TROY, MI, March 30th 2017– Banks in the U.S. may have up to $45 billion of their profits at risk from digital disruption over the next three years, according to research by McKinsey & Company, underscoring the urgent need for these banks to upgrade their technology to meet the demands of an increasingly digital economy. Continuing to rely heavily on older legacy systems may lead to a significant loss of market share, as well as other challenges that threaten the business model favored by traditional players.
The report added that entry barriers for non-bank competitors may be easing, and large tech players may be able to come between banks and their customers. In an environment where many customers would rather use their smartphones or computer tablets for their banking needs, banks must to implement the right balance between human and digital interactions with their customers.
According to Anil Jain, Senior VP and Head of North American Operations at global IT and business solutions provider Syntel, “Traditional banks and other financial institutions are facing the same challenge today as other industry sectors: trying to best answer the question of how to successfully integrate digital technologies into their operations, in order to retain a competitive advantage and enrich the customer experience.”
According to Syntel’s Jain, “while there has been a large influx of fintech companies competing for banks’ customers, many banks’ operations have already undergone digital modernization, while others are collaborating with fintechs to provide the latest innovative technologies to their clients.”
The need for banks to adapt to the digital age is further reinforced by a dramatic shift in how customers handle their banking needs. With the ability to bank from anywhere with digital devices, customers are avoiding bank branches in droves, forcing many U.S. banks to eliminate or reduce branch staff in an effort to trim brick-and-mortar operating costs and for many, to redirect their efforts toward digital offerings. In fact, PwC reports that it expects to see at least 20 percent fewer branches by 2020.
The Millennial generation, which has grown up in the age of instantaneous communication, is largely credited with driving the shift to digital banking. According to a recent Salesforce.com survey, more than one quarter of Millennial-aged bank customers are completely reliant on mobile banking apps. The survey also found that three-quarters of Millennials are at least somewhat reliant on a mobile banking app to handle tasks as depositing checks, monitoring their balance or paying bills.
“In order to ensure survival in a rapidly changing business environment, it is essential that banks’ core operating systems are able to evolve to meet changing consumer expectations and the new realities of the digital age,” said Jain.