5 Challenges and Opportunities of Digital Transformation in Banking

Digital transformation in banking has proven a bumpy path, especially for retail banks. Faced with the constantly evolving demands of the modern consumer and increasing disruption from rapidly emerging financial technologies (fintech), traditional banks are under more pressure than ever to adapt and innovate.


These developments justify the urgent need for a digital transformation in banking practices and standards. Banks not only have to reinvent and veer away from their old approach; they also have to invest in these disruptive technologies if they are to successfully navigate and capitalize on the different digital banking challenges and opportunities arising from these changes.

New call-to-action

Solution: Learn more about security
and compliance for financial services.

#1. Securing Social Media Communications

According to a study carried out by the ABA, almost half of bankers agree that customers will rely on social media as their primary method of communication with banks within the next five years. For banks, this can be their way to introduce their social media strategy by highlighting how it streamlines and simplifies communication with their customers. Considering the vast reach of social platforms like Facebook and Twitter, investments in these channels will only continue to grow.

However, utilizing social media to accelerate client communications presents a couple of the biggest digital banking challenges ever - security and compliance. It’s also alarmingly easy for someone to post something that’s misguided at best, or a regulatory violation at worst. Moreover, you can’t afford to leave your social channels open to malicious intrusions or staff negligence.

Securing social media channels should be a priority. All communications should go through a centralized monitoring system that automatically detects violations of corporate policy and mitigates them before they enter the wild. In an industry where trust is everything, the importance of implementing effective yet user-friendly controls over social communications cannot be overstated.

#2. Evolving Away from Legacy Applications

The lack of technological competence in many banks is alarming, and consumers want more than ever to enjoy an experience that traditional banking systems simply can’t offer. Many big banking systems, for example, are built using the COBOL programming language, which has been around for over 60 years! These legacy systems simply weren’t designed for today’s connected digital environment, making back-office technology in desperate need of a refresh.

The transition from dated and disparate legacy banking systems to a modern, digitally connected environment can be daunting. The shift will require a huge upfront investment for the necessary applications, custom processes, integrations with external systems, security, and maintenance. On top of that, people will have to be trained and constantly updated if you are to maximize your investment and derive great value from it.

And when you think about it, thanks to the availability of centralized platforms for monitoring security and compliance, newer technology is inherently safer and more in line with compliance requirements. This shows that you are heavily invested in your customers' data and privacy, bolstering their confidence in your organization.

#3. Solving Security Issues at Scale

Aside from securing social communication channels, the security of the IT infrastructure and all that data it contains remains to be one of the biggest digital transformation challenges faced by banks undergoing or considering digital transformation.

There was a time when IT security was relatively easy. You’d simply install a firewall and be done with it. That’s certainly not true anymore. The 2019 Capital One data breach is your Exhibit A.

Nowadays, the typical banking environment has tens or even hundreds of thousands of networked computers and other connected devices in its portfolio. Add social, cloud, and mobile channels into the mix, and the potential attack surface expands exponentially. How do you maintain security on such a massive scale?

The good news is that the digital transformation in banking also fuels the need for bespoke security and compliance solutions capable of scaling by demand. No matter how large a bank’s portfolio of digital assets is, there are now solutions that scale to practically any size, using automation and full cloud enablement to protect everythingfrom WhatsApp chats to status updates on Facebook. The scalability of SaaS solutions is exactly what makes them critically important in the retail banking sector.

#4. Breaking Down Silos and Mitigating Risks

Banks have long been siloed organizations. Different departments with their own goals using disparate systems. This inevitably leads to stunted growth, limited scalability, and decreased customer satisfaction. In fact, more traditional banks have built up an infamous reputation of giving customers a huge runaround whenever they apply for a new service or receive support.

The digital transformation in banking ushers in a unified platform that centralizes data and connects multiple systems and departments. It effectively eliminates the issues caused by silos. Remember that information silos can also pose risks to security and compliance, since there’s a fundamental lack of cooperation and consistency in corporate policy-making. And now that marketing, for example, is the new frontline of brand defense, CMOs and CISOs should be working together to implement integrated solutions that work for everyone.

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

Even with the advent and proliferation of digital technology, a significant number of clients still prefer to transact inside an actual bank. That is a fact. Players in the banking industry must see this as one of the persistent digital banking challenges and opportunities for the banking sector: to find that happy medium where they satisfy the needs of all their customers but still be able to achieve transformation.

Some customers like to check balances on their phones, but prefer to send payments from a desktop. Others prefer the convenience of applying for a loan using a quick online questionnaire. Still, more than two thirds of consumers still consider it important to have a local branch nearby.

Since everyone’s talking about digital transformation these days, there seems to be a misconception that bank branches are destined to go the way of the dinosaurs. This simply isn’t true, because many people still prefer face-to-face interactions when it comes to discussing important financial matters, like personal loans and mortgages. Digital tech isn’t meant to serve as a complete replacement for these traditional interactions – it’s meant to complement them.

Overall, digital transformation in the banking sector is a necessity, if banks don’t want to be left behind by the evolution of digital technology. But where most people see challenges, banks should see opportunities to provide better services and establish a great relationship with their customers. Because at the end of the day, that is what’s important - the customers’ satisfaction and trust.