October 12, 2023

How Digitization is Reshaping the Banking Industry

Explore the rise of digital banking, its challenges including legacy systems and data security, and how modern identity solutions can enhance onboarding and combat fraud.

# Insights

The banking industry is undergoing a digital revolution. As more consumers expect remote and digital banking experiences, banks are under increasing pressure to digitize their services. However, the shift to digital banking services is not without its challenges. Legacy systems, data security, and evolving regulations are just some obstacles banks must overcome. Fortunately, a modern identity solution can help banks improve their onboarding experience, combat fraud, and keep pace with the ever-changing digital and regulatory landscapes. In this blog, we will explore why digitization is dominating the banking industry, the common challenges faced when undergoing digitization, and how a modern identity solution can help.

The shift to digital banking

The shift to digital banking has steadily gained momentum over the past few years, with the number of digital banking users in the US expected to hit 212.8 million by 2024. Several factors, including a surge in consumer demand for remote and digital banking experiences, are driving this growth. The pandemic has only accelerated these expectations and created a further need for banks to keep pace with modern technologies.

Customers are increasingly becoming frustrated with slow services and traditional onboarding methods, leading many to embrace alternatives such as neobanks. The rapid rise of neobanks has disrupted the traditional banking landscape, offering tech-savvy consumers an array of features and functionalities that traditional banks are struggling to compete with.

While traditional banks have attempted to combat these alternatives with solutions such as mobile apps, many have failed to meet user expectations for digital services. This is particularly evident with regional banks in the US, which have one of the lowest satisfaction scores amongst banks for mobile apps.

The challenges of digitisation for banks

The banking industry is undergoing an unprecedented digital transformation driven by the need to increase efficiency and reduce operational costs. As banks race to adopt new technologies, they must face several challenges along the way.

Legacy banking systems

Legacy systems are a major obstacle for many banks as they attempt to digitize their services. Traditional banking systems were built to meet the needs of physical transactions. As a result, overhauling legacy infrastructure can be extremely costly and time-consuming, making it difficult for banks to justify the ROI of such investments. With customer satisfaction on the line, many banks feel pressure to fast-track digital transformation or risk losing customers.

Data security

Data security is another concern for banks as more personally identifiable information (PII) becomes available online than ever before, increasing the risk of fraud and data breaches. Every year, there are more than 50,000 individual personal data breaches in the US. In response, banks must implement robust measures to combat growing risks and protect customer information and financial data from malicious actors.

A modern identity solution can provide advanced technologies such as machine learning, biometrics, and artificial intelligence to verify a customer’s identity in real-time, without physical documentation or manual checks, helping banks to secure a customer's personal information and prevent unauthorized access.

Evolving regulations

Finally, as demand for digital banking grows, so do regulations designed to ensure consumer protection and privacy rights. Governments and regulatory bodies worldwide have implemented laws such as the General Data Protection Regulation (GDPR) in Europe and the California Consumer Privacy Act (CCPA), requiring banks to comply with specific standards regarding identity verification.

Banks can alleviate regulatory pressures by selecting an identity verification vendor that is certified and adheres to the world's highest industry standards and regulations. This ensures that their policies and procedures adhere to the highest level of data protection and safeguard personal data from data breaches.

How to combat digital banking fraud

As traditional banks expand their product offerings and online banks emerge to meet consumer demand, fraudsters have also evolved. The sophistication and speed of these criminals have left traditional banks on the back foot, relying on a reactive rather than proactive response.

Traditional identity verification methods are often slow and manual, increasing the risk of exposure to fraudsters. For example, manual identity checks that rely on documents such as passports or driver's licenses can be easily spoofed by sophisticated criminals. Additionally, these methods may also result in a poor customer experience due to long wait times and time-consuming processes.

A modern identity verification solution can help banks overcome these challenges and improve their digital onboarding experience by automating the verification process. Banks can leverage capabilities such as identity data verification, advanced biometric technology and fraud indicators to verify customer identities with a high level of accuracy and confidence. This minimizes the risk of fraud while providing customers with a fast and frictionless onboarding experience.

Looking forward

With 86% of consumers preferring to make payments through digital channels, it is clear that digital banking is here to stay. As digital banking gains momentum, traditional banks must embrace digitization to remain competitive and compliant with regulations.

Banks can alleviate the burden of digitization by partnering with a modern identity solution provider to overhaul their legacy systems, bolster data security and keep pace with ever-evolving regulatory requirements.

Experience flexibility for effortless modernisation

Unlike one-size-fits-all solutions, Data Zoo’s IDUX ecosystem offers banks the flexibility and innovation to enhance their digital user experience and elevate customer satisfaction without hefty technology investments.

Ready to see the difference? Our expert team will be at Money20/20 in Las Vegas from October 22-25. Meet us at Stand 1011 to discover our modern identity solutions for diverse banking challenges.

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