By Don Halliwell
For years, the banking industry was stagnant. Decade old systems stitched together have created a fragility that makes innovation quite challenging. Operating within these constraints, banks have been hesitant to adopt new techniques and systems – until now. In a new era where every interaction relies on technology, it’s crucial for banks to reinvent how they connect with their clients during every interaction. With big tech leading the way and edging ever closer to the financial space, from the operations to the experience, digital has increased customer’s expectations.
No longer are customers interested in only brick-and-mortar institutions because digital banking is the future. In order to survive, banking executives need to consider how technology and digital partnerships can help them fight their biggest risks. To help banking executives get ahead of the curve, here are the top risks banks face today, and how technology can help them become superior to their competitors:
1) Legacy Systems: The Lack of Digital Banking Platforms and Technology Within the Back Office
Back-office systems are lacking the technological innovation of digital core platforms. With most of those operations still stuck on legacy platforms, innovation is non-existent, making it impossible to deal with the amount of information or data the modern finance industry demands.
By connecting humans, machines and analytics through the latest technology, on-the-spot human decision making can be incorporated into integrated platforms, helping prevent systems from experiencing manually user-operated errors or a repeated IT issue. Ultimately, banks can worry less about manual processes and focus more on building deeper client relationships – something that was difficult, if not impossible, to do with legacy systems.
2) Banks’ Inability to Analyze Data in Real Time: How AI Can Help
Too many processes within banks still rely on manual labor, often causing important data to be tainted by misspellings, duplicated records and other inaccuracies. Incorporating next generation technology into digital platforms, like AI, will allow banks to handle massive data sets without adding additional expenses naturally caused by human error or risking the quality of data.
Embedding artificial intelligence into core banking platforms also gives banks the ability to react to market changes quickly. By gathering and analyzing large amounts of data in real-time, banks can sort through more data than ever before, giving them the ability to provide individualized customer reports and gain an in-depth understanding of each customer’s individual habits. Using digital platforms that incorporate AI allow banks to quickly detect fraud, predict which customers are likely to cancel services and gain a more in-depth understanding of key clients.
3) The Inevitability of Open Banking: What Banks Need to Do in Order to Protect Customer Data
Open banking is about to change the financial sector, acting as a catalyst for the financial data revolution. For many, open banking is seen as a threat due to risks posed by data sharing. But in reality, it’s a clearer pathway to digital transformation. As new regulations encourage greater competition from non-banking institutions, banks will need to create innovative operating models to remain competitive. By developing a clear framework for how to proceed, the biggest benefit for banks will become clear: uncovering and capitalizing on data. The problem with open data is that as more competition enters the market, banks will require a robust security framework to protect customers and their data from phony transactions.
Although this inherent risk of data sharing does exist, banks must overcome that challenge. To ensure their customers aren’t subjected to unscrupulous behavior by thorough partner vetting, bank must deliver increased security through enhanced capabilities to create deeper relationships. Embracing these new market regulations and integrating digital banking solutions will allow institutions to move forward quickly and confidently within an open banking environment.
4) Loss of Millennial Loyalty: Transparency Is Key
The Millennial Disruption Index listed America’s leading four banks among the least loved-brands of millennials. With 70 percent of millennials more interested in a new financial offering from technology providers, like Amazon or Apple, banks need to evolve their current millennial strategy.
What sets millennials apart from previous generations is their desire to be treated like individuals and their demand for personalization and transparency in the often-opaque world of banking. In order to retain this customer, banks need to incorporate personalized offerings, position themselves as experts available to help, figure out social media and provide a seamless experience.
5) The Decrease of Profitability in a Rising Rates Environment: Why Banks Need Strategic Pricing
Big banks have two problems. First, they’re having to pay customers more as they catch on to rising rates. Second, they’re battling digital banks who are able to offer competitive interest rates due to their low overhead. How can a big bank compete and profit in this environment?
In this new era where interest rates are quickly rising, banks need to consider implementing dynamic, customizable pricing in order to encourage deposits and retain customers. By customizing the fees customers pay and offering individualized rates based on banking profiles, banks can give customers a unique, personalized banking experience that they simply cannot get from a digital financial institution. Using pricing to incentivize client behavior not only offers increased savings, but it also establishes loyalty – something banks are desperate for.
The Result: Turning Risk into Opportunity
As banks begin to broaden their perspectives in order to keep up with the evolving industry, executives must pay attention to the top risks they are bound to face throughout the year. Implementing technology into current systems and adapting to fit the customer’s needs will allow the top banks to overcome such risks and stand out against competitors in the industry as they welcome digitization. Agility and ability mean everything in this environment. Banks should leverage established fintech solutions lest they become nothing more than account holding vessels.
Don Halliwell is senior director of marketing and communications at Zafin.