The global banking sector has come a long way since Italy’s Banca Monte Dei Paschi di Siena, the world’s oldest surviving bank, first opened its doors in 1472 to offer loans to the “poor and needy.” Fast-forward to today, and there is no doubt that the retail banking industry has undergone a significant evolution over the years, transforming from a physical business model reliant on manual processes to a data-driven digital approach.
This transformation has been challenging, primarily due to the dominance of traditional banks, which have been slow to adapt to advanced technologies. This lag has left them competing with agile fintech start-ups that offer consumers seamless banking experiences.
As Silicon Valley technology company Confluent says in a report on The Ongoing Disruption of Banking: “Scores of financial services start-ups have disrupted our old notions, bringing increased competition with their highly specific tools and technology know-how.“
“Today, customers expect instant, virtual insight into all of their accounts, from banking to investing to payment solutions,” the report adds.
Here, we explore how traditional banks are enhancing their digital capabilities in a bid to keep pace with the competition and meet customer demands.
The evolution of banking
Over the past 70 years, the banking industry has achieved several notable milestones, including the introduction of the first universal credit card by Diners Club in 1950. The establishment of the SWIFT payment network for e-payments arrived in 1973, the launch of the first internet banking website by US bank Stanford Federal Credit Union in 1994, and the introduction of mobile payment technology with Google Wallet in 2011.
Advancements in technology, such as MV chips in 2015, IBM’s quantum computing breakthrough in 2019 that used subatomic qubits for faster processing, and the surge in generative artificial intelligence since 2022, have further transformed the banking landscape.
However, to stay competitive and meet rising customer expectations in the future, traditional banks have no choice but to continually adapt to new technologies to overcome various limitations. These limitations range from legacy IT systems to time-consuming processes, a lack of 24/7 access and higher fees imposed for account maintenance, overdrafts, and ATM withdrawals.
Compared to their digital counterparts, traditional banks have struggled to offer the level of personalized services that customers now expect. Additionally, due to higher overheads, banks offer less competitive interest rates, while customers face more bureaucratic processes and paperwork than they would with digital banking alternatives.
How are banks driving disruption?
Despite the limitations, banks are trying to drive disruption through mobile banking apps, while online banking platforms have evolved with improved interfaces, enhanced security, and expanded features.
Contactless payment technologies like NFC-enabled cards and mobile wallets provide faster, more secure payment options, and peer-to-peer lending platforms facilitate direct lending between individuals with competitive rates and streamlined processes.
Banks are also turning to cloud computing to boost IT scalability, agility, and cost-effectiveness for faster service deployment and offer customers the ability to add their debit and credit cards to digital wallets for seamless transactions across multiple platforms.
According to a study by Forrester Consulting, conducted in October 2023 on behalf of Sopra Steria, 45% of banks say that moving applications to the cloud and deploying software as a service (SaaS) are a key focus of their future plans.
Innovations in cryptocurrencies and smart contracts are also being explored, while 36% of respondents to the Forrester study say that blockchain technology is a high-revenue stream.
At the same time, real-time payment systems have been implemented to enable instant fund transfers and improve transaction speeds.
Meanwhile, generative AI is helping banks analyze big data for customer insights, risk assessment, and personalized marketing to enhance decision-making.
While most banks recognize the value of AI, a separate Forrester survey on Technology: Generative AI Creates New Challenges revealed industry-wide concerns about security and its impact on employees.
“The fear exists across regions and maturity tiers; however, some pioneer banks believe themselves to be more prepared than their counterparts,” Forrester says in the report.
Jamie Dimon, the chief executive of JPMorgan Chase, believes that AI is the most significant trend – and disruptor – for the future of banking. “While we do not know the full effect or the precise rate at which AI will change our business — or how it will affect society at large — we are completely convinced the consequences will be extraordinary,” Dimon wrote in his annual letter to shareholders in April, adding that it will be “as transformational as some of the major technological inventions of the past several hundred years.”
These disruptions have led to stricter regulatory frameworks, including Basel III, being introduced to strengthen capital requirements and risk management, protect against financial fraud, and ensure customer privacy. This requires banks to utilize modern IT tools and navigate complex regulatory frameworks to meet central bank reporting requirements.
How have fintechs changed the banking sector?
The impact of fintechs on traditional banking has been significant, leading to increased competition, a shift toward digital services, changing customer expectations, partnerships and collaborations, a focus on customer-centric approaches, and numerous regulatory changes.
To stay competitive with fintechs, many banks have introduced new strategies and technologies, including AI and machine learning, API integration, cloud computing, robotic process automation, and biometric authentication.
Banks such as JPMorgan Chase have adapted to the tech disruption by developing their own digital banking platforms. Chase Mobile, meanwhile, has acquired WePay to bolster its payment processing capabilities and launched You Invest, a digital investment platform.
Similarly, Goldman Sachs introduced digital consumer banking platform Marcus, BBVA established an API marketplace and partnered with fintech start-ups, and DBS Bank launched digibank in India.
The future of retail banking
Digital-first banking is becoming essential as it meets modern consumer demands for seamless, personalized, and accessible services. Leveraging technologies such as AI, cloud computing, and blockchain enhances operational efficiency, security, and regulatory compliance. As fintechs raise the competitive bar, traditional banks must adopt digital-first strategies to stay relevant and thrive in the evolving financial landscape.
To adapt digital-first strategies, banks must first invest in digital infrastructure, cloud-native, and microservices-based solutions that are underpinned by cybersecurity to build customer trust and ensure a successful digital-first transformation. This will enable banks to foster innovation, become more agile, and adopt emerging technologies such as AI and blockchain.
They also need to build strategic partnerships with fintechs, adapt to evolving regulatory changes, and continuously upskill their workforce.
How SBS can help
As a trusted partner in the digital transformation of banks worldwide, SBS offers comprehensive solutions tailored to diverse banking needs. Serving over 1,500 financial institutions across 80-plus countries, SBS leverages artificial intelligence, cloud computing, and digitization to innovate products and solutions.
With a robust catalog of more than 400 APIs, SBS supports open banking initiatives and seamless integration with third-party services. Our 5,000-plus-strong team provides expert consulting and regulatory compliance solutions, including anti-money laundering tools like SAB AT. Committed to accessibility and future-readiness, SBS prepares clients for upcoming regulations such as PSD3. This holistic approach ensures that SBS empowers banks to thrive amid the evolving industry landscape.
Contact our experts for more information.
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