The banking sector is one of the largest industries in the US. It’s also one of the most crucial for economic growth. Millions of Americans rely upon this sector to become more accessible to many, especially during the pandemic. Moreover, they expect it to become even more secure as cases of cybercrime increase worldwide. These are just some of the challenges that the sector is facing today.
The banking sector is undergoing digital transformation, but it’s lagging compared to other industries.
Digital transformation is essential for every industry, and the pandemic has exacerbated this need even more. People are looking for more accessible ways to do their banking transactions, especially now that banks are forced to close their doors in fear of infections physically. Moreover, as the pandemic rages on, more and more people are getting comfortable with the simple accessibility of online banking. This shows how essential digital transformation is for the industry.
The financial sector has spent billions of dollars on digital transformation. However, experts believe it will need billions more to secure the change fully. There are still various digital needs that are left disappointed. It’s pretty unclear when this transformation will reach an end, but it will take a few more years for the banking sector to catch up with this transformation.
Traditional vs. Online Banking
As the digital transformation continues, many wonder if traditional banking will continue to exist or if there is still a need for it.
Physical banks are at a slow decline in the US. More than 6,600 banks closed a couple of years ago, and many more are closing their doors now. The percentage decline of physical banks is around 7% to 10% of the overall physical banking population, and many experts believe that many more physical banks will close their doors in the coming years.
Experts argue that online banking isn’t the only reason for this decline. Physical banks are much harder to manage. It requires a chain of command as fragile as a house of cards. Furthermore, traditional banking transactions need people to line up and wait for their turn. This is simply something that most clients hate whenever they visit a bank.
Through online banking, they can do the necessary transactions they need in mere minutes, and with improvements in the financial infrastructure of the US, banking transfers can now be made in mere seconds. However, experts believe that traditional banking will continue to stay despite declining numbers. There will always be a need for face-to-face interaction, especially in complex banking cases that require further investigation.
The Pandemic and Loans
One major part of banking is lending money to the people who need it. However, a challenge among many banks, both physical and online, is the increasing amount of people who need a loan.
Banks have no problem in shelling out money for businesses and private use. They also have no problem working with the government to get the loans people need during the pandemic. One particular loan that is highly on-demand right now is the FHA loan. More and more Americans are in dire need of a home during the pandemic, and they are looking for this kind of loan to get them their dream homes. But there is a problem occurring with lending transactions right now, and that is how to accommodate all of these people.
The pandemic has shown that lending is struggling behind modern times. There is a wide array of forms that need to be physically filled up and submitted. The backlog of documents from other clients also clogs the entire process. A person who needs a home loan right now might have to wait months before it gets approved.
This is a serious concern in the banking sector because even though they have the money for it, they don’t have the means to get it out in an efficient manner. Thankfully, big data and AI are all trying to help out the sector against this challenge.
Identity Theft and Other Cybercrimes
As banking continues to become ever more digital, it becomes more vulnerable to all sorts of cybercrime. One particular cybercrime that’s running rampant in the US is identity theft. This specific kind of cybercrime has cost the country over $500 billion in 2019 and continued to rise during the pandemic, reaching record-highs of $700 billion. This is alarming news for the banking sector and one that they still struggle to continue.
Currently, investments towards cybercrime protection are increasing, with most of these investments coming from the financial industry. This is to combat the rising number of cases in the country and face this challenge damaging the entire country as a whole.
The banking industry is struggling against these four challenges, and only time will tell if they can learn to overcome them. Right now, they are handling these problems through digital transformation and making transactions much more secure through digital technologies. This approach is considered to be reliable, but many, and it will hopefully handle these challenges in the coming future.