The ever-growing technological innovations and inventions are reshaping businesses at external and internal levels. Digital transformation is the process that integrates technologies in business processes and strategies. This transformation is mostly dependent on data and is driven by evolving technologies, rapid growth in competition, and shift in consumer behavior. It enables a business to be more agile and productive and to provide a better customer experience. This chapter discusses the impact of digital transformation in business and the fintech industry by highlighting the modern technologies used in transformation, the effect on business, the fintech industry, and their current trends. Furthermore, it elaborates on how digital transformation affects businesses at different levels. Lastly, it discusses the challenges faced by businesses in the process of digital transformation and recommends solutions for them.
TopIntroduction
The term Digital Transformation was coined by the consulting firm Capgemini in late 2011 (Holotiuk & Beimborn, n.d.) (A Companion to Film Theory, n.d.). Digital Transformation is the wide transformation process that embraces the whole organization including processes and employees with the help of modern technologies (Ebert & Duarte, 2018a) (Gong & Ribiere, 2021). The digital transformation uses technology as strategic competency and not as a support function. It entails the creation of new business models which are driven by technology to create and increase business value for an organization (Bohnsack et al., 2021). Digital Transformation depends mostly on data-driven technologies (e.g., data analytics, Artificial Intelligence). Data regarding consumers, competitors, markets, etc. is collected, stored, analyzed, and utilized to enhance customer experience and business processes in an organization (Gölzer & Fritzsche, 2017).
The process of digital transformation is driven by three major factors: i.e., evolving technologies, rapid growth in competition & shift in consumer behavior (Osmundsen et al., 2018). Evolving technologies have not only enabled businesses to cross borders but also enabled SMEs (Small to Medium Enterprises) to compete with large-scale enterprises. The swift growth in the Information Technology industry has given rise to the development of many technologies enabling organizations to improve their businesses (Hsu et al., 2018). Consumers can actively shape market trends by demanding products and services that are suited to their wants and preferences (Rawat & Matter Expert, 2016). This diversity and globalization of businesses accelerate competition in businesses. Technological advancements have also affected society which in turn drives businesses to realign their strategies with the digital world.
Digital modernization in the financial sectors has led to the dawn of new financial services known as fintech. Financial Technology or Fintech is the consolidation of two terms i.e., finance and technology, and can be described as innovations in financial services made possible by technology that might lead to new business models, applications, processes, or products and have an impact on financial markets and institutions as well as the delivery of financial services (Feyen et al., 2021a) (Galchenkova & Chupsa, 2020). It uses technologies including blockchain, artificial intelligence, big data, etc. to provide banking services efficiently. It also expands to the development and use of cryptocurrencies e.g., Bitcoin (I. Lee & Shin, 2018) (Puschmann, 2017).
Digital transformation is normally confused with the terms ‘Digitization’ & ‘Digitalization’ which are necessary steps to achieve digital transformation, not the complete process (Contributor, n.d.) (Zhao et al., 2020). Figure 1 summarizes the digitization, digitalization, and digital transformation which are detailed below:
Digitization
Digitization is the process of converting physical/analog information into digital (binary) information e.g., storing physical financial records into excel sheets. It is mainly concerned with the transformation of information and not the processes thus not altering activities that generate business value (Liao et al., 2020).
Digitalization
Digitalization can be described as the use of digital technologies to change a business model and provide new revenue and value-producing opportunities e.g., the use of an online communication process for complaints thus reducing processing time and increasing value. The business process can be improved by the inclusion of digital technology which results in more efficient and well-coordinated processes hence enhancing customer experience. Digitalization leverages the digitization process to change a business model (Imgrund et al., 2018).
Digital Transformation can be best described as the impact caused by digitalization and is the most widespread phase encompassing the whole organization i.e., stakeholders, business process, strategic goals, and organizational structure. It changes the existing business models or adds new ones to create and enhance the business value of the organizations. Examples of Digital Transformation can include an introduction to new business models like platform as a service or the use of digital platforms (Liao et al., 2020).
Figure 1. Phases of Digital Transformation