Trends in the business landscape have radically shifted over the years as technology penetrates every corner of our modern world, and the banking industry is no exception for this. The advent of the millennial generation is one of the factors that brought about this changing trend.
Millennials were born from 1981 to 2000, and they are expected to make up half of the US labor force by 2020. In no time, they will substantially comprise the client base of banks. Digital banking is one of the crucial ways to capture their age group.
What Is Digital Banking?
Digital banking is the online shift of all traditional banking activities, whether client-facing or internal business process, to facilitate the ease of transaction between a bank’s stakeholders. It is easy to distinguish digital banking from traditional banking because banks are simply shifting their pen-and-paper process to online, making transactions more accessible.
However, there is also a difference between online and digital banking, though they would always overlap. Online banking is narrower in scope, focusing only on the online management of deposits, transfers, and bills payment. On the other hand, digital banking is an all-encompassing idea that puts in electronic format all the activities of financial institutions, including their internal business processes.
What’s In It For Banks?
- Operational Efficiency – With digitization, banks can conduct their operations more efficiently by reducing the chances of human errors in transactions and decreasing the amount of paperwork.
- Business Focus – Digitizing banking operations would mean lessening the need for substantial branch networks. A narrower branch footprint allows for increased focus on a bank’s scope of services as well as the concentration of experts and specialists.
- Cost-Savings – According to industry experts, operating cost savings of around 20% to 40% can be realized through digitization, which means more dollars left for the bank’s income statement bottom line.
- Competitive advantage – Digitization allows banks to deepen its reach towards the digital generation, thereby equipping it to compete with tech-savvy industry giants and newer fintech startups.
What’s In It For Clients?
- Convenience – Digital banking eliminates the tedious paperwork by having to fill up the forms over and over manually. It spares the client from the hassle of having to go to a bank, catch up with the limited banking hours, and deal with the long waiting lines.
- Real-Time Access – Digitization allows clients to make transactions 24/7 through their laptops or mobile phones. It eliminates the need to wait for one full banking day to reflect a transaction because it appears real time and is easy to track.
- Customized Services – Compared to traditional banking services, digital banking is more flexible for the users. They may choose to be notified the way they want, and it is easy to tweak the settings of a mobile bank application to fit the needs of the users.
- Secured And Back-Up – While the paper receipts that traditional banking provides can easily be lost, the digital paper trail of online banking transactions use cloud-based storage. All digital banking applications also have tested security features.
What Are The Risks And Challenges?
- Change Management – One major hurdle is that it is never easy to start an overhaul in an organization. Legacy systems are difficult to replace, and the restructuring of critical business processes cannot be achieved overnight.
- Security Issues – Customer confidence and trust are very crucial in banking operations. Banks have to make sure that the shift from manual to electronic transactions does not make the clients’ accounts vulnerable to data loss or attacks.
- Regulatory Requirements – When banks go digital, they become subject to more scrutiny and closer oversight by regulatory institutions in their respective countries. With the advent of cyber-attacks, banks need to protect every aspect they can to maintain the integrity of their systems and services.
Digital banking is a work in progress for every financial institution. It is one big leap of faith, but it is well worth the hassle once the bank reaps the rewards.