Authors : Arora (2023)
This article, has shared about the new feature offered by Axis Bank, which is they are offering
digital gold to the customers. This is the example of expanding features of bank due to the
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digitalization of banking. According to the article, digital gold is an inventive blend of
conventional investment knowledge with the cutting edge of blockchain technology. The
increasing demand for digital assets has led to the rise in popularity of digital gold as a feasible
and easily accessible investment alternative. It enables investors to take use of the advantages of
the digital age while embracing the classic charm of gold. But it is important to keep in mind that
digital gold has risks and necessitates careful decision-making, just like any other investment.
Digital gold continues to be a fascinating phenomenon worth investigating in the investment sector
including bank sector as people embrace the constantly changing financial and technological
landscape. Customers of Axis Bank can purchase and sell digital gold using a payment platform,
all with the assurance that the asset is kept safe in insured vaults.
Figure 3: the website of Axis Bank selling the digital gold
4.5 The digital world is the future
In the past, cash withdrawals from banks required lengthy lines, but these days, cards that may
be used to make purchases or withdraw cash are available. The advancement of technology
has also brought about changes in how people conduct banking. The effects of digitalization
have resulted in considerable changes for the banking industry during the last ten years. Both
the way banks conduct business and how their clients engage with them have changed as a
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result of the digital revolution. Customers have gone a long way from getting checks that need
to be deposited for payments and salaries to create an online system for paying salaries. Almost
all businesses have been impacted by digitalization, but the banking industry has been actively
embracing new technology banking solutions to increase productivity and efficiency.
The pandemic was a major driver of change in the financial industry. People began turning
more and more to digital banking for their financial demands as a result of the lockdown
enforcement. Although digitalization has been incorporated into this industry for some time,
consumers have to really take the time to comprehend its advantages and utilize these services
during the epidemic. Through online platforms, smartphone applications, and other digital
channels, banks may now provide a wide range of financial services to their client, giving them
the ability to compare and contrast various plans and packages and comprehend the numerous
advantages on offer.
People nowadays have become more comfortable and prefer digital era instead of classic ways.
This can be accept since in this era, it is the Gen Z’s era. They are the technological reliance.
The digital world is Gen Z's lifeblood. The Gen Z mentality has integrated social media, an
abundance of knowledge, and quick advancements in physical technology in a fundamentally
different way. Using this information, leaders in the business and workplace may better serve
Gen Z employees, help them reach their full potential as clients, and foster intergenerational
trust. We agreed that digitalization in all sectors including banking sector is the future as people
nowadays love technology and digital world more than traditional ways.
65.3% of consumers today prefer to use online platforms for financial management and
transactions, indicating the growing popularity of digital banking. According to PYMNTS,
younger generations are more open to using digital banking services than older generations,
with 84.1% of millennials and 83.5% of Gen Z being this way. However, only 45.7% of seniors
and baby boomers use the technology.
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4.6 Improves the relationship with customers
Better customer interaction, providing solutions and products that consumers want, and
fostering enduring customer connections are all made possible by digitalization of banking.
Customers are a bank's lifeblood, thus it is critical that the competitive strategies the company
uses cater to their needs and preferences. When the digitalization of banking managed to fulfil
customers need and wants, it can strengthen the relationship with the customers, makes the
customers loyal with the bank and also can attract more new customers. This is how
digitalization of banking can helps the bank to improve their performance in terms of
preserving their relationship with customers.
Example of case study
Title of article: A Case Study of a Major Swedish Bank Shows How the Digital
Transformation Process Affects Banks' Relationships with Customers
Authors : Robert Ortstad and Binan Sonono (2017)
The researchers claim that there have been significant technical advancements in the banking
industry. This has led to a change in customer behavior, which in turn compels organizations
to alter the way they do business. The shift in customer preferences toward digital channels is
one of the main changes. Banks are facing difficulties in attracting and keeping consumers as
a result of these changes. Banks may collect and analyze data about customer behavior with
an organized digital strategy. Additionally, the bank may use the information acquired to tailor
its products and services to match the needs and preferences of its customers as well as its
chosen business strategy and market position thanks to well-organized digital systems.
Reaching out to clients via digital channels is made simpler by the digital strategy.
Additionally, the bank may notify clients of changes to its business plan more swiftly thanks
to these digital channels. A well-structured digital strategy, for instance, ought to enable the
bank to improve productivity and offer financial products and services that complement the
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business plan and can swiftly adjust to the shifting tastes of its client. Since the customers are
the primary focus of these elements, a correlation between them should aid the bank in its
efforts to strengthen its client relationships. This is how the bank was able to draw in new
business and keep its existing client. Ultimately, the bank was able to raise profits and enhance
performance.
5.0 CONCLUSION
In conclusion, digital banking is one area where this is most obvious because to technology,
financial transactions are today more smooth than they were a few decades ago. Customers
may now handle their bank accounts quickly and easily from the palm of their hands, as it used
to take a long time. Other than that, digitalization also allows banks to offer better customer
service. Customers will find this convenient, and it also saves time. Because digitalization
decreases human error, it increases consumer loyalty. Thanks to internet banking, customers
may now access banks at any time of day.
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