Currently we are facing a revolutionary change within the banking industry mainly due to competitive measures being taken by FinTechs, shifting of business models, intensification of regulations, compliance burdens and also due to disruptive technologies.

The arrival of FinTech start-ups has changed the competitive structure within the financial services. This has raised an alarm to the traditional Banks and forced them to change the way they were doing business. Due to the intensification of privacy concerns, regulatory and compliance parameters has become more rigorous.

Taking into consideration that customers' demands are ever-changing, as customers are more looking for personalised services. Technology can be the solution for many of the mentioned challenges however it is not that easy to move from legacy systems to more innovative frameworks. Banks need to accept such digital change in order to be able to succeed.

Below is a detailed walk-through of the current tough challenges that are affecting the day to day business of the banks:

FinTechs are now considered as a threat for the traditional Banks as they are targeting some of the most profitable areas within the financial services sector and hence gaining more market share. Financial institutions are now being forced to either merge or acquire other opportunities so that they will be in a position to compete with such new entrants within the market.

In our culture, technology has been given so much importance that it has also affected the banking industry and banks are embracing a more digital process, whilst eliminating manual ones. Technology-based resolutions are to be taken into consideration. Financial institutions need to emphasise more on an innovative culture where technology is to be used to boost existing processes and procedures leading for maximum efficiency. This is so called Cultural Shift towards a more technological sphere is being reflected through a larger industry-wide acceptance of digital transformation.

Another challenge within the Banking industry is regulatory compliance. This was a result of a staggering increase in regulations fees when compared with the current earnings and losses from the 2008 financial crisis and the current Covid-19 burden. Banks must comply with number of new regulations, that are currently forcing them to make an unusual great effort and to cater for core resources.

Compliance management which is one of the many challenges imposed within the banking industry is leading to a change within the Banks' business models. Banks' profits are under pressure due to an increase in the cost of capital, lower interest rates and a drop in return on equity.

On the other hand the expectations of their shareholders did not change and are always seeking for more profits. This has led the Banks to find or bring into existence new competitive services, be more efficient by looking for sustainable improvements and also reorganisation of business lines to increase revenue and decrease costs.

Nowadays consumers are more informed than ever before and have all the means to get more informed hence their expectations are higher. In fact they would expect a high degree of personalisation and convenience through their banking experience. Banks would need to adopt more to customers' demographics as these play an important role in these heightened expectations.

There are different generations using banking services. New generations have more expectations of digitalised experiences. In fact Millennials use more mobile banking while older members prefer more human interactions and prefer to visit a physical branch. Banks would need to cater for both generations and they would need to adapt to hybrid banking model in order to integrate digital experiences into traditional bank branches.

Banks should also keep in mind their investors' expectations. Their expectations would always be to receive a return on their investment, hence Banks would need to do their utmost to make yearly profits increase. This would also be linked with customers' expectations as a happy customer would lead to business success meaning that investors would also be happy.

Another challenge within the Banking industry is customer retention. Customer loyalty is nowadays considered as an important asset for the banks. They would need to know more their clients and their expectations and would also need to implement an ongoing client-centric approach. By knowing their customers and also collaborating with them, Banks or financial institutions can optimise interactions that will increase customers' satisfaction and the market share leading to less clients' turnover.

Nowadays, majority of the Banks have their own mobile application. Having a mobile banking strategy does not mean that the bank is taking a possible maximum advantage or providing the best service.

A mobile application needs to be fast, user friendly, fully featured (like having a live chat or voice-enabled digital assistance), secure and needs to be frequently updates so that customers will remain satisfied. Therefore having an updated mobile experience is also an important challenge for banks to retain customers' satisfaction and this can also be considered as a competitive advantage.

Over the past few years, we have all heard of a number of security breaches. Security needs to be given high importance by the Banks, resulting into another challenge within the banking industry. Banks should invest in the latest technology-driven security measures to ensure that customers' sensitive information is kept safe.

The uncertainty surrounding the Coronavirus pandemic is another struggle for Banks. They have become more exposed to potential credit losses as the economic cost of the virus including all the measures that were taken may result in number of borrowers defaulting on their loans.


In general the banking industry has a lot to think about, its journey towards recovery and such challenges will remain for sure active beyond 2021. However by taking into consideration the above mentioned challenges, even during hard times such as a worldwide pandemic and by reflecting on the best way to solve the operational and regulatory issues, the banking industry can still make a good kick start on this journey.

Uncertainty about the effects of the pandemic will likely to remain for the foreseeable future but this should not prevent the banks from tackling the other challenges that might not allow them to keep the pace with such an evolving industry. They should always keep in mind that sustainable success in business requires insight, agility, rich client relationships and continuous innovation.

Originally published 20/10/2021

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