We’ve discussed the need for banks to embrace the digital transformation in previous posts. From an operational and customer experience perspective, a “digital first” strategy is vital. If traditional banks fail to stay ahead of the game, they could lose business to emerging fintech organizations and startups. Security is also becoming increasingly important, as fraudsters develop increasingly sophisticated hacking techniques. As we’ve seen with recent cyber-attacks, such as the Yahoo and TalkTalk data breaches, a successful hack has the potential to inflict serious damage (check out our Cyber Investigator Chronicles to discover more). Cybersecurity must be a fundamental part of any digital transformation strategy.
Financial cybercrime presents arguably the most significant threat to the industry, both in terms of reputational damage and the scale of losses. Cyber-attackers are becoming more adept at seizing on vulnerabilities, infecting systems with malware, acquiring login credentials through techniques like phishing and capitalizing on inadequately secured cloud systems. According to the latest figures from Juniper Research, financial losses are expected to hit $9.2 billion by 2020, as mobile transactions become increasingly targeted. Analysts say it’s only going to get worse – 16,000 data breaches per annum are predicted by 2020, of which under 10,000 will be reported.
Criminal activity isn’t the only problem for banks. There’s also the issue of regulation. Financial institutions need to find ways of designing robust security mechanisms which comply with regulations without compromising on customer convenience. New PSD2 regulations mean that banks must open up Payment Initiation Services (PIS) and Account Information Services (AIS) to third parties, meaning their product offerings are properly differentiated from new players in the space, such as startups and tech giants.
To overcome these obstacles, banks need to invest in innovative digital solutions. An example is “push” payments, which is already being used by multiple European institutions, such as iDeal (Netherlands), Sofort (Germany) and Trustly (Sweden). When the buyer chooses a ‘push’ payment, they are instantly rerouted to their own bank account. They see the amount charged, choose an account to fund the transaction and tap ‘send’ to complete the purchase. It’s a clever way of balancing security and convenience for the user.
You can discover more about the benefits of embracing the digital transformation by checking out our digital banking blog series and visiting our dedicated site here. You can also download our white paper. Once you’ve done that, make sure you tweet to us at @Gemalto or post a comment below to let us know your thoughts on the importance of building trust in financial services.