Banking industry challenges are adding up after a decade of unprecedented change following the global financial crisis. Though the financial sector has grown significantly over the past ten years, a good portion of that growth comes from technologies and practice that challenge the traditional banking model.
As the industry evolves, it’s transforming into a customer-centric, digital-first landscape — particularly through mobile and online banking — which is radically shifting the way traditional banks have approached their business.
According to Deloitte’s Banking Industry Outlook, “There’s a new kind of promise in the banking industry — and possibly no better time than now for transformation. Economic fundamentals are strong, the regulatory climate is favorable, and transformation technologies are more readily accessible, powerful, and economical than ever before.”
Along with the banking industry’s potential transformation, however, comes significant challenges if banks want to stay competitive.
Following are a few of the biggest challenges banks face, and the strategies banks need to adopt, if they want to succeed in the coming year.
Top banking industry challenges and how to overcome them
Challenge #1: Increasing FinTech competition
As with other industries, digital disruption is everywhere in banking. With the increased use of the Internet to buy banking services, banks are no longer just competing with traditional local competitors. New FinTech options including Square, PayPal, Wealthfront, Betterment, and many others offer some banking services with zero fees. Many of the newest FinTech companies, often mobile-only “neo-banks,” are also coming from emerging economies in Africa, Asia and Latin America, where there is massive use of mobile phones even in rural areas.
Banking success strategy: Investment and collaboration with FinTechs is becoming the norm. Major U.S. banks are actually investing heavily in their FinTech competitors, in order to form strategic partnerships to use their technology and profit down the road if the investments take off. In general, banks can offer their core products but expand into other services using specialized FinTech APIs.
Challenge #2: Purposeful digital transformation
According to Deloitte, many banks have embraced digital transformation across the entire value chain. Technologies that enable transformation have become more powerful, accessible, and easier to implement. The question is, how much of it is purposeful and strategic, and how much of those efforts are simply investing in technology for the sake of becoming a tech company?
Banking success strategy: Banks should think of technology as a way to focus on and engage global banking customers, boost trust, and manage the flow of capital. They should use data to sustain the best technologies that serve those purposes, including AI, automation, cloud and core modernization, as leaders in digital transformation have.
Challenge #3: Investing in mobile-first banking
Retail banking has become a mobile-first business. After all, mobile banking is all but a requirement for consumers at this point. In a mobile banking study, 89% of respondents said they use mobile banking, up from 83% in 2017. But a mobile app is now table stakes and not enough to stay ahead of the digital game. In fact, 64% of mobile banking users said that they would research a bank’s mobile capabilities before opening an account.
Banking success strategy: Providing additional mobile features is becoming increasingly essential, including options to put temporary holds on cards, view recurring card charges and do a fingerprint scan to log into accounts.
Challenge #4: Tackling current and evolving regulations
A decade after the Dodd-Frank act overhauled the US financial regulation system, some of the acts regulations have been rolled back by the Trump administration and the pace of new regulations has slowed. However, there are still new regulations being implemented in various states (California, for example) and in Europe, the General Data Protection Regulation (GDPR) provides sweeping new protections for EU citizens.
Banking success strategy: According to Deloitte, the current dynamic regulatory landscape signals that banks should “buckle down and make compliance modernization a priority in 2019…and prioritize soundness and safety.”
Challenge #5: Focusing on CX
As with other industries, a firm focus on the customer experience is a must to overcome banking industry challenges and meet today’s consumer expectations and demands. A retail banking report found that financial institutions that are CX leaders have higher recommendation rates and shares of deposits, as well as a greater likelihood that customers would buy additional products and services. Those that let CX decline, on the other hand, risk losing up to 12.5% of their share of deposits.
Banking success strategy: Consumers are used to high-quality CX in their daily lives and they expect nothing less from their bank. That means banks must focus on customizing and personalizing their offers and making sure to communicate in the convenient, friction-free ways that customers want. Exceptional CX also revolves around constantly evaluating offerings to make sure they differentiate on service delivery, transparency, etc. rather than only on price and location.
There is no doubt the banking industry is on firmer ground than it was a decade ago. However, with disruption taking every vertical by storm these days, it’s clear that banks have significant work to do to make sure they remain relevant and competitive. That means taking on these challenges and turning them into success-focused opportunities that attract loyal customers.
