These are heady times for the banking industry. Money still rules every day but how it does is constantly changing, as technological developments and societal restrictions of the pandemic era combine to make banking software the norm in homes that previously resisted the change. The banking industry is continually searching for new and concise ways to embrace the technological revolution and has succeeded for the most part, but every new development brings its challenges and obstacles. Things are never simple in the world of finances, and 2021 promises to throw up a wide range of trials and tribulations that the banking industry must overcome for the world to keep moving forward. 2020 was arguably the toughest year in a long time, but anyone expecting the pressure to ease up in 2021 is in for a very rude awakening.
Regulations and legislation in the world of banking
The Fintech industry is forever on the cusp of a compliance catastrophe, as the fast-paced nature of a world built on innovation struggles to keep up with ever-changing banking and data regulations. Ensuring compliance with changing regulations has long been the norm of the financial world but it is particularly pertinent for Fintech, an industry that doesn’t have the streamlined processes in effect that traditional banks have long since built. The banking industry faces extremely harsh levels of scrutiny in the face of strict regulations, with new legislation rolled out frequently in the hope of curbing criminal activity before it has a chance to bed in.
For Fintech, ensuring compliance is about more than simply following the rules. Despite the developments and advances, this remains a relatively new industry, one that is still in the process of building up trust with its customers, and even the slightest regulatory issue can cause irreparable damage to customer trust. Staying on the right side of the law is essential from both a legal and reputation standpoint.
This necessity isn’t going to lead to any sort of let-up from regulators. Relatively recent developments such as Payment Services Directive 2 (PSD2), the EU’s General Data Protection Regulation (GDPR) and the Know-Your-Custome (KYC) guidelines are merely the latest in a long line of regulations that this heavily-scrutinized industry must follow to ensure keeping heads above water.
2020 saw the banking industry fully embrace the cloud. Much of this may have been a necessity caused by the COVID-19 pandemic but it has been an inevitability for a long time, as more and more companies understand and embrace the efficiency and possibilities that cloud migration offers. Standard Chartered, Opel Bank, and HSBC were just three of the banks to commit to cloud migration last year, and the rest of the world’s banks will soon be scrambling to ensure they don’t get left behind.
Cloud migration offers the banking industry plenty of benefits (cost-effectiveness, greater flexibility, and adaptability, better allocation of resources) but it isn’t without its challenges. Banking information is just about as sensitive as it gets, and both banks and those using them are always going to be fearful of even the slightest data breach. An IBM study found that a data breach can cost a company between $145 and $154 per account, a number that can rise exponentially when banking data is involved. For many banks, the risk is just too big to commit fully to cloud migration.
The usual fears around regulation and compliance also abound, but it may be old-fashioned reticence that poses the biggest challenge to Fintech in regards to the banking industry fully embracing the cloud. An Accenture study towards the end of 2020 found that only 45% of companies were ‘very satisfied’ with the outcomes of the cloud, while the lack of total control that one must accept with cloud migration remains a bugbear that some banks aren’t comfortable shaking hands on just yet. There are also remain fears over the efficiency of the service provided by the cloud, with banks fearful of not being able to immediately respond to issues such as system errors and log-in problems faced by its users. These are challenges that Fintech has been faced with since the very beginning and their removal remains in the distant future.
Issues with data management
It has been said a million times but that doesn’t make it any less true; data is the new oil. We live in a time of unprecedented data, information that now comes flying in from a variety of sources, and the banking industry is flooded with it. As Ed Maslaveckas (Chief Executive of Fintech company Bud) states, “Your bank has the deepest and most personal dataset about you that any institution has. You might think Facebook or Google are scarily accurate, but the data points they have are a fraction of what your bank has.” Data is everywhere, and all of it is relevant. Nothing can be left to gather dust.
Which makes it all the more surprising that the banking industry still falls behind other sectors when it comes to data management. The data gathered is growing increasingly complex with every passing day but the nature of the industry demands more simple management options, but the banking industry remains content to store data as opposed to deeply analyzing it. Data should be at the front of the battle of solving problems, yet it remains largely dormant in the hands of banks. Rob Casper of JP Morgan Chase summed this up perfectly in saying “Volume is not a viable data strategy. The most important objective is to find those business problems and then dedicate your data management efforts towards them.” Until Fintech and the banking industry solve this issue, question marks will still sit above the future of finances.
Banking User Experience
It might seem somewhat unusual, but amongst all the regulations and cloud migration of Fintech and the banking industry, the users tend to get lost in the shuffle. It was Bill Gates who said that ‘banking is necessary, banks are not, and while that polemical viewpoint may ruffle some feathers it is also important to remember the message at the heart of it. Banks exist to serve their customers, not the banks themselves. Without happy customers willing to place their financial trust in the institution, banks simply do not exist.
Ensuring a smooth and engaging user experience should be of paramount importance to the banking industry in 2021. The complex terms and the minutiae of banking legislation fly over even the most engaged of minds, so conveying important information in a concise and communicative manner is vital. Users must also build trust in applications and their design, something that also gets overlooked by those at the head of the table. People are understandably sensitive when it comes to money and digital involvement, so ensuring a positive user experience should be at the top of the to-do list for the entire financial industry.
Fintech is an industry about innovation. The development of financial technology has grown alongside revolutions and transformations in the banking industry itself, and each new chapter of the Fintech story is built around the fresh novelty of modernity. But what happens when the well runs dry? More to the point, what happens when there are too many buckets and not enough water?
A company is only as relevant as its latest development, and keeping up with the Joneses has the potential to become a fearful albatross around the necks of many Fintech and banking companies. When creativity and innovation dry up, what happens then? This is an industry established on agility and fluidity and innovation is the blood that keeps these veins working. This, by its very definition, is an eternal challenge for Fintech and banking alike. Straddling the line between consistency and innovation is an obstacle that the banking industry will contend with until the end of time.
Challenges are overcome through a mixture of discipline, dedication, and innovation, three characteristics that HTEC is known for. We bring together leading technology experts, creative thinkers, business consultants, and skilled engineers to solve the unsolvable, to help companies develop new services and tighten up systems. This is particularly pertinent in the banking industry, which desperately needs to tick those most distant of boxes, namely ensuring regulatory compliance and guaranteeing an engaging user experience that ensures trust and reliability all at once.
Obstacles are there to be overcome
In truth, the challenges faced by the banking industry in 2021 aren’t entirely new. Many of them have been constant obstacles for years now, challenges that evolve as quickly as they can be overcome, real-time examples of the questions being changed as soon as the industry thinks it has the answers. This may seem particularly daunting to the uninitiated but it is nothing the banking industry hasn’t seen before and seeing how it embraces cloud migration, changing legislation and the ever-engaging world of Fintech will be as fascinating as it is enthralling.