Challenges Faced By Financial Institutions And Their Solutions

Challenges Faced By Financial Institutions And Their Solutions

In recent years, the financial industry, like many other industries today, has experienced remarkable shifts as it moves toward digitalization. While most people, especially financial workers, have started embracing this revolution, there are still some struggles with this development.

The shift in the financial sector impacts new competition from FinTechs, changes in business models, disruptive technologies and regulations and compliance pressure. FinTech and Decentralized Finance have threatened and forced traditional institutions to rethink how to run their business.

Sooner or later, banking and finance generally will impose new ideas and methods for implementing tasks on a greater scale. As a result, there are greater chances that users will be at the forefront shortly in the financial industry.

Customers’ demands are on the rise as they seek more personalized services. Today, banking customers demand more, request faster access, and expect better services than the old financial systems. This compels traditional financial institutions to form partnerships or at risk of folding up.

Therefore, banks and financial institutions that cannot meet these expectations will ultimately have challenges in maintaining viability.

Read on as we give an overview of the challenges faced by financial institutions with possible solutions.

Challenges Financial Solutions Face

These are some of the challenges faced by financial institutions:

Increased Competition

FinTech and Decentralized Finance are the newest and fast-growing sectors in the financial system today. FinTech, for example, has posed a significant threat to major areas of the functioning of financial institutions. According to Goldman Sachs’ prediction, these organizations would account for $4.7 trillion upwards in yearly revenue turned aside from the traditional financial institutions. Goldman Sachs himself made the headline recently of investing heavily in FinTech.

Also, In a recent study done by Accenture, they discovered that about 31 percent of the traditional banking users would consider banking with Facebook, Amazon or Google if they offered the same type of services users presently enjoys. However, financial technology (fintech) startups like Robinhood and Acorns have taken advantage of this revolution and offer investment and other creative financial services.

Bad Loans

It is a result of the inability of debtors to repay loans at all or at the appointed time, and this has an adverse effect on the smooth running of the financial institution.

Due to the lack of sufficient financial data, these institutions cannot adequately determine the right customers to offer loans. They end up using guesswork and other inadequate measures to determine their customers. Without leveraging alternative data (which can be sourced from Oystr), it’s easy to face bad loan challenges.

Customers And Investors Expectations.

The users’ experience is the heart of today’s financial sector’s challenges. In many ways, traditional financial systems are not meeting up to the expectations and the level of service that customers are requesting, especially in the aspect of technology. Although today, more traditional bank users are using mobile devices for their day to day financial transactions.

A study carried out in 2018 discovered that 50 percent of bank users use their smartphones and other mobile devices; however, users still expect one-on-one customer relations service. Furthermore, this study found that 25 percent of users wouldn’t consider it safe to open an account with a bank that didn’t have a physical presence.

In addition, these banks and financial institutions are falling short of the expectations of Investors and shareholders’ for their equity and return on investments. As a result, instead of gaining more users, the rate of customer enrollment and retention in banks and financial institutions is drastically reducing.


This is another problem faced by financial institutions. Illiteracy has been a major challenge for financial service providers working on getting more customers in the developing system.

Many of these financial services are not designed for illiterate users in underdeveloped and developing countries with high illiteracy rates. As a result, there are millions of people across the world who cannot be effectively reached with financial services.

As staff in financial institutions are faced with the problem of communicating effectively to the understanding of their customers

Poor Customer Services

If you don’t know your customers, you won’t serve them properly. A lot of banks, and other financial institutions are not meeting the pressing needs of their customers, and it results in more customer turnover.

Additionally, the lack of up to date standard modern customer service delivery in some financial institutions prevents them from rendering satisfactory services to their customers. Moreover, most financial service users today expect top-notch services, especially because they deal with money.

Outdated Mobile Experiences

Mobile applications are no longer news in the financial sector, especially the bank industries. Nowadays, all banks have their own branded mobile application.

However, the wide adoption of the mobile banking system in every financial institution today doesn’t indicate that it’s being used effectively and to its full potential. To keep up with customers’ satisfaction, a bank’s mobile experience needs to be fast, easy to use, secure and regularly updated. As well as fully featured mobile applications, we have features like live chat, voice-enabled digital assistance and the likes.

Low Or Insufficient Profit

Regardless of the headlines on profitability, many financial institutions cannot make sufficient profit for their smooth running, equity and investments. This has led to the laying off of most workers in financial institutions to reduce costs and maximize profit. It has invariably led to the inability of financial institutions to meet up to public demands or expectations.

Security And Authentication

Despite the growing trend of the mobile banking system, security infringements still pose a serious threat to the industry. Whenever a new tech solution is introduced, someone attempts to hack it.

Although their physical branches give secure authentication for self-service solutions, financial institutions need to guarantee that their mobile platforms can provide data security. This is important for impressing and strengthening trust between users and the institution.

Government Policies And Regulatory Challenges

Some policies or decisions made by the government on issues regarding public members curb or rectify an action but, in turn, affects financial institutions by hampering their profit-making.

For example, the zero COT policy. The government’s removal of commission on turnover (COT) contributes about 60% of the banks’ fees and commissions. Invariably resulting in the annual loss of revenues.

Digital Adaptation And Management

The pursuit of creating new and better digital experiences for users and bringing business systems to their peak requires a lot. It might require onboarding digital clients, approving loans faster or real-time payments, and more.

At the same time, these new strategies can’t affect core business operations. Nevertheless, customer satisfaction shouldn’t be at the expense of profits and growth of the company. Business growth is very crucial for financial companies. However, to grow, they need to spend money on maintaining and updating themselves.

A report from Protiviti stated that companies that offer financial services must continually invest in technology, including robotics and other workflow automation tools, to boost their efficiency. As well as to reduce the costs related to functional risk management and compliance.

Furthermore, financial corporations must also assess merging platforms and deliver a more efficient, user-friendly experience across internet, mobile and physical locations.

Solutions To The Challenges Faced By Financial Institutions

To achieve growth, financial institutions need to embrace digital transformation. Here are some solutions to the challenges financial organizations face:

Customer Retention

Accenture Financial Services’ global study of nearly 33,000 banking customers showed that customer service drives loyalty. Familiarising with the customers accordingly can optimize interaction with customers, getting to know what they want and how better to offer their services, thereby retaining their customers.

To retain customers, you’ll need to more attention to their lifestyle. You can leverage alternative data to understand their daily lifestyle and create products to meet their needs.

Regulatory Compliance Structure

Overcoming regulatory compliance challenges requires banks and credit unions to facilitate a culture of compliance within the organization and establish strict compliance systems and structures.

To establish this culture of compliance, technology is a significant component. Technology that collects and mines data, performs thorough data analysis, and delivers insightful reporting is exceptionally useful for recognizing and reducing compliance risk.

In addition, this use of technology can help standardize operations and ensure procedures are observed correctly and consistently. As well as enable institutions to keep up with new changes in the industry regulation and policy.

Technological Advancement

Studies show that customers would choose Virtual Assistance for swift and prompt responses to their problems. Bots can interact with customers naturally and conversationally, thereby guaranteeing customers’ satisfaction and swiftly. Another good example is the use of apps that can interact, giving swift responses to customers’ questions. This leaves them satisfied and improves overall brand loyalty. Like the Ziva app for Zenith bank that chats with Zenith customers on WhatsApp.

Another example is (OOBA) Out-of-band-authentication — this signifies a process where authentication requires two different signals from two different networks or channels. The use of this can prevent fraudulent attempts. There are so many processes to ensure the privacy and safety customers need for their banking; OOBA, RBA (Risk-Based Authentication )

Technologies like cloud computing, AI, and bots reduce costs for institutions while still satisfying customers and making profits. As a result, financial institutions can reduce costs and improve data analytics. This offers a significant competitive advantage to them, as they can sell their products to the right customers.

To maintain a competitive edge, traditional banks and credit unions must learn from FinTechs, who owe their success to providing a simplified and intuitive customer experience.

Forming Partnership With ‘Competitors’

Undoubtedly, over the years and with no sign of slowing down from FinTech, Financial institutions have experienced the heat of rivalry from FinTech startups. As there’s little to nothing banks and traditional financial institutions can do to end this competition, it is best to start a collaboration.

Financial institutions and banks could consider taking advantage of the concepts and capabilities of FinTechs. According to a study, 94% of companies that offer financial services confirmed that FinTech could help grow their business revenue in just two years.

While banks focus on holistic services, collaborating with FinTechs can help improve the business sector.

Partner with Oystr

Optimizing The Customer Experience

As much as investing in the right technology is important for optimizing the customer experience, financial institutions also need to put the users’ experience at the vanguard of their operations.

It is no longer news that good customer service is an important factor in any corporation. According to a study by McKinsey, Banks that have the highest record of customer satisfaction observed a growth of 84 percent deposit compared to banks with the least satisfaction record.

There are a thousand and one ways to improve customer satisfaction, especially in a more technology-inclined world. Particularly, the integration of CRM (Customer Relationship Management) to various channels through which the company communicate can offer users the most indefectible experience.

Proficiency in managing conversations across multiple platforms helps organizations build seamless customer relationships.

Final Take

From inception, financial institutions have had to contend with economic, environmental, industry and sometimes security challenges.

The evolution of FinTech, Decentralized Finance and other new innovative financial services has caused a major shift in the financial sector. From timely changes in technology to evolving customers’ demands, banks are kept on their toes to improve and remain relevant in the industry.

There’s a need to should stay updated on the challenges and prepare to adapt and address them strategically. Importantly, these strategies should incorporate sustaining growth as well as profitability.

Alternative data plays a huge role in solving the challenges financial institutions face. Visit our website to open your doors to alternative data