Although banks have been dabbling in digital for some time, until recently they hadn’t truly embraced a fully online approach. However, in the last few months leaps and bounds have been made towards a transformation in the financial sector.
To find out what the future of digital banking might look like, Forbes Middle East gathered regional and international fintech leaders for an exclusive webinar exploring “Disruptive Digital Banking.” The speakers were: Steve Kirsch, CEO at M10; Yuri Misnik, Group CTO at First Abu Dhabi Bank; Josh Bottomley, Global Head of Digital at HSBC; and Gaurang Shah, Senior Vice President Digital Payments & Labs, Middle East and Africa at Mastercard. The webinar was moderated by Sonia Wedrychowicz, Senior Advisor at McKinsey.
The conversation revealed that although it is difficult to change behavior, customers have embraced the shift to digital. This behavioral change is expected to be permanent. A study by Mastercard in April showed that 83% of respondents in the UAE plan to continue relying on contactless payments post-pandemic. There are, however, still many flaws in the system.
Here are six things that need to change for banks to become fully digital.
Find an alternative solution for checks
The use of checks remains popular in many countries. The 2019 AFP Electronic Payments Survey Report found that 97% of financial professionals use checks to pay major business suppliers. For B2B transactions check payments are second only to credit cards, with 42% of these payments still made using checks. However, to pay by check is a slow process with many pain points.
Many institutions, governments and organizations still insist on check payments, but alternative online payments are available and even check payments have been digitized.
Entities need to shift away from using checks in order to embrace digital banking. “Enabling real time payments will significantly shift businesses and people away from the traditional cash and check based economy,” said Misnik during the webinar.
Overhaul the infrastructure and underlying tech
Although banking systems are frequently updated, the infrastructure itself is old. A 2017 International COBOL Survey by IBM, Microfocus, Celent, and Accenture, found that 43% of US banks and 95% of ATM withdrawals still used COBOL, which is a programming language from 1959. In a follow-up survey earlier this year, Microfocus found that 63% of respondents would rather modernize their COBOL systems than replace or retire them.
Of course, a lot has changed since 1959 and although COBOL is compatible with new solutions, it may be time to rethink the underlying technology that the financial sector uses. COBOL programmers are also dwindling in numbers with fewer schools teaching the language.
Today’s consumers have different technology at their disposal and different needs than consumers from even 10 years ago. “The internet we have for data is great but we have nowhere close to the underlying infrastructure called the ‘internet for money’ where we can move money from point A to point B in the banking system and have that happen instantly and securely. That infrastructure is not in place,” explained Kirsch. There is a need for a financial marketing infrastructure that is reliable, resilient, trustworthy and allows users to transfer money instantly.
Rethink the products that banks are selling
Many banks today offer different shades of the same product, and consumers have become used to these offerings and are not requesting new, innovative products.
The financial sector needs to start thinking differently about the technology that is available to them, the traditional banking system and bankers. “The biggest transformation will come from an entity that rethinks the traditional set of products that banks are selling and creates a different set of products,” remarked Misnik. For example, as an alternative to cash or debit cards linked to accounts, banks can offer a smart card that cash can be loaded onto and that is available offline.
Make it secure and convenient
Traditional banking has proven itself to be reliable and many consumers still don’t fully trust digital banking. In its 2019 Digital Banking Survey, Marqeta found that 53% of respondents in the UK and US see digital-only banks as a riskier option.
The technology to transform banking is available and fairly mature, but the challenge remains in ensuring that it is convenient and secure. As new technology comes into play, the financial sector needs to rethink its approach and how to deliver it to customers. “Technology is not an issue. The issue is what is the problem we are trying to solve, how are you solving it, and is the solution simple and secure?” commented Shah.
Central banks need to agree on one platform
The principles of money are the same across the world, yet, there is still a lack of standardization. “Each central bank is doing their own experiment on CBDC (central bank digital currency) because they want to modernize but they’re not coordinating, not putting it on the same platform and not working together,” explained Kirsch. According to a paper by the Bank for International Settlement, 80% of central banks are currently working on or will in the near future engage in CBDC work, but the lack of collaboration poses many problems, such as limitations on where the currency is valid.
By working together, central banks can create a global currency and a standardized infrastructure. This will improve the consumer experience, ease conducting transactions anywhere and can help prevent financial fraud. One of the biggest breakthroughs for fully digital banking will be when central banks start collaborating in their digitization efforts.
Educate customers and potential future employees
New technology requires new skillsets. Digital banking offers many new opportunities, but universities need to teach the relevant knowledge to students. “There are four pillars that make this (digital) work: customer orientation; understanding technology and data; risk management; and organizational design culture ways of working to bring those elements together,” explained Bottomley.
A lack of education is also one of the barriers to consumers accepting digital banking. Consumers need to have a basic understanding of computer safety and how digital money and blockchains work. As most consumers won’t necessarily make an effort to understand these principles, it is a gap that banks can address.
There are many things that banks and regulators need to change from their side to create a fully digital future for banking. Ultimately, there needs to be a mindset shift in governments, companies and individuals to buy into the dream and make it a reality.
When the internet was first rolled out, people had to be persuaded to use it, but today it is difficult to imagine a life without it. Digital banking could be a similarly revolutionary moment for the finance sector.