The ability to keep up with the times may literally break the bank if financial institutions choose not to embrace the technological advancements in the sector, particularly as it relates to payments and lending. According to Moody's Investors Service, banks that are willing to tap into this digital innovation will establish and potentially maintain a thriving customer base.
On April 25, Moody's reported that competition between banks will likely rise as some institutions adopt technology and sweep others to the wayside. Digitalization accentuates the customer relationship through convenience, personalization and affordability, while maintaining privacy and data security. Competition will also be prevalent between banks, big technology companies and small fintechs, the report added.
"In the face of these threats, successful incumbent banks will be those that, either on their own or in collaboration with others, pursue aggressive digital transformation to become more efficient and responsive to evolving customer demands," Moody's Analyst Fadi Abdel Massih, who co-wrote the report, said in the release. "Disintermediation of the customer relationship would be a threat to this business model if it ends up reducing banks' pricing power by transforming them into providers of a 'back-office' balance sheet for customer-facing apps/businesses."
Although investment is a possible concern among incumbent banks, Moody's noted that technology can enhance banking branch networks, data collection, analyses and reporting.
-Andrew Michaels, editorial associate