Edited by Paul Moronfola
The emergence of the COVID-19 pandemic is one of the many reasons for the spike in the adoption of online banking platforms and the pseudo-abandonment of traditional banks.
It has also led to an increased busyness in the decision-making centers of many traditional banks. However, there are other reasons, as this article aims to discuss the rise of online banking and its effects on the banking industry. Let’s dive in!
What is Online Banking?
Online banking, also known as web banking or internet banking, is a system that enables consumers of a bank to conduct a range of financial transactions through a monetary institution’s website or mobile app without their physical presence in a bank.
It has two major forms. One is the partial utilization, employed by many traditional banks, mostly via their mobile application or webpage. The other is employed by newer banks in which all (or most) banking activities, from user verification to financial transactions, are available online. As a result, this pitches the latter higher on the competition ladder.
Factors That Led to The Rise of Online Banking
As technology evolved, making a secure platform to carry out banking services became easier. As such, the ground reason for the creation of online banking was technological advancement. However, the rise of online banking platforms can be attributed to banks and their customers. Below are several factors that contributed to the rise:
● Customer Preference
A study shows that over 57% of bank customers prefer online banking for many financial transactions. This is due to the following:
- They are convenient
Online banking is a more convenient option as it allows making certain levels of transactions on any of your electronic devices, allowing you to continue running your day-to-day activities as you don’t need to queue at physical banks.
- They are more cost-effective.
Online banking only requires a working internet connection on the customer’s part, making it more cost-effective. Using the platform, you can easily check balances, pay bills, and transfer funds to other accounts without incurring the cost of transportation, etc.
- 24/7 Availability
Online banking opens easy access to banking via the Internet 24/7. Whether at night or in a busy atmosphere where you can’t access physical banks, you can transact anytime online with an internet connection and your smartphone.
Online banking has made transactions easier for people to deposit and check bank statements on their mobile phones. Through this means, it has increased customers to maintain an online banking presence.
- Personalized User Experience
Online banking helps personalize a user experience to build loyalty and solid customer satisfaction.
● Reduced Cost For Banks
For banks, operating an online banking platform reduces the need for physically attending to customers. As a result, advantages include improved entry, saving up data entered, and reduced inventory cost. This might increase the adoption of online banking platforms by traditional banks.
● Covid-19 Pandemic
The COVID-19 pandemic was one of the reasons for an increase in reliance on online banking platforms, as the disease was easily transmittable. Banks and customers alike had to rely on creating such platforms to comply with the protocols and still do their day-to-day activities.
● Intra competition
Even though online banking was available, many traditional banks had an online banking platform with restricted banking activities. However, the rise in banks with fully online banking activities led to a spike in online banking, as many traditional banks had to imbibe it into their operations to keep up with the competition.
Globalization of the banking sector is essential because it brings new technology which helps improve banking services and infrastructure and decrease fraudulent activities, new risk management techniques, and increased assurance in the banking sector.
Effects of the Rise of Online Banking Platforms
The rise in online banking would surely lead to other things. Below are a few effects of the rise in the platform over the traditional form.
● Decrease in Physical Branches
A Digital Banking Report proves that more than 60% of physical banks are decreasing and might reduce to 20% in 2025 without location. Also, most banks have closed their branches to increase profitability and redirect businesses, meaning that physical banks have moved to banks via the Internet.
● Adaptation to Digital Services
Digital service has improved online banking platforms. It has provided integrated biometrics, facial recognition, fingerprinting, and machine learning to secure how users operate online banking. Also, online platforms have made life easier by providing available access in the banking sector for financial purposes everywhere.
● Need for Customer Engagement
Online banking, as the need for customer engagement, is key to enabling companies to identify capability gaps and design and produce essential customer journeys. It allows organizations to address engagement, offer a smooth, personalized, contextual customer experience across all media, and achieve engagement targets quickly.
Challenges of Online Banking Platforms
The rise in the preference for online banking platforms has come with some challenges. Here are a few challenges associated with the scenario.
● Security Risks
This is one of the most important challenges facing online banking. Although banking systems via the Internet are designed to be impenetrable, they can be hacked. Security risk is also related to the users, such as using unsecure passwords and phishing scams.
● Technical Difficulties
Technical difficulties from the application or form of online banking sometimes occur. This can be due to server errors or overload. Such technical difficulties are common in online banking platforms and can damage banks’ reputations such that they lose customers.
● Inadequate Customer Service
Customer service is often unavailable 24/7 and can sometimes be slow in responding to urgent questions about their banking service. However, this is not a problem for many banks that invest well in good customer service.
● Difficult for Beginners
Online banking might be difficult for many people who need to catch up in technology. Due to this, this form of banking is often used by people exposed to technology from small.
The rise in online banking has led to several restructurings in the banking sector due to its benefits. This article discussed the rise in the platform’s use and its effects on the banking sector.