Are you prepared for the digital banking tsunami?

The banking industry stands at the threshold of a digital revolution that promises to reshape nearly every aspect of its business. From payment systems to customer experience, fraud prevention and open banking, technological change is sweeping through the sector. For banking executives, the question is no longer whether to embrace digital transformation but how quickly they can adapt to survive and thrive in this new environment.

As BAI aptly noted in its recent Modernizing Payment Methods report, “Digital banking is firmly positioned as the foundation of the new financial services industry. But how banks innovate will determine whether they can meet account holder expectations, compete with traditional and nontraditional organizations, realize their growth goals, and, ultimately, survive.”

A half dozen trends are driving the digital tsunami. Here, we examine the threats and opportunities presented by upcoming regulatory changes, emerging technologies, shifting customer expectations, and a flood of fintech disruptors and non-traditional players entering the arena.

The ISO 20022 imperative: Upgrading payment infrastructure

One of the most pressing challenges facing banks is the looming March 10, 2025, deadline to comply with ISO 20022. Institutions must upgrade their wire transfer systems to provide richer data, enable domestic and cross-border interoperability, improve existing processes, add new services, and keep US payment systems on pace with the rest of the world. The standard covers hundreds of message types as well as standardized definitions of business concepts, data types, and message concepts.

ISO 20022 is a paradigm shift in how financial messages are structured and transmitted. The standard allows for more detailed, structured, and consistent information to be applied to each transaction, enabling improved straight-through processing, enhanced fraud detection, and better regulatory compliance. It promotes seamless communication and interoperability between systems and organizations to reduce costs and speed up transaction times. Its richer and more structured data format enables better data analytics and reporting, and the standard is extensible to accommodate a wide range of products and services.

As with any new standard, not everyone will be ready. A 2023 study by Seeburger found that only 63% of institutions impacted by the regulation are likely to meet the 2025 deadline. Small banks are the least likely to be prepared.