Traditional Brick and Mortar banks have been heavily disrupted by the emergence of digital banking, especially in emerging economies. They have emerged as new market entrants, inspired by their effectiveness and reach in more extensive, well-established economies. These new entrants have the advantage of being ‘Born Digital’ without the years of legacy that the more significant global banks have. The agility and easy access of digital solutions are changing the game, making banking accessible to previously underserved markets. Traditional banks must embrace digital transformation (DX) if they are to remain relevant and competitive today and in the future.

Reaching new markets

One of the traditional banking system’s most significant limitations is its reliance on branch offices, face-to-face communication, and paper-based processes. This means that people who live in remote and rural areas typically do not use the banking system—branches are too far away, and it is inconvenient. Digital banking has changed this because all you need is a smartphone and internet connectivity to access savings and credit facilities, and innovative new banking products are now available.

Digital banking is widely adopted in these emerging economies because of its ease of access, and it will form the basis of economic growth in many of these economies. Traditional banks now need to solve this challenge so that they, too, can access these markets and participate more effectively in economic growth and development.

A significant development in the digital banking ecosystem is the rise of neobanks. Unlike traditional banks, neobanks operate exclusively online without physical branches, leveraging cutting-edge technologies such as artificial intelligence (AI), machine learning, and blockchain to offer seamless banking services. These banks provide low-cost, high-efficiency alternatives, making banking more inclusive, especially for those lacking access to financial institutions. The ability to open an account, receive personalized financial advice, and transact within minutes has made neobanks a powerful force in transforming financial services worldwide.

Work in Progress

Traditional Banking Organizations know the need to adopt DX to bridge this technology gap. However, it is often easier said than done. One area that has received a lot of focus is communication, as banks take steps to introduce an omnichannel experience, a seamless and integrated customer experience across all channels, that enables customers to receive support 24/7. However, the actual gap lies not in technology but in the difficulty of change. The intent and demand are also there, but the processes in place carry the hallmarks of the years of legacy.

One of the significant obstacles traditional banks face in their digital transformation journey is organizational resistance to change. Many banks operate on legacy systems built over decades, making it difficult to transition seamlessly to digital platforms. Employees and management often hesitate to embrace new workflows due to concerns over job security, unfamiliarity with new technology, and fear of operational disruptions. Overcoming these challenges requires a culture shift, where banks must invest in employee training, reskilling programs, and leadership commitment to drive digital transformation successfully.

The wrap trap

The biggest issue with the current approach to DX is that most traditional banks use technology to wrap around old ways of working, a phenomenon often referred to as the ‘wrap trap. ‘ For example, online account applications still require paperwork and sometimes a visit to the branch for verification, which makes the process difficult for those in remote areas.

If core business processes are not addressed, traditional banks will always remain traditional at heart. Digital banking is more than a chatbot, an app, and not having physical branches. It is about how data is handled, how banks interact with customers, and the agility of internal processes, affecting the time to market new products and services. These core processes need to be modernized, data platforms need to be transformed, and existing mindsets need to be shifted toward innovation and integration if legacy banking organizations are to remain relevant and competitive in the future.

To evolve, traditional banks must embrace emerging technologies such as AI and Big Data analytics. AI-powered chatbots, fraud detection systems, and predictive analytics enable banks to enhance customer experience, detect fraudulent activities in real-time, and provide personalized financial services. Big Data allows financial institutions to gain deep insights into customer behavior, transaction patterns, and risk assessment, helping banks tailor their services to meet the needs of diverse customer segments. By integrating AI and data analytics, traditional banks can move beyond reactive services and become proactive financial advisors for their customers.

Partnering with customers

The disruptors are setting the agenda, and consumer behaviors have already changed. Customers are more technologically savvy than ever, and their demands drive banking to adapt to meet new expectations. Banking is moving from simply an account to storing money and transacting a partnership for financial well-being, and innovators are introducing new products and services to meet these needs.

Traditional banks must identify changes to meet new customer expectations and become more agile in deploying products and services. Digital banks are increasingly mainstream and mature and will play a more significant role in the sector as we move forward. Change must come from the inside out because the new world of banking is not just about fancy products; it is about integrating those previously excluded from economic participation by the old systems to drive growth and sustainability.

One of the most effective strategies for traditional banks to accelerate their digital transformation is through partnerships with fintech companies. Fintech startups are agile, innovative, and technologically advanced, making them ideal partners for banks looking to modernize their operations. Collaborations can lead to faster implementation of blockchain-based transactions, mobile banking enhancements, real-time payments, and advanced cybersecurity measures. By integrating fintech solutions, traditional banks can reduce operational costs, improve transaction efficiency, and deliver cutting-edge services that rival those of digital-first competitors.

The banking sector gradually moves toward a hybrid model, where traditional banks and digital banking solutions coexist. While digital banking offers accessibility and convenience, traditional banks still hold an edge in trust, security, and compliance. A balanced approach that leverages digital innovation while maintaining the personalized, relationship-based conventional banking service will be the way forward. This hybrid model will ensure that banking is inclusive, catering to tech-savvy customers and those who still prefer physical interactions for complex financial decisions.

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