The banking industry is undergoing a radical transformation due to intense competition from FinTechs, revolutionizing business models, various regulatory and compliance pressures, and several disruptive technologies.
Data breaches have also become prevalent, igniting multiple privacy concerns, and making regulatory and compliance requirements more restrictive. In addition, customer demands are evolving as they require 24/7 personalized services.
Most of the best banking services have already braced themselves for such challenges by offering consumer-friendly services such as Ijarah, Istisna, and Running Musharakah. Still, many banks aren’t fully prepared to overcome these challenges.
That said, banks and credit unions need to embrace digital transformation if they wish to not only survive but thrive in the current landscape.
Increasing Competition
The biggest threat posed by the startups is that they would eventually account for upwards of $4.7 trillion in annual revenue from traditional banks.
These new startups force many financial institutions to pursue partnerships or acquisition opportunities as stop-gap measures.
However, to ensure a competitive edge, traditional banks and credit munitions must learn a few important things from startups, such as providing a simplified and intuitive customer experience.
Cultural Shift
Technology has been rooted in our culture, so it was only natural to extend it to the banking industry. But unfortunately, there’s no room for manual processes and systems in the digital world.
Therefore, financial institutions must promote a culture of innovation in which technology aids in optimizing existing processes and procedures for maximum efficiency.
This cultural shift toward a technology-first attitude reflects the larger industry-wide acceptance of digital transformation.
Changing Business Models
The cost associated with compliance management has forced many financial institutions to change how they do business. However, shareholder expectations remain constant despite the increasing cost of capital, low-interest rate, decreasing return on equity, and more.
These factors have forced many institutions to create new competitive services, rationalize business lines, and seek suitable improvements in operational efficiencies to maintain profitability.
Outdated Mobile Experiences
Every bank, credit union, and financial institution has its branded mobile application. However, just because an organization has a mobile banking solution, it doesn’t mean it’d be effective.
To satisfy customers, a bank’s mobile experience must be fast, easy to use, secure, and regularly updated.
Some banks have reinvented mobile banking apps by introducing mobile payment functionality that allows customers to treat their smartphones like digital wallets and transfer and receive funds to/from family and friends.
Regulatory Compliance
Due to the increase in regulatory fees relative to earnings and credit losses since the 2008 financial crisis, regulatory compliance has become one of the most important banking industry challenges.
There are several regulations whose compliance can significantly strain the bank’s resources and often depend on the ability to correlate data from disparate sources.
