Digital Banking: A matter of survival – Profile Software

The global banking industry is undergoing a radical shift, from traditional processes to new business models. Driven by fierce competition from new entrants like the FinTechs, which have changed entirely the competitive landscape in financial services, as well as highly regulatory frameworks, compliance pressures and disruptive technologies, traditional institutions face the challenge of adapting to new ways of doing business or cease to exist. That being said, such a transition is not a matter of thriving in today’s landscape but of survival.

It is evident that traditional banks follow a rather slow pace in adopting digital transformation practices, which proves that the majority of the industry players find themselves in the early stages of the Innovation Life Cycle. However, by failing to respond promptly to the rising market demand, there is a risk of losing significant market share and becoming irrelevant to customers.

As a result, the financial institutions are called upon to face the biggest challenges of the banking industry, ranging amongst client trust, interoperability, increased competition and strict regulations.

Client trust appears to be one of the key factors in selecting a bank offering digital services, as there is no need to visit a brick-and-mortar branch. Instead, it relies on instant and seamless customer support and overall experience. Although the older generations of customers may be skeptical in terms of cybersecurity, technology savviness or non-intuitive UI/UX, still the banking institutions will have to build robust systems not only to confront such issues but to provide above-the-average customer service and experience to stand out from the competition.

Moreover, banks need to assure that they can deliver a quick and straightforward online onboarding procedure. Digital customer onboarding is crucial in banking and failing to provide an easy and seamless experience will make the prospect abandon the process and switch.

Interoperability with banking systems is another challenge in the banking industry as customers demand more agile and convenient banking services. The capability to offer a multitude of banking services such as loans and investment services on a single platform differentiates the overall banking experience and may lead to a sustainable competitive advantage. The wide array of digital banking platforms available in the market offers the opportunity to select the most appropriate one that is tailored to the specific needs of the bank, ensuring that their systems interact seamlessly with other internal or 3^rd party platforms forming part of the banking ecosystem. The latter can be experienced through the use of open banking APIs and standardised protocols that abide even by the stricter regulations.

In this context, the recent pandemic has been a striking example of the new operational models in the banking industry, where organisations that had already invested in cloud-enabled banking platforms, in advance, had a faster reaction to switching their operations fully online being completely remote compared to banks that relied on physical LAN access. In this sense, migrating to the cloud, integrating with a number of other platforms and delivering a seamless environment has become of primary importance.

Increased competition from FinTechs that have targeted some of the most profitable areas in financial services poses another challenge to the traditional banks, which are forced to invent new ways of providing a simplified and intuitive customer experience. Those financial institutions that fail to adapt to the new competitive landscape are doomed to face a significant loss of market share. The need to craft a holistic digital banking strategy to meet the evolving customer needs is of paramount importance as is the integration with third-party apps and services that offer a mobile-first, omnichannel banking experience. This seems to be the most prominent solution to cope with the entry of FinTechs into the market, which greatly affect banks through downward pressures on fees, prices and more compressed margins.

Regulation is one of the biggest compliance challenges facing the financial services industry and an important factor for the sustainability of digital banking as regulators aim to ensure that digital banks operate in a safe and secure manner. As banks and other financial institutions embrace advances in financial technology and become more sophisticated, the need to prioritise compliance for the digital banking services offered becomes a sine qua non to detect and prevent criminal activities and methodologies that pose a serious threat to their credibility.

As the pandemic accelerated the expansion of digital banking and fintech by stressing the need for more digital transactions, regulators enacted stricter rules and raised the standards. In this context, 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.

While digital banking has become part of people’s daily lives, banks not only need to implement paperless systems and methodologies but also address these issues taking into consideration the constantly changing regulatory framework. In addition, financial institutions need to act proactively and prepare themselves for the next challenges by turning them into opportunities of meaningful digital transformation. In addition, making significant investments in modernising their digital banking platforms that adopt a client-centric approach, while keeping abreast of future technology trends will significantly differentiate them from competition and safeguard them against unforeseen circumstances.