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The Rise of Digital Banking: Unleashing the Future of Financial Services

The banking industry is undergoing a major transformation as digital banking continues to rise in popularity. Digital banking has witnessed a remarkable surge in popularity over the past decade, revolutionizing the way we interact with financial institutions.

This trend is being driven by the increasing popularity of smartphones and other mobile devices. There are other major factors driving the growth over traditional banking, including convenience, accessibility, lower fees, and the need for security.

Current Rate of Growth:

  • According to Gartner, digital banking usage has experienced significant growth worldwide, with over 75% of adults accessing digital banking services in mature markets.
  • McKinsey reports that digital banking adoption has increased by 20% in the last five years. These metrics showcase the rapid pace at which customers are embracing digital channels for their banking needs.
  • A 2022 study by EY: found that 63% of banks believe that digital transformation is essential to their future success. This shows that banks are aware of the importance of digital banking and are taking steps to adapt to the changing landscape.

Growth trajectory in next 5 Years:

Gartner predicts that by 2028, 

by 2024, digital banking will become the norm, with nearly 80% of adults in mature markets relying on digital channels for their banking activities. 

85% of all retail banking transactions will be conducted via mobile devices.  

75% of all payments will be made using non-cash methods.  

95% of banks will be using data analytics to improve their decision-making.  

McKinsey estimates that 

by 2025 digital banking could potentially account for over 40% of new revenue for banks. 

open banking could generate up to $15 trillion in new revenue for the financial services industry by 2028.  

AI could save the financial services industry up to $2 trillion by 2030. 

These projections highlight the immense growth potential of digital banking in the coming years. 

Challenges Faced by Large Banks:

Based on research conducted by McKinsey and Gartner, several challenges faced by banks in the digital banking transformation include:

  1. Legacy Systems and Infrastructure: McKinsey highlights that legacy systems can impede banks’ ability to deliver seamless digital experiences. Gartner suggests that nearly 70% of banks struggle with the integration of new digital platforms with their existing systems.
  2. Regulatory Compliance: Gartner emphasizes that regulatory requirements continue to evolve, making it challenging for banks to strike a balance between innovation and compliance. Banks must navigate complex regulatory landscapes to ensure security, privacy, and compliance.
  3. Customer Experience: According to McKinsey, customers’ expectations for digital banking experiences have increased, and they demand seamless, personalized, and user-friendly interfaces across multiple touchpoints. Banks must invest in enhancing customer experiences to remain competitive.

Strategies to Overcome Challenges:

Industry thinktanks offer valuable insights on strategies banks can adopt to overcome these challenges:

  1. Modernize Infrastructure and Legacy Systems: McKinsey emphasizes the need for banks to invest in upgrading their technology infrastructure and replacing legacy systems with agile, scalable, and cloud-based solutions.
  2. Embrace Agile and Collaborative Culture: Gartner suggests that banks should foster an agile and collaborative culture to encourage innovation and digital transformation. Partnering with fintech firms can help banks leverage their expertise and drive innovation.
  3. Implement Robust Cybersecurity Measures: Both research firms stress the importance of implementing robust cybersecurity measures to protect customer data and build trust. Continuous monitoring, encryption, and advanced authentication methods are crucial to mitigating cybersecurity risks.
  4. Leverage Data Analytics and AI: McKinsey recommends utilizing advanced analytics and AI to gain insights into customer preferences, enhance personalization, and deliver proactive and tailored digital banking experiences.
  5. Enhance Regulatory Compliance Capabilities: Gartner advises banks to invest in dedicated compliance teams, robust frameworks, and automation tools to stay abreast of regulatory changes and ensure compliance while fostering innovation.

A powerful technology Generative AI has also emerged which has huge potential to revolutionize the banking industry. According to experts, banks that adopt generative AI will be well-positioned to stay ahead of the competition and to provide their customers with the best possible banking experience. We will be talking about that in detail in our next article.

Digital banking’s rapid growth presents banks with immense opportunities, along with challenges that can be overcome through strategic actions. Based on research from Gartner and McKinsey, banks should prioritize modernizing infrastructure, embracing collaboration, implementing robust cybersecurity measures, leveraging data analytics and AI, and enhancing regulatory compliance capabilities. By adopting these strategies, banks can successfully navigate the digital banking landscape, providing exceptional customer experiences and unlocking the full potential of digital transformation in the financial services industry.

This transformation transition often appears challenging to the Banks and large financial institutions. This where MASSIVUE aids leaders and help them execute their transformation journey. No matter where you are in your transformation journey, if you are facing any challenges, feel free to reach out for a chat over a coffee.

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