The banking industry is undergoing a significant transformation, fueled by brand new competition by FinTech, shifting business models, increasing regulatory and compliance constraints, and disruptive technologies.
Banks have found themselves having to update their approach more than ever before in order to remain competitive because customers are slowly but surely gravitating towards these tech-savvy solutions and away from what has always been the status quo.
FinTech/non-bank firms are altering the competitive environment in financial services, compelling established institutions to rethink their business models.
In addition, regulatory and compliance standards have become more stringent as data breaches have become more common and privacy concerns have grown.
Let’s find out how traditional banks are accepting these challenges rapidly coming their way, and if there is any way to get out of this spiral.
A Few Major challenges faced by the banking industry:
- Increased FinTech competition.
Digital disruption is present in banking, as it is in other businesses. Banks are no longer merely competing with traditional local competitors due to the rising usage of the Internet to purchase financial services, but they are also facing increasing competition from privately held FinTech companies that specialize in custom software for banks.
Paytm, BharatPe, Razorpay, Akudo are FinTech solutions that offer the same financial services with lower fees and better choices than traditional banks. In addition, neobanks for teenagers have created avenues to explore banking for teens and the Millenials and offered financial services, parallelly enhancing their financial game by interesting content on money management and leading to improved financial literacy.
Large private-sector banks and industry leaders such as the State Bank of India can expand their digital product offerings. This will aid banks in fending off technology competition outside of the payment area.
FinTech investment and collaboration are becoming the norm now. Major private banks invest extensively in FinTech competitors to build strategic relationships. As a result, banks can offer their core products while expanding into new services using FinTech APIs.
- Regulatory Compliances
Due to the enormous increase in regulatory costs and credit losses during the 2008 financial crisis, banks continue to face legal, risk, and compliance concerns as they work on digitizing their businesses.
Regulatory, risk and compliance strategies must develop as technology reshapes financial services. Successful banks can proactively address digitalization’s impact on compliance, accountability, transparency, risk management, and data governance. To boot, banks must cultivate a compliance culture inside the firm to overcome regulatory compliance issues and adopt formal compliance structures and processes.
Technology plays a crucial role in fostering a compliance culture. Technology that collects and mines data performs in-depth analysis, and delivers informative reporting is valuable for recognizing and minimizing compliance risk. Moreover, technology can assist firms to standardize operations, ensure that procedures are followed accurately and consistently, and keep up with any regulatory/industry policy changes.
- Customer Expectation
As banks entered the Customer Age, providing a personalized customer experience and “excellent” customer service became a top priority. Top-notch in-person and digital experiences have been the standard with the rise of customer-focused corporations like Amazon, Google, Starbucks, and Walmart.
Customers don’t care about the challenges of creating these experiences; they want immediate value, and if the banks can’t offer it, they’ll go to the competitors. Fintechs and neobanks can provide these services seamlessly. New services like neo banking and prepaid debit card for teenagers in India have also seen massive growth in the past few years.
There is a disconnect between customer expectations and Indian banks’ offerings. With the commoditization of banking products, banks must understand their customers’ changing preferences. The majority of the customer complaints are related to the quality of service provided. To keep their customers, banks must deliver seamless offline and online services.
To improve customer experience and loyalty, banks must first understand what matters most to the customers and how they make decisions. Banks can use emotion detection software to conduct in-depth analyses of consumer attitudes and determine whether the quality of banking products and services meets their expectations.
If a bank discovers consumer dissatisfaction, it can use various IT tools to address the problem. A banking chatbot or mobile wallet, for example, can improve customer communication and loyalty, while gamification can improve customer experience.
- Security breaches
Security is one of the most pressing banking industry concerns and a key concern for bank consumers. Any data breach has a significant negative impact on a bank’s income, brand value, and consumer confidence. As a result, financial institutions must carefully assess security concerns and employ technological solutions that can help prevent fraud.
The Indian cyber security industry is expected to increase from $ 2 billion in 2019 to $3 billion in 2022, with a compound growth rate of 15.6 percent. Collaborative ecosystems –hundreds of thousands of networked computers and other connected devices – are heavily used in today’s banking environments.
We’re talking about managing financial vulnerabilities on a never-before-seen scale when we add Social, Cloud, Mobile, and other media to the constantly evolving mix. Therefore, solving security issues at scale will be one of the most challenging tasks for digital banking transformation programs.
Financial institutions must invest in cutting-edge technology-driven security measures to keep sensitive consumers safe. Banks can use biometric authentication to verify a customer’s identification as the number of mobile devices with biometric capabilities continues to rise. Biometrics is more secure than any conventional security system due to its uniqueness.
- Investing in Mobile technology
Retail banking has evolved into a mobile-first industry. After all, mobile banking is now practically a need for consumers. In a recent survey on mobile banking, 89 percent of respondents claimed they use mobile banking. In addition, 64% of mobile banking users stated they would look into a bank’s mobile capabilities before opening an account.
The subscriber base for digital transactions has only risen due to the Indian government’s Digital India effort, which focuses on closing the digital divide through increased broadband availability, lower data plans, and competitive smartphone pricing.
Providing additional mobile capabilities like the ability to place temporary holds on cards, check recurring card charges, and enter into accounts using a fingerprint scan are becoming increasingly important.
The financial industry is undeniably more unstable than it was a decade ago. However, with change sweeping every industry these days, it’s evident that banks still have a lot of work to do to stay relevant and competitive. This entails taking on these obstacles and converting them into opportunities for success that attract repeat clients.