5 Challenges of Digital Transformation in Banking

Digital transformation in banking is one of the industry’s most difficult challenges. Operational barriers prevent the accelerated adoption of the technology, bringing with it the risks associated with modernizing an aging IT system. Despite the complications, however, the opportunity to upscale the digital system and fit into the changing customer requirements remains attractive for many business owners. 

In 2024, spending on digital transformation technologies and services dramatically increased, reaching USD 2.5 trillion. It will continue to grow rapidly, amounting to USD 3.9 trillion in 2027. The projectile growth shows the demand for modernisation is likely prompted by both customers’ demands and the industry’s changing standards.  

When considering digital transformation for banks, different challenges and complications must be considered. It can become a powerful investment to help financial institutions battle cybercrime and improve operations. In this blog post, I will highlight some of the most challenging components of digital transformation for banks to help you derive maximum efficiency from this process.

Digital Transformation In Banking

Financial institutions of all sizes are rushing to incorporate cutting-edge tools and services into their operations as a consequence of the continuing digital banking transformation. But what exactly does this move entail? The move to online and digital service delivery, as well as the massive back-end changes required to allow this transformation, are at the core of the banking and digital transformation.

Many financial institutions make the mistake of launching many digital initiatives at the same time, which have a poor probability of success due to a lack of resources and coordination required to compete with digital-native alternatives, thereby heightening problems in digital banking. Instead, the financial industry must tackle digitalization from the top down by integrating digital systems, customer experience platforms, apps, and infrastructure.

Digital transformation in banking may be seen in the usage of blockchain technology, the application of artificial intelligence, and the collecting, management, and analysis of client data.

While the phrase “banking digital transformation” may apply to a variety of activities, the ideas outlined below will assist you in getting ready for your own bank’s digital transformation and perhaps even build digital banking strategy.

Top 5 Challenges Of Digital Transformation In Banking

Here are the five biggest problems with banking and digital transformation in financial services:

1. Securing social media communications
2. Evolving away from legacy applications
3. Solving security issues at scale
4. Breaking down silos and mitigating risks
5. Choosing between bricks-and-mortar, digital, or both

Now is the time to tackle these challenges of digital transformation in banking, understand their intricacies, and find effective ways to succeed in your banking and digital transformation journey.

#1. Securing Social Media Communications

Banks, like any other organization, must engage with their consumers in the places where they spend the most time, which is increasingly on social media. Marketers will spend more money on social media sites like Facebook and Twitter as their huge user bases attract more and more of them.

Making sure all social media accounts are secure should be a primary priority. A centralised monitoring system capable of detecting and preventing possible policy violations in all communications should be put in place. In the digital banking transformation, implementing efficient yet user-friendly controls over social communications is critical.

#2. Evolving Away from Legacy Applications

Bank digital transformation strategy implies that companies must change technologies to newer ones. According to studies, 58% of financial institutions are still utilising legacy mainframes that are 5 to 10 years old. The majority, 27%, reported utilizing mainframes between 11 and 20 years old, while just 9% reported using legacy equipment between 21 and 30 years old.

Back office technology needs to be updated badly because its old systems were not made for the networked digital environment of today.

Moving from obsolete and disorganised legacy financial systems to new, digitally connected ones may be challenging and often leads to digital banking problems. Before the transfer can be accomplished, applications, custom processes, connections with other systems, security, and maintenance must all be acquired. If you want to get the most out of your money, invest in training and continuing education for your employees.

#3. Solving Security Issues at Scale

Along with the security of social media channels, the security of the IT infrastructure and all the data it holds is one of the most important digital transformation in financial services challenges.

Nowadays, a typical financial institution may contain tens of thousands, if not hundreds of thousands, of computers and other networked devices. When you incorporate social, cloud, and mobile platforms, the attack surface expands considerably. Furthermore, the distribution of hazards changes significantly as a result of cloud transitions and supply chain issues.

The good news is that the banking digital transformation is also driving the need for tailored security and compliance solutions that can grow on demand. Whether a bank has a small or large digital asset portfolio, there are now solutions that can scale to any size, covering everything from WhatsApp chats to Facebook status updates via automation and total cloud enablement. Because of their scalability, SaaS solutions are frequently used in the retail banking business.

#4. Breaking Down Silos and Mitigating Risks

Financial organisations have historically worked in silos with a number of separate divisions, each with its own set of goals and tools. The obvious consequences include slowed development, limited scalability, and reduced levels of customer satisfaction. More traditional banks’ reputation for being unhelpful to customers seeking new services or assistance with current ones is well-deserved.

With the introduction of digital banking, a consolidated platform that consolidates customers data and connects previously independent financial systems is established. This solution eliminates all difficulties related to silos. 

Always keep in mind that information silos may lead to a lack of cooperation and consistency in corporate policy-making, which can jeopardise security and compliance. CMOs and CISOs should work together to create and implement integrated solutions that benefit all parties involved, particularly now that marketing is at the forefront of brand protection.

#5. Choosing Between Bricks-and-Mortar, Digital, or Both

Despite the broad availability of digital banking solutions, many customer expectations relate to their financial transactions at a physical branch. That is correct. Finding a happy medium that enables them to fulfil the needs of all of their customers while still evolving is one of the continuing challenges of digital transformation in financial services and opportunities confronting the banking industry.

While some customers prefer to check their account balances on their mobile devices, others prefer to perform transactions on a computer. Others like the convenience of completing a brief loan application online. Customer experience shows that they still prefer to do transactions in person.

Because of everyone’s obsession with digital transformation, many people believe that bank offices will soon become extinct. However, this is not the case, as many people still prefer to meet in person to discuss major financial issues such as house loans and mortgages. Rather than replacing face-to-face contact, digital technology is meant to augment it.

Financial institutions, in general, must undertake digital transformation in financial services if they are not to fall behind as digital technology advances. Successful financial institutions overcome the problems in digital banking in order to increase customer centricity and/or the proportion of digital wallets in their portfolio. 

Because of this, these financial institutions are now able to offer their customers and end users “security through transparency,” which was made possible by digital transformation.

The financial sector should search for methods to enhance their services and build mutually beneficial connections with their customers in areas where most consumers perceive challenges because it is the customers’ trust and enjoyment that is most important.

Advantages And Disadvantages Of Digital Transformation In Banking

Individuals, small companies, international corporations, and even banks themselves may gain from bank digital transformation.

Many benefits may result from careful planning and continual improvements:

Advantages

• Convenience. With only an Internet connection and a few simple screen touches, you can access your personal or business bank account from any device. Customers are happier as a result of their increased ability to monitor their accounts and update their profiles at any time (add new mailing addresses, e-mails, telephone numbers, etc.). Digital transformation banking is revolutionary enough to send users the checks immediately, eliminating the need to visit a bank.
• 24/7 service. Because of the digital transformation banking, you can now use an online bank whenever you need it, including on weekends and holidays. In certain situations, you may be able to finish your financial transactions before the bank even opens, saving you the time and trouble of standing in line. This is a significant advantage of implementing a digital banking transformation strategy.
• Time-saving. You will enjoy not just the convenience of being able to access your account from the comfort of your own home, but also the huge amount of time you will save. It’s pretty convenient, especially when you think about how long it used to take to do even the simplest transactions at a bank. Digital transformation in banking industry makes everything quick and easy, enabling users to operate from the comfort of their own home or from anywhere with an Internet connection.
• Automated transfers. There are no restrictions on the number of automated transfers (payroll deposits, automatic bill payment) that a direct bank may do, and there are no fees for providing these services to any other financial institution.
• Easier management. Although more information than is generally collected by banks is necessary to create an internet account, the process is straightforward thanks to mobile apps. Customers may upload their own data or contact online assistants for assistance with the current issue. Also, the system saves information about the payee so that it doesn’t have to be entered again when making future payments, etc.

Drawbacks

• Security issues. Cybersecurity is one of the numerous difficulties that traditional banks and government organisations confront today in digital transformation banking industry. Even with the best ways to protect data, fraudsters, phishers, hackers, and other bad guys may still be able to get into accounts.
• Services. Not every bank has the capacity to provide a full package of digital services these days. Some, however, still need visits to traditional financial organisations’ physical offices.
• Transactions. For more complicated transactions, a visit to the bank branch may be required. Another shortcoming of certain online banking services is their inability to process cross-border payments. The advantages of an update exceed the disadvantages when it comes to digital transformation in banking industry. Digital transformation banking industry allows for more efficient procedures, cheaper overhead, more time saved for consumers, and more effective service delivery.

Summing Up 

Digital transformation in banking industry is necessary to withstand the competition during this age of fintech evolution. The challenges of digital transformation in banking I’ve mentioned in this article have to be accounted for to achieve peak performance. And you can tackle everything with a reliable technical partner. 

You can leap into the new age of digitalisation with a software provider who knows how to help you achieve your business goals. DashDevs has been performing on the market for over 14 years, exceeding the expectations of our clients for every one of the 500+ projects we’ve delivered. We can help you build a digital banking strategy.

Contact us to talk about your project.