Customers are demanding. As in every other vertical, banks and financial institutions are increasingly adopting new tools and processes to meet customer demands and stay competitive.

Indeed, according to a Business Insider report, US banks’ technology spending will grow to almost $112 billion by 2026. The pressure is on to attract and retain clients; 40-45 percent of affluent customers who switched their banks in the past 24 months moved to a digitally-led firm, according to McKinsey.

Studies further show that the average net promoter score (NPS) for banking and financial institutions is 34. This is fine but leaves room for improvement. Banks must not only reinvent legacy approaches but also invest in disruptive technologies to navigate and capitalize on various digital banking opportunities.

However, with opportunities come risks. Financial institutions face a constellation of security and compliance threats. Here are four key opportunities and four key risks of modern banking today.

4 Key Banking Opportunities

Modern digital banking means giving customers the experience they want:

  1. Meet the customer on their journey and create hyper-personalized banking.

    Financial institutions should leverage data from customer calls and mobile chat logs to arm their relationship managers with real-time insights, to train their service-center staff better, improve customer intimacy, and drive referrals.
  2. Social selling for banking professionals builds relationships.

    Social media interactions are also a treasure trove of insights. Banks can introduce their social media strategy by highlighting how it streamlines and simplifies communication with their customers.
  3. Simplify customer home and auto loan purchases with embedded financing solutions.

    Banks need to start moving away from their legacy systems and applications, so they can leverage real-time middle office processing capabilities, such as credit adjudication and quick banking services through Application Program Interfaces (APIs).
  4. AI/ML provides ready-made intelligence for your applications and workflows.

    AI-based or machine learning-powered solutions speed up internal processes and workflows. For example, OCR processing extracts information and insights from images and videos to help deliver various personalized experiences, including product recommendations and customized direct marketing.

Banking Challenges and Risks

More banks going digital should be a good thing. However, with these banking opportunities come security risks and compliance issues.

Financial firms and institutions experience cyber attacks 300 times more than other industries. Moreover, the industry saw a 35% increase in ransomware attacks earlier this year, compared to most sectors which actually experienced decreased numbers.

These discoveries highlight how attractive this sector is to cybercriminals and nation-states (such as Russia during their recent invasion of Ukraine). For the banking and financial sector, the stakes are higher than ever: not only are massive amounts of money at stake, but there is also a risk of significant economic disruption if banks and financial institutions become compromised.

The top banking industry pain points and threats predicted to continue are:

  1. Ransomware

    Cybercriminals love utilizing ransomware to encrypt files and lock out users while demanding money to return access to the system. This form of cybercrime has been a significant headache for organizations worldwide for several years and doesn’t seem to stop anytime soon.

    Organizations affected by ransomware attacks find their systems crippled for extended periods, particularly if they don’t have backups. Paying ransom to these criminals is also not a guarantee of total restoration of system access.
  2. Social engineering 

    Social engineering is one of the biggest threats to banking and finance. The human element is often the most vulnerable link in the security chain – scammers trick people into giving over sensitive details and credentials. This can equally affect a bank’s employees or its customers. Social engineering’s many forms include phishing, whaling attacks, or bogus invoices that purport to be from a trusted source. 
  3. Ongoing remote work risks

    The reliance on remote work, hybrid workforces, and cloud-based software systems has become almost ubiquitous. Financial institutions, as a result, have more potential cybersecurity vulnerabilities than ever before. Employees no longer access data on protected systems and networks controlled by the organization, so extra vigilance is necessary.
  4. The rise of cloud-based cyberattacks

    According to the 2022 Cybersecurity Almanac, global ransomware damage will amount to an estimated $265 billion by 2031. As more software systems and data are stored and accessed in the cloud, cybercriminals conduct more cloud-based attacks. And it’s not just systems that are in danger: 82% of data breaches these days exploit the human element of an organization. Banks, therefore, need to ensure that their cloud infrastructures are configured securely but that they also have Unified Visibility across all the channels their employees use.

Compliance Challenges in Modern Banking

Digital disruption in retail banking has led to financial services companies shifting their core business communications infrastructure. From traditional legacy systems, they now leverage cloud-based social media, chat, and collaboration platforms, which are significantly accelerated by the new normal.

Social media, video conferencing, collaboration chat, and other unified communications tools like Microsoft Teams, Slack, and Zoom are now commonplace. However, utilizing these tools and solutions to accelerate client communications presents a couple of the most prominent digital banking challenges ever – compliance.

FINRA, FCA, CFTC, SEC, and other global regulators have outlined requirements to capture, retain, and supervise business communications. They extend beyond traditional email and text-based communications and now include audio, video, and collaboration data. Banks and financial firms must apply compliance, security, and supervision controls on these rapidly expanding business communication channels.

Here are some notable regulatory obligations for archiving and supervision:

  • SEC Rule 17a-4: Retain copies of all business communications sent and received in a non-rewritable, non-erasable format
  • FCA/MiFID II: Record telephone conversations and keep copies of electronic communications for five years, with the obligation to periodically monitor these records
  • FINRA Rule 3110: Supervise electronic communications related to the firm’s investment banking and securities business
  • FINRA Rule 4511: Store relevant records in a non-rewritable, non-erasable format

Other regulators like ASIC, IIROC, and MAS, have equivalent requirements for electronic communication retention, storage, and supervision.

What Financial Institutions Need

Security and compliance need to be re-examined in the modern banking era. Financial institutions must remain compliant and secure:

  1. Securing social media and mobile chat channels should be a priority. All communications should go through a centralized monitoring system that automatically detects corporate policy violations and mitigates them before they enter the wild.

    Furthermore, non-compliance and unsanctioned apps not only open security gaps and expose the company to significant risks. As Wall Street firms have experienced, they can also result in a $2-billion fine.

    In an industry where trust is everything, deploying and maintaining efficient yet user-friendly controls over social communications is imperative.
  2. Deploy security and compliance solutions capable of scaling with demand. Advanced cybersecurity solutions now exist – tools that use automation and full cloud enablement at scale to protect all your channels, no matter how extensive your portfolio of digital assets. Moreover, such solutions can now automate policy monitoring and flag and respond to language-based attacks with the help of Natural Language Understanding (NLU).

    This scalability of SaaS solutions makes them critically important in addressing retail banking challenges.
  3. Leverage machine learning-powered, centralized platforms to monitor security and compliance. Newer technology is inherently safer and more in line with compliance requirements. Find a solution that leverages transparent machine learning capabilities to detect, flag, and respond to internal or external threats – from insider threats to system vulnerabilities to ransomware. With transparent ML in an auditable environment, customers will see that the company is heavily invested in their data and privacy, bolstering their confidence in the organization.

Modern digital banking needs an advanced layer of cybersecurity protection that also addresses the compliance gaps that plague today's financial institutions. SafeGuard Cyber’s cybersecurity platform provides that and more.

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