As digital banking continues to evolve, and technology transcends the banking industry, traditional banks face new challenges that require innovative solutions if they are to remain competitive amid fierce rivalry with fintechs and digital banks.
Let’s review the digital banking challenges that will play a significant role in the new year. It’s evident that traditional banks follow a rather slower pace towards the adaptation of meaningful digital transformation, based on their short, mid-term or long-term investment plans.
Regardless of the financial institutions' technology phase and adaptation stage, the digital banking challenges for the new year involve client trust, data privacy, cybersecurity, interoperability, and stringent rules and regulations.
Cybersecurity and fraud prevention remain a major challenge for banks. With the increasing number of digital transactions, the threat of cyberattacks and fraud attempts continues to grow. Cybersecurity is the number one risk for the global banking industry.
Banks will have to invest in bullet-proof digital banking platforms, utilising technologies such as encryption, multi-factor authentication, and real-time monitoring, to prevent cyberthreats and protect their customers’ personal or financial data. They will also need to educate their customers on how to protect their information to avoid becoming fraud victims.
In addition, customer privacy is a critical issue in the digital banking industry. Banks and financial institutions need to ensure that they are protecting their customers’ privacy in accordance with regulations. Thus, they will need to take a multifaceted approach to manage consumer privacy, increase transparency on the ways data is collected and stored and utilise cutting-edge technology, front-to-back-end.
Interoperability
Interoperability is becoming increasingly important in the digital banking industry as customers demand more flexible and convenient banking services. Whereas, from a cross-selling point of view, the launch and promotion of additional banking offerings like loans, investment services, among others on a single platform could differentiate the overall banking experience.
With a wide array of digital banking platforms available, it is important for banks to ensure that their systems can seamlessly interact with other internal or third party platforms to create a banking ecosystem. This could be achieved with the use of open banking APIs and standard protocols, according to regional regulations, cross-border transactional and international banking interoperability.
Customer trust
Customer trust is a crucial factor for digital banking, as customers cannot visit a brick-and mortar branch and thus they rely on easy and seamless customer support structures. Digital banking is still relatively new, and mostly older more traditional customers may be skeptical of using digital banking services in general, especially if they require technology savviness or non-intuitive user interface/ user experience.
Therefore, digital banking institutions will need to build reliable, intuitive platforms, developed with international best practice in mind, while being supported by excellent customer support and straight-forward ways of communication.
Competition in the sector
Competition in digital banking industry is fierce, as more robust fintech companies enter the market and traditional banks seek to enrich their digital offerings. The increased competition can result in lower profits and a loss of market share for the traditional banks that fail to adapt fast and offer innovative and user-friendly digital banking services.
Uniform mobile-first, omni-channel banking experience, integrating with third-party apps and services, and providing financial management tools to help customers better manage their day-to-day financial tasks are some of the functionalities that need to be integrated to a holistic digital banking strategy.
Moreover, banks will need to continuously monitor the market and respond quickly to changing customer needs and preferences.
Rules and regulation
Regulation is an important factor for the sustainability of digital banking, as regulators aim to ensure that digital banks operate in a safe and secure manner. With the increasing number of digital transactions, regulators are developing new rules and standards. Digital banks will need to find the right balance between supporting innovation and protecting consumers, by investing in a robust digital banking system while staying proactive on the latest market requirements.
Legacy systems
One of the biggest challenges facing banks is their legacy systems. These are outdated systems that were implemented years ago and are difficult to upgrade or replace. They often lack the necessary flexibility and agility required to keep up with rapidly evolving customer needs and technological advancements. To address this challenge, banks should consider investing in modern, cloud-based systems that are more flexible, scalable, and adaptable to change.
Skills shortages
The rapid pace of technological change requires banks to have highly skilled IT staff who can articulate and implement new technologies.
However, there is a shortage of skilled IT professionals in the banking industry. Banks can address this challenge in the long-term
The writer is Associate Director at Stalworth Consulting Group, LLC
