Tech-Driven Digital Banking: Innovations And Challenges Ahead
Roman Elsohvili is the Founder and CEO of XData Group, a B2B software development company with a focus on the European banking sector.
The digital banking industry is growing at a rapid pace these days, with projections putting it at over $32 billion in size by 2035. For comparison, in 2024, this market stood at $10 billion. So we're talking here about a growth of $20-plus billion within a decade—not bad at all.
Of course, the question then becomes: What's driving this kind of rocket growth? The answer: A lot of it comes down to a fundamental shift in consumer behavior driven by smartphone usage.
With each passing day, more and more people go digital, relying on mobile devices and internet access for all kinds of needs, financial and otherwise. Faced with this reality, making banking digital and taking it online is a necessity rather than a luxury.
According to a survey by Manole Capital Management, an overwhelming number of Gen-Z users (96%) show a preference for online banking services. This generation expects a seamless digital experience, which means banks must prioritize technological innovation to stay relevant as time goes on.
So what are the must-have tech features that will shape digital banking in the coming years? Let's take a look.
Artificial intelligence (AI) is a hot topic these days, and it's not hard to see why it can be leveraged to deliver more personalized user experiences than ever before. There's data out there indicating that global AI-driven sales reached a very impressive $229 billion in the last months of 2024. This highlights the immense impact of AI on people's spending habits.
Given the ever-growing prevalence of platforms that offer financial services, banks should always look for ways to build customer loyalty if they want to stay ahead of the competition. And AI is certainly one way of doing so, since it allows them to anticipate user needs and offer targeted, relevant solutions. By analyzing patterns of customer behavior, AI can proactively recommend products and services that suit individual needs.
Beyond personalization, AI also plays a crucial role in automating operations and enhancing fraud detection, meaning that banks can conduct transactions for customers faster and with greater safety.
The next big technological driver we need to talk about is cloud-based banking solutions. Banks can leverage these to streamline development, reducing the costs of infrastructure upkeep and improving its flexibility.
Cloud computing fosters collaboration across fintech platforms, allowing established banks to integrate new solutions faster and more efficiently. Through cloud-native APIs, they can integrate third-party services without the burden of having to overhaul their entire legacy systems. This means that new products can be tested and deployed for customer use faster.
In an industry where user demands are constantly evolving, this kind of flexibility is very useful to have. Instead of trying to build every financial service in-house, banks can integrate with fintech partners to offer a diverse suite of solutions from which customers can benefit.
While technological advancements are playing a major role in shaping the future of digital banking, it would be remiss of me not to speak of the challenges they bring. Banks (and other financial organisations, as well) have to learn to navigate these carefully.
• Cybersecurity Threats: As digital banking becomes more sophisticated, so do cyber threats. This is where a major problem with AI comes in. While highly useful in fraud prevention, it can also be used by cybercriminals to develop more advanced attack strategies. I expect that dealing with this threat will lead to an AI arms race, where banks will have to continuously improve their security frameworks to stay ahead of hackers.
• Regulatory Gaps: The rapid pace of technological advancements often means that regulators struggle to keep up and make new rules to account for the changes. Ensuring compliance with the law while updating their systems is going to be a challenge for financial companies. They will have to work closely with regulatory agencies worldwide in order to develop best practices that are flexible yet secure enough to support growth without compromising consumer protection.
• Legacy System Integration: Many traditional banks still operate on outdated systems, making digital transformation a complex and costly endeavor. Migrating to more modern solutions requires a lot of time, effort and money. And yet, progress waits for no one—failing to adapt will lead to inefficiencies and an inability to meet evolving consumer demands, causing such banks to be left behind.
• Talent Shortages: The demand for specialists in AI and fintech in general is constantly running ahead of the available supply. According to market estimates, the global AI talent pool is expected to reach 1.08 million by 2026, but the actual demand for such professionals may surpass 2 million before the end of 2025. This obvious talent gap presents a major barrier for banks looking to implement AI-driven solutions.
The digital banking sector has a long road ahead of it, and there are still many critical challenges that banks will have to address before they're able to innovate effectively. But those among them that manage to successfully overcome these obstacles will not only thrive but also set the standard for the future of digital finance.
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