Challenges In The Banking Sector

A sound financial and banking system is essential for every nation to grow economically. Banking in Nigeria has substantial difficulties that have prevented the government from having a secure financial system. The banking industry in Nigeria has, in 2022, faced challenges of higher effective tax rates, historically low-interest rates, and competition from telcos: Challenges In The Banking Sector.

Disruptive technology, growing competition from fintech, changing business models, mounting pressure from regulations and compliance requirements, and the banking industry itself are all contributing to the big transition that is taking place in banks in Nigeria.

Challenges In The Banking Sector

The emergence of fintech or non-bank companies is changing the competitive landscape of the financial services industry and forcing incumbent institutions to reassess how they conduct business. Regulations and compliance requirements are becoming more stringent as the frequency of data breaches and privacy concerns rise. As if that weren’t enough, changing consumer needs include a need for personalized service available around-the-clock.

The same technology that has produced this disruption can remedy these and other problems in the banking business. Still, it hasn’t always been simple to move from old-fashioned methods to cutting-edge ones. Therefore, if banks and credit unions want to survive and grow in the current environment, they must embrace digital change.

8 Challenges Of the Banking Industry

Adoption Of New Technology

Implementing new technologies is currently one of the biggest challenges of banking in Africa. Larger firms struggle to embrace new procedures and technologies due to legacy solutions and antiquated business processes, making this issue the top challenge facing the financial sector in 2022, according to experts.

Banks are not in a rush to actively implement artificial intelligence, blockchain, or cloud computing, despite its effectiveness in other financial sectors. Customers expect banks to provide service with little involvement from consultants, according to recent studies. The independence and dependability of financial services are crucial for today’s consumers.

Solution

Innovative banking industry solutions are now available thanks to new technologies. AI chatbots are an excellent example. Additionally, several banks in more technologically advanced regions of the globe have already adopted VIP systems that feature audio and video chat.

Competition Between Banks And Fintech Companies

Fast-growing fintech firms can now compete head-to-head with established banking institutions. Web and mobile apps can disburse loans, work with cryptocurrencies, and even provide financial guidance.

Solution

Fintech startups can destroy small regional banks, but they cannot fully compete with giant international banks. Smaller banks might offer collaboration with fintech solutions as a remedy to fill in the organizational gaps.

To outperform their rivals, banks need to add more digital components to their physical locations. People will be kept interested and actively engaged through touchscreen technology, digital signatures, and video walls as they are informed about the services and updated on advancements. It has more than simply an interactive component; it also gets the interest of younger generations and eliminates the need for paper content.

Customer Expectation

Customers currently have differing opinions regarding the type of service they prefer: online and offline. Nevertheless, both types of customers seek to gain as much as possible and as early as possible.

Customer expectations, in any case, are what spark transformation. As a result, scalable strategies are necessary for financial institutions to advance.

Solution

For banks, having physical branches and ATMs in addition to an online presence is not sufficient. They must implement change at many levels, including worker training, technological upgrades, and management adjustments.

Customer retention will rise due to the creation and expansion of loyalty programs. At the same time, multi-channel marketing is necessary to draw in new clients. The banking industry must increase staff digital literacy and senior management digital skills if all these advances are to be implemented consistently and smoothly.

Virtual Customer Service

Whether a bank is physical or online, providing excellent customer service is essential. Customer service aims to quickly and amicably resolve customer issues while assisting banks in making financial savings due to efficiency and customer lifetime value. Large departments that don’t effectively use their human resources provide a significant problem to the banking sector (too many people doing too little).

Solution

Banking chatbots have already shown they can contribute to a better user experience. So what exactly is a banking chatbot, and how might it resolve problems? An automated launch-and-maintain system, simple to use and promises to decrease the number of customer service calls while increasing satisfaction, could boost customers’ perceptions of banks. Customer loyalty is increased, processing times are shortened, and administrative expenses are decreased when chatbots are integrated into customer support systems. Bots assist with locating transactions, money transfers, locking and unlocking debit cards, and many other tasks.

Cyber-Security

For obvious reasons, the banking industry is the one that fraudsters and hackers target the most. “Banks face a delicate balancing between customer experience and fraud control,” claims Casey Merolla. “Prevention practices can create friction, and a declined consumer is frequently a dissatisfied customer, but fraud incidents can lead to lost relationships.”

The annual cost of financial crime to the world economy is $2.1 trillion, which is greater than the GDPs of Saudi Arabia, Pakistan, Switzerland, and Ireland. The annual cost of $83.5 billion for AML compliance. Authorities discover only 1% of the $2 trillion in yearly laundering. Security and fraud detection concerns are a major, expensive worry for the banking sector.

Solution

Predictive analytics and machine learning are excellent strategies and tools that may help banks and their clients stay safe in the digital era. These tools can analyse a company’s cybersecurity, identify network invasions, secure user authorisation, and forecast attacks.

Biometric technologies are thought to solve security and privacy concerns more. The advancement of biometric technology can aid in the fight against fraud and money laundering. Users also prefer instant authentication based on iris and fingertip scanning over remembering codes, pins, and passwords. When it comes to cyber-security, blockchain technology is also a fantastic problem solver.

Payments/Transactions

One of the most disruptive and dynamic areas of banking is still payments. Global rivalry is getting more intense due to innovations raising customer expectations. The search for seamless digital payment experiences is ongoing because friction is pervasive in practically all legacy payment systems. The average monthly value of online transactions in Nigeria is about 46.6 trillion NGN, with about 2.2 billion online payment volume.

For card issuers, achieving volume-based fee increases in payments is anticipated to get harder in 2022. Card issuers may find it challenging to boost fee income due to inexpensive digital alternatives nontraditional players provide and pricey reward programs. In 2022, banks will be confronting this difficulty. Both for customers and businesses, banks will need to become quicker, more effective, and less expensive.

Solution

Simple payment methods reduce transaction costs and enable banks to expand their clientele globally, addressing a significant issue. The best approach to keep and please a customer in the financial services industry is through mobile technology. By utilising AI, big data, IoT, and blockchain, payment systems are enhancing mobile services and online products in response to new client needs and sophisticated security measures like biometric authentication.

 Operational Efficiency

Banking companies have had to find a means to provide the best user experience to their consumers to remain competitive in a market that is becoming increasingly crowded, particularly with the more widespread adoption of virtual banking. The internal challenge is to maintain the highest levels of security while maximising productivity and keeping expenses as low as possible.

Asset management and other industries are already feeling the effects of automation.

Solution

The biggest banks in the USA and Japan confirmed the use of robotic process automation (RPA) in banking processes several years ago, demonstrating how technology can increase productivity and enable big businesses to save money. Meanwhile, small banks must meet strict requirements for audits, security, data quality, and operational resilience because they work in a heavily regulated field.

RPA enables contemporary banks to satisfy these expectations while achieving significant operational efficiency. Integrating automated components into financial ecosystems has several advantages, including high returns, improved cross-selling, quicker delivery of goods and services, greater customer satisfaction, and improved short- and long-term financial health.

Regulatory Policy Framework

Pressure on banks has intensified due to policy actions to strengthen lending and stabilise the financial system to boost the production of goods and services. The Central Bank of Nigeria’s (CBN) January 2020 downward pricing changes to electronic banking costs, intended to safeguard consumer rights as more people become financially engaged, have had a detrimental impact on banks’ fees and commission income.

Solution

The CBN must be flexible in its policy to enable commercial banks and other financial institutions in Nigeria to have a respective banks’ customer engagement that is tailored to each bank in a bid to serve its customer better according to their size and strength.

Conclusion

Banking operation and experience are already significantly disrupted by the emergence of sophisticated technologies that fintech leverage. It is, however, essential for the banking industry to join the bandwagon of providing sustainable payment and transaction strategies through the use of smart technology.