Keeping pace with the digital banking revolution

More than half of millennials would be happy to switch to a digital-only bank or have already made the switch, according to a recent survey by deVere Group. This confirms what many had anticipated that the global Covid-19 pandemic has accelerated the unstoppable march of digital banking

Image used for illustrative purpose.

Image used for illustrative purpose.

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The deVere Group survey showed a 59% majority of global clients born between 1980 and 1996 were in favour of the switch. For the millennial customer, the high-street bank is a thing of the past. Anything that can be done there can be done just as easily by an ever-growing proliferation of online and mobile banking applications, and sometimes more than that.

The promise of digital banking, to provide more and better services, more cheaply, more conveniently, and more tailored to the individual customer’s needs, is likely to continue to replace physical, high street banking.

This is also true for Shariah-compliant banking just as much as for conventional banks. Muslim millennials the same as any other have come to expect from their banks 24-hour accessibility, seamless payments and transfers, low fees, uncomplicated onboarding, instant account statements, and easily accessible information on a wide range of banking products.

So, now Islamic banks need to face this challenge head on as challenger banks that can offer these advantages are poised to take their place. A recent startup, to provide one example, is Dubai-based digital bank Zand, which launched in June 2021. Zand planned to become the first fully independent digital bank in the UAE, and to challenge traditional banks through competitive deposit rates and digital-first products.

Banks to increase use of data and analytics

However, despite the efforts banks are making to keep pace with accelerating demand for digital banking services, financial institutions often feel they are falling behind in terms of digital maturity, according to a recent survey, reflecting a concern that consumer expectations are evolving faster than progress on banks’ digital transformation plans.

The aim for banks now is to expand their use of data and analytics to both simplify and broaden the customer experience.

A key area for development will be the personalization of digital banking products, particularly the use of AI and machine learning to provide predictive personalization such as used in tailored websites or real-time financial recommendations.

The use of cloud computing is also likely to become more widespread in coming years as quickly processing increasing volumes of data grows in importance. This will be aided by significant investment in cloud capabilities of providers such as IBM, which will standardize many of the processes, thereby slashing investment needs, while addressing issues such as security and privacy.

Financial institutions are increasing investment primarily in security and privacy above all other technologies as this is a deal-breaking concern of consumers. Cybersecurity and data privacy will be key selling points for many digital banks.

Growing adoption of open banking

Banks are also increasingly warming to open banking, which connects banks with third parties and technical providers, allowing consumers to access their financial data from several organizations. Open banking also presents banks with new revenue opportunities. A study from Juniper Research last year predicted a doubling in the number of open banking users between 2019 and 2021 as the Covid-19 pandemic saw consumers aggregating their accounts and looking to gain more insight into their financial health. One example in the GCC region is the adoption by National Bank of Bahrain of local FinTech company Tarabut Gateway’s open banking infrastructure.

Beyond consumers’ needs, robotic process automation can also help banks to increase efficiency, improve accuracy and shrink costs. This trend is also accelerating as the numbers of external providers grow and they offer cost-effective, scalable solutions to both small and large financial institutions.

Also, behind the scenes, there is a growing priority for upskilling banking staff as the huge shift to remote working during the Covid-19 pandemic revealed the skills gap caused by the consumer shift to digital channels. It is difficult to predict entirely how much work will migrate back to the office once the pandemic recedes, but it is clear that there will be a significant permanent increase in remote working.

Rapid change can increase risk

Just as the Covid-19 pandemic has caused a surge in demand for digital banking products, so it has led banks to accelerate existing digital projects and strategies. This acceleration may have necessitated streamlining some decision-making processes and the new systems put in place to deal with the pandemic may be beneficial in implementing change in the future. A recent example is Abu Dhabi Islamic Bank’s announcement in April that it would partner with IBM to fast track its transformation into a modern, digital bank, using IBM’s hybrid cloud solutions.

However, these rapid changes do come with some risks. Foremost among these is maintaining the levels of security expected by customers. Fraud and phishing attacks have been on the rise during the pandemic and banks will need to address emerging issues, such as outside surveillance, when people are increasingly using remote communications platforms, or data security controls for personal equipment.

Governments too are having to keep pace with the accelerated digital transformation the pandemic has entailed and will need to tailor their regulatory regimes towards a future ‘new normal’, but in order to assure customers of their digital security they may need to take steps ahead of any government change.

© Special Contributions 2021

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