Are banks dying!
Will traditional banks play a less significant role in the future? This is a question many of us are asking with all the recent Covid restrictions.
Advances in technology have brought rapid growth in the clout of digital payment platforms and tech firms. More and more people are preferring digital payments and digital financial services compared to traditional banking. This trend especially emerged during the pandemic. People are giving up their old habits like waiting in-line, face-to-face trade - in light of the social distancing requirements. All of which is a challenge for traditional banks as they try to evolve to keep themselves competitive in the financial services industry.
In today's day and age when the majority of us prefer using online transactions for things like - making payments or applying for credit cards, less and less people are inclined to physically go to the bank. Compared to traditional banking services, digital payment platforms provide customers with more convenient, efficient, and accurate financial services. For instance, people would choose to open their PayPal account to do financial transactions on their smartphone, instead of physically going to a branch. All of which can save a tremendous amount of time and unnecessary fees. According to a study from BCG (Boston Consulting Group), “Well-known fintech, including PayPal and Squared in the US and Adyen and Klarna in Europe, have achieved market caps in the tens or even hundreds of billion-dollar range, higher than some multinational banks'' (Erlebach et al., 2021).
If Banks fail to keep pace with market leaders in big data, and AI, they will lose share in payment interactions, which will have an adverse effect on the other business and decrease profits indirectly. These payments often serve as the primary relationship gateway between banks and customers.
On the other hand, banks will always play a key role due to their home advantages. Banks not only build secure relationships with clients based on customer service and trust, but they also have unique knowledge about their account holders and what they’re doing with their money. All of these benefits cannot be replaced by technology. For example, a customer still physically needs to go to a branch to deal with complicated financial transactions. A study from Deloitte found that “Many consumers still prefer traditional channels over digital channels for complex or advisory services, however. Of the respondents who filed a complaint with their bank, 42 percent used contact centers, 26 percent used branches, and only 30 percent used digital channels.” (Srinivas & Ross, 2018).
In conclusion, it is significant for traditional banks to evolve and make strategic, fundamental changes in their payment experience. Moreover, banks should collaborate with digital giants to keep pace with the trend that is accelerating during this pandemic, and improve their approach to protecting and monetizing data.
Erlebach, J., Pauly, M., Jongh, L. D. C. D., & Strauß, M. (2021, January 8). The Sun Is Setting on Traditional Banking. Canada - EN. https://www.bcg.com/en-ca/publications/2020/bionic-banking-may-be-the-future-of-banking.
Srinivas, V., & Ross, A. (2018, October 9). Accelerating digital transformation in banking. Deloitte Insights. https://www2.deloitte.com/us/en/insights/industry/financial-services/digital-transformation-in-banking-global-customer-survey.html.