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Why digital transformation is critical to accelerating modernization

Here are a few of the reasons banks are embracing digital transformation at an ever-increasing pace. 

Why digital transformation is critical to accelerating modernization
[NDABCREATIVITY / Adobe Stock]

In recent years, “digital transformation” has been one of the most frequently used buzzwords across industries. On its most basic level, it refers to the reimagining of how an organization leverages its technology systems to improve business processes and human resources. Within the financial and banking sectors specifically, digital transformation has also become synonymous with the increasing shift to mobile and online services.

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According to a 2019 FDIC survey, mobile use continues to rise in dramatic fashion. Thirty-four percent of consumers said that mobile banking was the primary way they accessed their bank account, beating out online banking, bank tellers, ATMs, and telephone banking.

This shift in banking preference has had a significant impact on how banks think about their physical footprint. Branches are still important, but they are less of a place where people go for transactions and more for advice and consultation. The physical bank branch of the future will look much different than the traditional branches of today.

The days of handing out lollipops to kids and sending envelopes filled with checks and cash in a cylindrical canister through a pneumatic tube system at your local bank or credit union may be ending, but we didn’t get to this point overnight. Here are a few of the reasons banks are embracing digital transformation at an ever-increasing pace.

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1. CHANGING CONSUMER TRENDS

Perhaps the biggest reason why banks have hopped on the digital transformation bandwagon is that the number of smartphones in circulation is growing exponentially with each year. A report published last year by Newzoo found that the global number of smartphone users has reached approximately 3.5 billion. By 2023, that figure is expected to jump to 4.1 billion. In the U.S., the report estimates that there were 270 million smartphone users in 2021, representing a smartphone penetration rate of more than 72.7%.

More than three-quarters of Americans used a mobile device the last time they checked their account balance, and nearly 70% of millennials used mobile banking services as of 2018. It’s clear that the proliferation of smartphones, combined with changing demographics, has resulted in a sea of change in both the United States and abroad. As millennials and Gen Z consumers begin to comprise a larger percentage of the smartphone user base, these numbers will only continue to climb. And because younger consumers have a comfort level with mobile and online banking that older Americans do not, many of these capabilities are now an expectation and not simply a “nice to have” feature.

2. THE PANDEMIC

COVID-19 has upended our lives in ways that would have seemed impossible just a few years ago. The virus has also dramatically accelerated technology paradigm shifts, such as the adoption of cloud-based solutions to better enable remote work and connectivity. Of course, this also holds true for digital transformation in banking.

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Rather than run the risk of entering a branch, many consumers opted to take advantage of mobile and online services instead. According to a survey conducted by Deloitte, respondents embraced a number of online services for the first time during the pandemic, including taking out a consumer loan, taking out a mortgage, securities investments, information on a bank service, and payment transactions. In addition, nearly 60% of those surveyed said that they plan to use both online and in-branch services after the pandemic ends, a clear signal of the growing importance of mobile and online functionality.

3. NEW AND EVOLVING RISKS

One of the other ways banking has evolved is through the placement of more intelligent self-serve ATMs. In 2019, there were 49.62 ATMs for every 100,000 adults worldwide — and they have transformed from antiquated “boxes” to smart, connected IoT devices. The services these technologies provide have become increasingly sophisticated, performing far more tasks than just dispensing cash. As these devices increase in sophistication, connectivity allows providers to put them out into new and interesting locations and offer more services.

But while the COVID-19 pandemic has opened the door to new functionalities dedicated to the more digital customer experience, it has also led to more opportunities for crime. The low-risk and high-reward nature of ATM “hook and chain” attacks is growing across the country, with reports of increased ATM thefts in St. Louis, Chicago, Baltimore, and other major cities.

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These somewhat simplistic crimes lead to a significant loss. ATM attack perpetrators cause damage to ATMs and surrounding structures that cost as much as $45,000, and if successful, the bad actors can get away with upwards of $150,000 in cash. And those numbers don’t consider the value of the ATM itself.

To combat these issues, we must circle back to technology. The organized nature of ATM attacks (and other security threats) is sophisticated and makes a layered approach more critical. A holistic security approach can help mitigate these risks before they happen. It’s no longer viable to rely on traditional methods; criminals are becoming more sophisticated, and banks must follow suit to protect the bottom line.

3. IMPROVED SECURITY

One of the biggest reasons people have been hesitant about the use of online banking in the past is the opportunity it presents to cybercriminals and other fraudsters. The stories of people having their identities stolen or accounts cleaned out by cyber thieves are too numerous to count; however, banks and the financial sector have been at the tip of the spear when it comes to implementing state-of-the-art security measures.

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From the deployment of multi-factor authentication, biometrics, and artificial intelligence to verify customer identities to the use of blockchain and other cybersecurity technologies, there has never been a point in time when making an online transaction was more secure than it is now. These capabilities will only improve over time as mobile banking becomes more prominent.

Digital transformation is upon us whether we like it or not. The question is: Are you ready to adapt and make the changes necessary to support the new way of doing business?


Matt Tengwall, VP and GM, Verint Fraud and Security Solutions

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