Digital technologies in the banking sector: its opportunities and challenges
The world needs banking, but it does not need banks — Bill Gates
Along with the development of digital technologies, the development has transformed people’s daily life and reshaped the form of using service. This includes a new emerging market called FinTech which refers to companies that have digitalised traditional financial services so that to bring those online which means you don’t need to go to the physical branch anymore to carry out financial services.
Due to the impact of lockdown and government regulations related to Covid-19, the use of digital banking has been accelerated. As evidence, the use of financial apps and mobile banking has increased by 72% over only a week. According to Statista, the average transaction value per user is $42,013 in 2022. This is expected to grow constantly.
Now, let’s go through what opportunities they can grasp and what challenges the banking sectors are facing.
No barrier to access
From the perspective of customers, the most powerful opportunity of using digitalized banking is that they can visit banks by tapping thumbs on their smart devices. The time, waiting for the bank to open to make transactions, had already gone a long time ago. For example, people can simply open their accounts regardless of time or place. What they only need is an internet connection and digital copies of their identity. Since the pandemic arose, the use of mobile banking platforms has increased by 20–50% and this will be expected to sustain the post-pandemic.
Improved customer services
Smart devices allow firms to gather and store real-time data, which offers the possibility to improve customer services and customer engagement. AI is rapidly changing the delivery of customer service and firms automate customer services with AI. AI helps to carry out common customer queries and to allocate to the most relevant human agents for quick resolutions. Delivering a seamless customer experience improves a firm’s trustworthiness which results in the chance of customer engagement. All of these activities rely on data from customers. By offering cohesive customer service, banks can maximise customer engagement.
Partnerships for diversification
For banks, Banks are increasingly having partnerships with third parties. They can have a chance to increase capability by diversifying their services by having partnerships, which leads to meeting customers' needs evolving with the development of digital technology. For example, banks may help customers to engage easily with the cryptocurrency market which is a potentially profitable market that can bring huge benefits to some customers.
However, the rise of opportunities increases refers to the rise of new challenges for banks.
Cybersecurity
Cybersecurity is an essential task to be dealt with by banks with the rise of digital transactions. As people go cashless, the majority of transactions occur online. Banks and financial institutions must need to move forward in every security fight to protect customers’ valuable assets. As technologies evolve, threats in digital banking also are higher. For evidence in the banking industry, ransomware was one of the significant threats in 2021. The attacks increased by 1318% compared to the last year. Likewise, cybercriminals threaten cyber security by stealing and encrypting data.
Data privacy
According to the world retail banking report, 57% of consumers said they prefer online banking rather than traditional banking. The transfer from traditional banking to digital banking raised a problem. How much of your private data is kept private? This is the most fundamental challenge in digital banking. Since the financial sector produces and utilizes an enormous quantity of sensitive data, it is necessary to enact adequate measures to protect and keep data private. As technology evolves every day, what firms are doing can be obsolete easily. Meanwhile, cybercriminals are also evolving by equipping new advanced technologies. For firms, it would be an essential task to block risks and protect their customers at the same time.
Customer retention
From the perspective of banks, it does not mean they can make a stronger customer base even if possible. Digitalized banking allows users to make many opportunities to change prime banking to a better one that offers better rates and low costs for them. For banks and financial institutions, customer acquisition is always one of the important agendas. The emerged technology and evolving customer expectations have led to heightened competition and all companies in the financial industry have faced a challenge ‘customer churn’. ‘Retaining customer relationships has become more critical than ever for banks to survive in this competitive market.’
Proposal to overcome challenges for banks
As said earlier, the opportunities increase, accordingly the challenges the firms need to cope with also increase. It is crucial to look back at the decisions they already made. They must critically evaluate their choices and clarify whether they clearly carried out well or not. Also, banks need to keep updating their risk models to identify future needs and to prevent threats in advance.
Conclusion
The banking sector has already moved into online/mobile banking and has been trying to stand out from competitors by adopting digital technologies.
Digital technologies have brought opportunities for both customers and banks by providing easy accessibility and improved customer services. Also, the evolving customer's needs give chance to increase the capability of banks.
However, it is important to note there are emerging challenges as digital technologies develop. They must have strong cybersecurity and protect customers’ data to sustain their business. Also, having higher customer retention is one of the top agendas that the banking sector needs to concentrate on.