I’ve had the benefit of attending several banking industry events this year – many focused on infrastructure, industry transformation and how banks and credit unions can better manage a constantly changing landscape. The one constant across each of these discussions is the important role technology – specifically digitization – is playing to help Banks get ahead. The other constant – the feedback from bank leaders that I’m hearing about the challenges they often have with where to start, how to navigate the sea of vendors and the concerns over not being ready to make a major commitment or investment but knowing something needs to be done.
The great news for those with concerns: you don’t have to tackle digital transformation all at once. But…you do have to get moving. Here are some thoughts on how to do just that based on the great discussions I’ve had so far this year.
It is a well-known fact that banks are moving towards digitization, and customers expect this. Already, financial groups are operating entirely online, and the average consumer is seeing this as the new standard. People are more interested in using digital tools than in walking into a physical location. Insider Intelligence estimates that digital banking penetration will increase to 80.4% by 2025.
As more companies turn towards digitization, other companies are still deciding if it is the right move for their business. Banking experts know that customers expect a digital experience that can rival anything that they would experience in person, and that is why the time for banking is now, but that does not mean that it is the only reason.
Small banks around the world are facing a unique timing conundrum with digitization. On one hand, many banks are afraid that they have already missed the time to transition. They believe that they have already missed the move date and will not have enough time to change. This mentality will only hold financial institutions back, leaving them at risk of the negative consequences of choosing not to make this leap. There is still time, but time is running out.
On the other hand, several banks think that they have plenty of time. This is not the case. More banks are making the leap, which means that every day, small banks that choose not to are being left behind. These banks will also have a more difficult time transitioning to new services because they are not meeting the new standard. When customers expect this transition, this can lead to negative outcomes.
Banks that fail to change with the direction of the industry will find themselves at risk of not being able to catch up. When this happens, acquisition can often be the only remaining outcome. Customers and industry experts expect banks to digitize. The ones that do not meet this standard will find that their only hope is to be acquired by a company that already knows how to make this transition, like the agreement between Social Finance (SoFi) and community bank Golden Pacific Bancorp.
According to Deloitte, there are several key digital transformation factors that will be expected in the coming years, including machine learning, consumer demands focused on digital features, and technology that broadens employee capabilities. These changes are expected, and banks that don’t provide them will be left in the past, just like companies in any industry that fail to adopt new standards.
Banks can meet client needs by launching new digital products, migrating to a cloud core, or becoming a sponsor bank for Banking as a Service (Baas). Already, the BaaS market is expected to grow at a CAGR of 26.33% by 2028, demonstrating just how much potential these services have. These transitions can be adopted over time, but in order to ease these transitions, banks must begin adopting modern technology sooner rather than later.
Fintechs are currently playing a crucial role in helping banks to meet these time-sensitive needs. By leveraging the appropriate technologies, banks can bring their businesses and their customers into the future in a comfortable way. Technology helps banks to identify and respond to trends, making it much easier to adapt to the needs of customers.
Partnering with fintechs can help banks to lead organic growth campaigns, give customers more options and services, and even assess risk. All of these benefits can improve banks and the experience that they provide for their customers. With proper adaptation, financial companies can grow their reputation and increase their revenue.
It is often said that there is no time like the present, and for banks who are looking to navigate this new digital era, this is truer than ever. Adapting to this new digital climate in order to simplify business processes and better meet the needs of customers is a step that all banks must take as soon as possible in order to remain competitive. The time for fintech partnerships and the adoption of new technologies is now.