The challenges and opportunities for banks in the evolving digital market

Alex Curtis our consultant managing the role
Posting date: 04 May 2021

The banking sector has undergone massive changes in recent years. Globally, digitization has re-shaped banking firms of all sizes, with the COVID-19 pandemic accelerating changes that were already underway. Today, digitally-based challenger banks are growing at a rapid rate and having a disruptive influence across the sector. With personalized banking services and improved customer experiences, the rise of digital has paved the way for a range of opportunities for banking firms. Now well-established in the finance industry, challenger banks have become fierce competitors to traditional banks. However, moving into a new world, what exactly are the challenges and opportunities for banking as digitalization continues to revolutionize the industry?


The success of challenger banks


Over the past decade, digital banks have been at the forefront of innovation. Many of these digital banks feature multi-account dashboards, invoice creation and data sharing tools, all of which have given customers a seamless way to manage their finances. Technological advances such as e-signatures and digital ID are transforming the finance market, and new challenger banks that are born out of today’s technology, have been able to create systems for the digital-first generation. 


Between 2019 and 2020, seven US challenger banks recorded a 39.3% growth in users, according to research by Trading platforms. The growth of challenger banks shows just how much of an impact technology has had on modern banking. Mobile banking, for example, offers banks several opportunities for growth and increasing revenues. Most notably, Google partnered with Citibank to redesign Google Pay in the US to help attract more mobile customers. Thanks to AI-based technology, customers will be able to open and manage their no-fee Citi Plex account through Google Pay. Unlike traditional banks, challenger banks and apps can offer a seamless experience. To keep up with the competition, traditional banks will need to take advantage of the features popular in digital banking, such as chatbots, and create an omnichannel experience. Traditional banks are defined by their well-established infrastructure and systems, unlike challengers which are much more flexible.


Building trust and transparency 


Although challenger banks have grown enormously, they haven’t completely overtaken traditional banks. According to research, 57% of modern banks use their traditional account to receive their salary and manage investments. So, traditional banks are still leading the way when it comes to trust and customer confidence. Lack of trust is one of the major challenges that digital banking services face, and according to Accenture, only 10% of customers place a lot of trust in the digital services provided by challenger banks. Another obstacle for challengers is the fact that customer bank-switching has decreased significantly. Accenture found that in the past twelve months, only 3.8% of customers changed from their current account. 


Digital banks need to evaluate how consumer behavior has evolved and how the pandemic has affected financial habits, and create systems that curb customer’s concerns with their stability. Despite the shift away from cash towards digital payment methods, which has been accelerated further by the pandemic, challenger banks still have work to do when it comes to trust and security. When comparing challenger banks to traditional banks, the latter comes with strong branding and heritage, which new banks aren’t yet able to offer.


Redefining the customer experience


It’s no secret that digital technology has reshaped customer expectations, changing the way we manage money. Most people are used to the ease and accessibility of digital channels, so the banks that will thrive and grow in the post-pandemic world are those that tailor their services to meet customers’ expectations. Today, customers want a service that can offer them automated investing and financial advice. Many start-ups and well-established banks have responded to the customer desire for an efficient and streamlined service. For example, Wells Fargo now provides users with an intuitive investor account, offering robot-investing and seamless, financial support. Furthermore, the challenger bank Stash, based in New York, offers a tool that allows users to set a schedule around their savings and investments. Stash allows people to regularly save a set amount of money from their portfolio, making it much easier to form positive financial habits. Moving forward, customers will expect an increasingly high level of personal banking, so an exceptional customer experience is vital for the future success of banking firms.


Are you looking to grow your banking firm?


There’s a range of great opportunities for banks within the digital landscape and the future looks promising for digital banking. At Hanover, we have an excellent team of consultants with a strong knowledge of the financial services and banking industries. We’re passionate about building relationships with both clients and candidates, and we have significant experience hiring the best professionals from diverse talent pools. We offer a range of services, including Executive SearchLeadership Solutions and Market Intelligence. If you would like to find out more about recruitment for your banking firm, contact our team today to start a conversation.

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