2021: Digital Transformation, Cyberattacks & Customer Retention

With every crisis, we see change – and the financial industry is no exception.

The Great Depression led to the advent of the FHA. Loan-to-value ratios steadily increased, alleviating the need for borrowers to hold multiple mortgages. By the 1950’s, many mortgages had increased terms to 30 years, which became the industry standard.

After 9/11, we saw the near death of paper checks when every flight in the country was grounded for three days, prompting drastic and permanent changes within the U.S. payments industry. At that time, checks were shipped around the country for processing, which was quickly realized as inefficient. Largely because of those events, the Check 21 Act was enacted, allowing financial institutions to create electronic images of checks rather than rely on physical copies.

The Financial Crisis of 2007-2008 led to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which introduced a host of changes to more stringently regulate the financial industry with the ultimate goal of protecting consumers.

During that time, we also saw the emergence of the modern Fintech. Looking to disrupt the financial industry, many of these startups – particularly within the lending space – were formed in response to consumer dissatisfaction with large, national banks.

Soon after, financial institutions and Fintechs found a mutual interest to partner. The term “Fintech” found a broader meaning, applying to technology companies that seek to help banks and credit unions improve processes, trim costs, tighten security measures and improve account holders’ experiences.

Certainly, there are more examples, but this brings us to the global pandemic. What changes will it bring to our industry moving into 2021?


Lockdowns Lead to Greater Digital Transformation

In the wake of the coronavirus outbreak and social distancing, this latest crisis more strongly amplified the need for improved digital banking experiences – something consumers have been increasingly demanding (crisis or not) and an area where many banks and credit unions are still lagging.

Yes, most financial institutions today have an online or mobile app, but these offerings were unable to meet consumers’ “new normal” of contactless banking. Today, “digital transformation” and “digital experience” go well beyond just having an app to check balances. It must accommodate the entire banking relationship.

What we learned during the pandemic is which banks and credit unions are able to offer a true digital experience. This was not only critical during nation-wide lockdowns, but it is critical as we embrace a new generation of customers. America’s largest generation, Millennials, now make up a quarter of the total U.S. population, 30 percent of the voting population and nearly two-fifths of the work force.

But while this generation has been known as one of the savviest when it comes to technology, Gen Zers have them beat. Born between 1996 and 2010, Gen Z has had technology at their fingertips their entire lives. They simply do not remember a time without iPhones. Moreover, they are becoming a large market segment for institutions that cannot be ignored. In fact, within the next four years, this group will account for over 40 percent of all consumers.

Clearly, these two groups want digital experiences and have been key drivers toward this change. But looking beyond the youngest generations, Gen X and Baby Boomers are also demanding seamless digital experiences. The problem is that it hasn’t pushed the industry far enough.

Why? Because it hasn’t been a big enough necessity…until now.

With much of the country quarantining, the pandemic pushed many more financial institutions towards greater digital transformation. Technologies have been tested and what works and what doesn’t work is becoming clearer. Institutions with superior digital experiences already in place will see greater value in it, and those without it will realize the need for it.


Rush to Digitize Banking Experiences Leads to Cybersecurity Risks

However, with a rush to digitize the experience and accommodate stay-at-home orders, challenges arose. COVID and the subsequent lockdowns led to a surge in digital adoption, but it also led to greater security risks such as cyberattacks.

Regardless of a pandemic, the likeliness of an attack has continued to increase across all industries, including the financial industry. In fact, according to research from Risk Based Security, 2019 alone saw the highest number of data breaches on record. Increasing by 33% from the previous year, more than 15 billion consumer records were exposed.

While the number of breaches themselves increased only slightly over 2018, the number of exposed records jumped 284% over the exposed records reported in 2018, and increased 91% compared to the same data reported for 2017. 

Unfortunately, 2020 saw even more increases in attacks, as the pandemic led to greater cybersecurity issues. Large-scale data breaches also increased 273% in just the first quarter of 2020 compared to the first quarter of the previous year, according to a study from cloud computing company Iomart.

As more organizations adopted work from home policies, Zoom became the most used application for video conferencing while also gaining attention from fraudsters. In the first week of April, news broke that 500,000 Zoom passwords had been stolen and were now for sale in dark web crime forums.

Additionally, victims’ personal meeting URLs and HostKeys were also available. Even more shocking, many of the leaked accounts’ details belonged to financial institutions and banks. Even FinCEN issued an advisory in July 2020, warning financial institutions of COVID-19 related cyberattacks.

Fast-forward to now, bankers are growing more concerned of potential attacks – which makes sense. In fact, the Conference of State Bank Supervisors (CSBS) found in a survey released this month that nearly 82% of community bankers rate cyberattacks as their top concern. And it probably should be.


Consumers Demand Digital Experience But Find Cyberattacks Unforgiving

While there is not only a need for more robust digital offerings, there’s also a demand for it. However, consumers are extremely turned off by cyberattacks. According to our recent consumer survey, nearly half (42%) of U.S. consumers would end a relationship with their financial institution after experiencing a data breach or cybersecurity attack, making it the second most dangerous crisis for a financial institution in terms of customer retention.

The concern was shared nearly evenly among most age groups, however, Millennials (age 24-39) did show a slightly greater concern at 48% compared to other generations, with Gen Z (age 18-23) showing the least concern at 38%, followed by Gen X (age 40-55) and Baby Boomers (56-74) tying at 40%.

Additionally, those with greater household incomes (between $75k-$99.9k) were more likely to end a relationship with a bank following a data breach or cybersecurity attack at nearly 50% compared to those with lower household incomes (less than $50k) at 40%.


As we move into a New Year, there are two very clear needs within the banking industry – true digital transformation and enhanced cybersecurity technology. Without both, customer retention is at a serious risk.