Technology has brought forth a revolution. No more standing in line for hours for accomplishing something as small as depositing money or transferring funds. Mobile and web-based banking have allowed users to finish their banking-related tasks and get back to their lives. The slow yet steady switch to digital banking is something to behold.
Since the pandemic broke down the methods on which the world operated, all industries needed to adopt technologies and go online. The banking sector was pushed into a wave of digital transformation, while some banks and FIs (Financial institutions) embraced the challenge, others crumbled under the pressure. For the last 2 years, banks have been racing against each other to meet customer demands without compromising the customer experience.
Over the coming decade, customers can positively expect the landscape of the banking industry to go fully digital. The Coronavirus pandemic is one of the biggest driving factors for most industries to go digital. Not only businesses, but it has also impacted how we live our daily lives too.
To stay competitive and thrive in this digitally volatile environment, banks need to future-proof themselves by leveraging technologies that give them an edge over the competition. However, digital transformation is not about who can use the best technologies, it goes far beyond that. Ensuring customer experience, preventing fraud, and staying compliant with regulations are also some factors of digital transformation. The future of the banking sector looks bright, and banks will have to do a lot to future-proof themselves.
Current State of Digitization of the Banking Sector
In the last decade, customer trends have taken a drastic change. Most customers prefer to shop online instead of offline and make shopping decisions based on customer reviews, ratings, and other factors. Technology has penetrated our lifestyle and arguably changed it for the better. Businesses need to reinvent themselves completely to survive in a technology-driven environment.
The financial industry especially has to take huge steps to keep up with changing customer demands. Mobile and web-based services are essential for customers, they provide a sense of freedom, and improve the customer experience. Let’s be honest, no customer has the luxury of spending hours at the bank for a simple money transfer. Prioritizing mobile banking, personalized products, and real-time interactions and new regulations is the need of the hour.
While the idea of fully digital banking operations sounds good, it also increases the chances of online financial fraud. The rate of financial fraud grew by 45% from 2019 to 2020. Improper digital banking services play a major role in the growth of financial fraud.
Here are the statistics that show digital maturity in the financial industry:
- 12% of financial institutions consider themselves industry leaders;
- 34% percent as “close followers”;
- 30% as mainstream players;
- 25% are lagging behind
Research and studies claim that implementation of digital baking methods is slow as less than 50% of companies consider themselves ready for handling customer needs, combatting threats, and being able to scale themselves upwards. A majority of banks and financial institutions are lacking behind or hesitant to implement cutting-edge technologies like:
- IoT
- AI
- Machine Learning
- Robotic Process Automation (RPA)
- Online Document Verification
- Online ID Verification
The slow rate of growth can be the result of a lack of budget, incompatible IT infrastructure, talent availability, and legacy culture.
Future of Digital Transformation in Banking
Most banks are still in the initial steps of taking up digital methods and leaving behind antiqued methods of banking. The majority of financial institutions are prioritizing their efforts to just keep up with the growing customer expectations and a changing business environment.
The top 3 priorities for financial institutions have remained unchanged for the last 2 years. The current top priorities for banks are:
- Enhance customer experience (84%)
- Improve data analytics (42%)
- Reduce operational expenses (32%)
It is expected that the digital baking market will hit a mark of $14 Billion in the next 5 years. Current efforts toward digital transformation are projected to cause a massive shift in the industry, here’s what to expect from the future of the banking sector:
- Complete integration with daily life: Customers of today love personalized services like Netflix and YouTube, and they expect the same from financial institutions. In upcoming years, banks can act as a marketplace and connect customers with ideal vendors. Or banks can create their products to cater to the needs of the customers.
- Intuitive & Seamless Services: The end goal of a bank should be to make a customer’s life as convenient as possible. Automation and intuitive services help in building brand loyalty. Collaboration with retailers and initiation of payments automatically after certain steps is something that can be expected from the future of banking.
- Proactive Solutions: As banks prioritize their understanding of collected data, they will need to learn and act according to the data. Leveraging AI, RPA, Blockchain, and IoT will provide much deeper insights into the buying and spending habits of customers. There is already some progress in this sector, but the future of digital banking can even guide individuals to manage their finances more efficiently.
Innovative Tactics to Future-Proof Your Bank for Digital Banking
Users don’t compare different banking applications, instead, they compare customer experience. Smartphones have allowed users to update accounts, make payments, pay bills and so much more. Digital banking is supposed to provide a quick, seamless, and easy experience.
To thrive in a competitive environment, banks need to build solid strategies. Here are some things that financial institutions need to consider for future-proofing themselves:
1. Omnichannel Experience
Financial institutions need to have it all immediately, the typical strategy with manual banking is neither effective nor customer friendly. To keep up with customer demand and fight against competitors, financial institutions need to redo their old methods and build channels that are connected.
Instead of investing in digital features for each business line separately, it is more efficient to create all the elements and provide them through a singular hub.
2. Flexible Digital Banking Architecture
All the huge brands, regardless of the industry, keep releasing new features with minimum cost and time expense. Even though their operations are huge, they remain flexible enough to meet and supersede customer expectations with no major changes, or heavy expenses. Big brands offer new products and scale them up and down as per their needs.
By providing microservices, banks can innovate similarly, quickly, and seamlessly. This approach allows firms to keep up with customer expectations and create a fulfilling user experience.
3. Utilize Open Banking
Since the EU released the PSD2, banks face the risk of being disintermediated. Third parties, including market disruptors, offer access to banks’ large data volumes. It is important to remember that customer expectations have changed, and the institutions that fail to capitalize on new initiatives will end up being disintermediated.
Recent regulations require banks to provide their APIs to other companies, but banks can take advantage of this situation. By being directly involved in open banking, banks can gain certain advantages.
4. Personalization is Important
Personalization is becoming a huge part of customer experience across industries. Collecting data from numerous sources and data analysis to gain insights is a common strategy used by eCommerce markets. Collecting and analyzing data is the foundation of all personalization efforts, and banks need to leverage these data for offering a higher level of personalization for customers.
5. Combating Fraud
Switching to digital banking is also acting as an invitation for fraudsters. Ever since banks and financial institutions have focused their efforts on digital transformation, fraudsters have devised new methods to exploit the weak points of the system.
Banks and FIs need to use third-party solutions like DIRO’s online document verification technology to verify the hints of fraud during customer onboarding. DIRO prevents the use of fake and stolen documents during onboarding, thus eliminating fraud.
Conclusion
The future of banking holds unlimited potential and if pushed in the right direction, it can change how customers handle their finances. Banks need to not just be digital on one segment, but to be digital down to the core. This helps financial firms to innovate better and offer a better customer experience.