The banking industry is changing globally owing to the shift in technology and the radical competition from Fintech Startups also known as the Gen Z Bank.
In recent times, several companies have come up with disruptive ideas and technologies that threaten the way traditional banks operate. We are gradually coming to the death of over-the-counter banking.
In the same vein, customer demands and interests have evolved dynamically over the years to include safer, smarter and smoother banking solutions. While traditional banking also known as Legacy banking systems retains a high level of customer loyalty owing to long years of credibility and integrity, they seem to be losing ground to the new kids on the block.
Obviously, these banks would need to learn from their growing competitors and embrace a modernized system of banking operations. However, we need to first identify all the challenges facing the banking industry to properly position for a solution.
Challenges in the Banking Industry
- Increasing Competition in the Banking Sector:
The financial services market has become increasingly volatile and highly accessible, leading to a significant rise in new entrants, particularly Fintech startups. These agile and innovative firms are revolutionizing the landscape by offering digital-first solutions that cater directly to the preferences of tech-savvy consumers, especially Generation Z. This shift in the competitive environment poses a serious threat to the sustainability and long-term relevance of traditional banks, which are struggling to keep up with the pace of digital banking innovations. As a result, many conventional banks are finding it challenging to maintain their customer base and appeal to younger generations, who prioritize convenience, speed, and mobile accessibility in financial services.
- Manual and Monotonous Banking Systems:
Most traditional banks operate the manual system of banking whereby the customer onboarding, transaction approval, and credit assessment processes are often complex and require a lot of human intervention. These manual workflows become quite burdensome and monotonous over a period of time for the banker and their clients. Especially as the culture of running business has shifted quite significantly, even beyond banking. Most organizations, especially in the financial services sector have fully incorporated digital banking solutions into their operations from data collection, to data management and analysis. Particularly in the world of corporate banking, traditional banks need to leverage technology in carrying out her operations and procedures. We are in the season of digital transformation in banking and beyond.
- Shift in Customer Expectations and Demographics:
Time after time, customer expectations and desires are known to change rapidly. With each passing generation, customer demographic tends to shift creating new market trends and waves of marketing. Indeed, the current customer demographic for financial markets is not the same as it was several years ago with each generation becoming smarter, more savvy and informed than the last. The change in customer demographic has significantly impacted the market trend as the new demographic is more technology inclined and tends to lean towards digitalized solutions. A statistical report shows that
57% of Generation Z (57%), 60% Millennials and 52% Generation X and 39% Baby Boomers use mobile banking apps most often. It also shows that one in six Baby Boomers visit bank branches the most often, while only 4% of Gen Z and Millennials prefer to visit a branch.
Following this statistics, banks can expect the newer generation to be more attuned to digital banking. However, older generations still prefer legacy systems and traditional banking. It then brings about a challenge for banks: how can they satisfy the diverse needs of both the younger tech-savvy generation and older traditional customers at the same instance. The solution lies in adopting a dual/hybrid system of operation that combines digital transformation with traditional banking. Adopting this diversity and flexibility in service delivery is necessary to ensure maximum customer loyalty and satisfaction. And satisfied customers translate to unpaid marketing agents that leads to sustained business success.
- Non-personalized Customer Experience:
A study conducted by Accenture revealed that personalized customer experience leads to trust and loyalty. This study involved 33,000 banking customers across 18 markets, and in the end 49% of the respondents were in favor of personalization in customer relationships and banking service delivery. Engaging the customer and observing their behaviors helps to improve service delivery and result in increased customer loyalty. However, directly engaging individual customers all the time and particularly at their time of need can be quite impossible. Hence, digital bots are tools financial organizations can engage in delivering excellent and timely customer care without any extra cost. Through artificial intelligence, these bots can be formatted to engage customers meaningfully, naturally and contextually. Using sentiment analysis to identify emotional cues, these bots can gather information, understand context and pass complex issues to humans to be resolved. Thereby, creating personalized digital banking experiences for their customers.
- Obsolete Application and Operational System:
Today, most customers just want to come and get their solutions immediately. No long stories or long processes. We live in a fast-paced society where people gravitate towards solutions that are less time-consuming or demanding.
According to a local survey conducted by Gartner CIO, over 50% financial solutions using thorough digital channels and digital initiatives tend to make more profit and sales. However, financial organizations using traditional banking management systems will definitely struggle with staying relevant in this technological advanced and digital oriented society. These processes would definitely incur more costs, cost more time and lead to a longer organization procedure. Longer procedures delay banking activities, frustrates clients and threatens business growth. Leveraging cloud computing banking as a service, financial institutions with long organizational procedures can compress their banking operations into simple digital banking procedures. This way, banks and credit unions will be able to reduce costs, optimize their procedures and maintain agility.
- Cybersecurity Breaches:
Overtime cybersecurity has remained a subject of concern in the finance industry, especially with several told accounts of high profile breaches revealing the vulnerabilities in digital banking. Therefore financial institutions must invest in technology driven security measures to protect customers data and assets. To enhance data security, wade off cyber threats, and keep sensitive information private, banks must incorporate a range of advanced security solutions such as biometric authentication which encrypts customer information using unique physical characteristics. To monitor and secure data in transit, financial organizations can use end-to-end encryption (E2EE), and Address Verification Service (AVS) to prevent fraud by detailed customer details verification. With growing digital threats, these security channels are important to build trust and reliable operational processes.
Conclusion :
Automation is the new digital transformation strategy for financial institutions as it provides several leverages ranging from improved operations, faster service delivery, wider customer appeal, personalized customer experience and customer security. Considering all challenges facing the banking industry today, technology innovation and digital transformation is not merely a nice trend but a necessity in providing relevant, timely and competitive financial solutions. Also seeking insights through analytical tools, building solid client’s relationships and researching new solutions can help banks and finance institutions grow exponentially.
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