Digital Transformation: The Key to Ensuring Your Financial Institution Will be Here in 5 Years

Nobody starts a business with the intention of only being around for a few years. As our world becomes increasingly digital, any company hoping to compete must keep up with constantly changing technology, and that includes financial institutions. More and more customers are doing the majority of their banking online, and many financial institutions are struggling to stay ahead of the curve. A digital transformation is one key to making sure your institution is still doing business five years from now.

Downward Trend in Bank Numbers

Over the past 30 years, the number of FDIC-insured institutions in the United States has plummeted at a precipitous rate. Since 1989, the number of banks has dropped from 14,469 to 4,236—a decrease of more than ten thousand closures. The average annual decline in the number of FDIC-insured banks has been 3.86% for the past decade. At this rate, the number of banks will be cut in half in the next 20 years, and by the 2080s, there could be as few as 450 FDIC-insured banks left in the country.

Small banks are far more likely to be victims of these closures than large banks. Banks with more than $100 billion in assets make up only 1% of the total banks in the United States but hold about 70% of the industry’s total assets. Meanwhile, only about one-third of small banks—those that hold less than $10 billion in assets– that existed in 1990 are still in operation. Mid-sized banks have seen both their assets and insured deposits decline by around 70% as well.

Branch Closures vs. Banking Access

It was once assumed that smaller banks would be able to compete with larger banks because of their more intimate connections with the communities in which they operate. But in 2020, spurred in part by the COVID-19 pandemic, many brick-and-mortar bank branches, including branches of large national banks, closed. While there was initial concern that this might create bank deserts—sections of the country without a bank within commuting distance—the American Bankers Association found that rural, low-income neighborhoods were more likely to have a local banking branch than affluent urban and suburban communities.

As online and mobile banking has become more widespread, the demand for in-person banking has fallen sharply. It no longer makes sense for banks to spend the overhead on staffing and maintaining multiple brick-and-mortar locations in the same location when most of their customers conduct the majority of their transactions on their mobile devices.

The Appeal of Digital Banking

Many banks were forced to shut down their in-person operations in March of 2020 when lockdown restrictions went into place, but the transition away from in-person banking was already well underway. Mobile banking provides more convenience. To visit a bank in person, a customer needs to find time in their schedule between work, errands, housekeeping, and social engagements. They then must commute to the bank, wait for a banker to be available, fill out paperwork, and then drive to their next appointment or back home.

With digital banking, customers have 24/7 access to their bank from anywhere they go. They can complete transactions, account openings, and more on their schedule. A well-designed digital onboarding system also requires less paperwork. Instead of needing to provide an ID for verification, customers can access their accounts with just a fingerprint or face scan.

What is a Digital Transformation?

A digital transformation is a fairly straightforward concept—transforming the way your financial institution operates to rely on more digital processes and emerging technologies. This isn’t as simple as turning your existing applications into fillable web forms and adding more computers to your office. A true digital transformation will require institutions to completely redesign the way they operate while seamlessly integrating all existing data.

What does digital transformation mean for financial institutions?

A digital transformation in financial institutions will include new technologies that use advanced data analytics and artificial intelligence, robust cybersecurity and privacy features, and an online customer experience optimized for ease and efficiency.

As digital banking becomes more widespread, hackers and other bad actors have more opportunities to commit fraud. To protect your institution and your customers, banks will need advanced cybersecurity protocols on both the backend and front end of their systems. Enhanced data analytics will help financial institutions profile customers and quickly and accurately determine how they will behave. Artificial intelligence can then use that data to automatically generate products, responses, or solutions for the customer.

Remaining Competitive

Customers need to be able to easily complete several common banking operations quickly and efficiently—transferring money, scheduling bill payments, making deposits, and opening accounts—from their phones or tablets. Financial institutions’ mobile applications and websites should put the user experience first. Designing a program that is intuitive, easy to navigate, and does not require extraneous information will help financial institutions make their services convenient and easily accessible to users. It should also be easy for customers to access support when they need it. The future of customer-facing business technologies is in figuring out what the customer wants or needs and giving it to them as quickly as possible. Going digital in an accessible and user-friendly manner is one of the keys to ensuring your business remains relevant in the next five years.

Key Takeaways:

• The number of FDIC-insured financial institutions is decreasing rapidly each year.
• Brick-and-mortar branch locations are becoming less common as more customers turn to digital banking.
• If a financial institution wants to stay in business over the next several years, they need to implement robust digital solutions that allow customers to do all or almost all of their banking via online or mobile channels.
• Customers need to be able to easily complete several common banking operations quickly and efficiently—transferring money, scheduling bill payments, making deposits, and opening accounts.
• Financial institutions’ mobile applications and websites should put the user experience first. Designing a program that is intuitive, easy to navigate, and does not require extraneous information.
• Going digital in an accessible and user-friendly manner is one of the keys to ensuring your business remains relevant in the next five years.

The IgniteConnex Solution

IgniteConnex provides a secure, user-friendly digital account opening technologies designed by bankers for bankers. We can help kickstart financial institutions’ digital transformation by enhancing the account application and approval process for new customers. Schedule a Demo to learn more!