Retail banking digital transformation involves more than adopting a couple of advanced systems. It requires an organization-wide strategic shift, which typically includes streamlining internal operations, redesigning customer experiences, and reshaping corporate culture to achieve greater agility. Although the change is significant, it is essential if financial institutions want to survive in the digital age.
Boston Consulting Group predicts that by 2030, 30-50% of today’s retail banks could disappear if they fail to adapt to new market demands and innovate. The good news, however, is that organizations adopting digital technologies benefit substantially, with gains ranging from increased operational efficiency to higher customer satisfaction and improved profitability.
In this article, we will explore the main drivers behind digital transformation in retail banking and outline current industry trends. Leveraging our 10+ years of experience building custom banking solutions, we will also share key strategies for success based on real-life examples from our clients and other market players leading the way.
Key takeaways
- Retail banking digital transformation is largely driven by competition from fintech companies and neobanks.
- Nearly half of consumers across generations interact with online banking daily, pushing traditional banks to enhance their digital capabilities.
- 74% of customers want personalized banking services. Other technology trends shaping the industry include end-to-end automation and AI-powered fraud detection.
- Leading banks, such as PKO Bank (Poland), TD Bank (North America), and Lloyds Banking Group (UK), have already embraced digital transformation, setting a benchmark for others.
Key factors driving digital transformation in the retail banking industry
While traditional methods of operation can still yield results for some retail banks, they often come with significant limitations and aren’t sustainable in the long run. That’s because the financial services industry doesn’t exist in isolation—it’s continuously shaped by external forces that impact the way banks function and deliver value. These evolving dynamics create an environment where digital transformation is a necessity.
Competition from fintechs
Competitive pressure from fintechs is one of the strongest forces driving retail banking digital transformation. By building their business models around new technologies, fintechs gain a significant competitive advantage. With innovation at their core, they offer faster, more personalized services often at lower fees, thanks to the absence of physical branches and the associated costs.
This strong value proposition continues to attract tech-savvy customers, particularly younger generations, who are tired of legacy systems and the complex procedures often associated with traditional financial services. Surveys show that around half of millennials and Gen Zers are willing to switch from their current financial institutions to online-only providers.
Tech-first providers now directly challenge traditional banks for market share. The fintech ecosystem has exploded, with over 12,000 companies operating in North America and more than 9,200 across Europe as of 2024. Market leaders demonstrate the scale of this disruption, with Nubank serving 93 million users and Revolut reaching 50 million customers.
Does this mean that incumbent banks are becoming irrelevant? Not at all. However, industry standards and customer expectations have shifted fundamentally. With agile, cost-effective, and innovative players, traditional banks must launch digital transformation to remain competitive and profitable in the digital era.
Growing customer expectations
The high standards set by fintechs are not the only reason customer demands in the banking sector are rising. The broader shift toward tech-first experiences across industries also plays a major role. When people are used to skipping lines at airports thanks to mobile check-ins or receiving personalized recommendations on Netflix, they naturally expect the same frictionless, customer-focused online services from their banks.
In fact, 53% of Gen Zers and 51% of millennials cite digital banking as the top factor when choosing a financial provider. This isn’t surprising: another survey shows that between 41% and 56% of consumers across generations interact with their mobile banking app or web-based digital platform daily.
What’s also important is that customers no longer settle for basic features like checking balances or viewing transaction history. They now expect digital banking experiences that are fast, seamless, and personalized. This includes 24/7 access to financial services, instant payments, and intuitive self-service options. Financial institutions that don’t make digital transformation their strategic priority aren’t just falling behind—they’re becoming irrelevant in the eyes of modern consumers.
The need to reduce costs
Operating costs in the retail banking industry continue to rise, driven by growing wages, increasing financial crime, elevated credit risk, and persistent process inefficiencies. One study suggests that if banks maintain their current operating models, their cost-to-income ratio could climb from 63% in 2023 to 74% by 2030. In other words, banks would spend about 74 cents for every dollar earned, squeezing their already tight profit margins by another 11%.
New technologies, such as artificial intelligence and cloud computing, offer powerful opportunities to optimize operations, reduce dependence on human labor, and lower reliance on physical infrastructure, ultimately leading to substantial cost savings. For instance, digital transformation efforts combined with generative AI can help banks reduce product unit costs by more than 50%. The freed-up resources can be reinvested into further innovation and growth to create new revenue streams.
Increasing regulatory complexity
The financial sector is heavily regulated, requiring strict compliance with a broad range of evolving rules, such as anti-money laundering, Know Your Customer (KYC), data privacy, and cybersecurity. For retail banks, meeting these regulations is of critical importance. However, traditional processes, which depend on outdated and fragmented systems, are inefficient and often inadequate for this task.
For example, regulations such as PSD2 require banks to monitor transactions in real time to detect fraud. As financial crimes become more sophisticated, maintaining this level of vigilance without advanced data analytics is increasingly difficult. Similarly, regulations like GDPR impose strict requirements for security and privacy. However, legacy, siloed data management systems can not provide the robust safeguards to meet these standards.
Digital transformation in retail banking creates the foundation for ensuring compliance through real-time risk monitoring, robust security measures, and the agility to adapt to changing regulatory requirements.
Digital transformation in retail banking: Key strategies for success
Successful digital transformation in retail banking requires more than adopting new technologies—it demands coordinated efforts and organizational change at every level. Below are proven strategies that help ensure strong outcomes while avoiding common pitfalls.
1. Define a clear vision. While technology lays the groundwork, putting customers at the center is essential. A customer-first mindset means that a retail bank prioritizes understanding and addressing customer needs within every initiative. In fact, 79% of business leaders believe their business models will undergo fundamental changes as a result of digital transformation.
2. Secure buy-in from key stakeholders. Retail banking digital transformation requires active support from top leadership across departments, from IT and operations to marketing and compliance. Engage key stakeholders early to promote alignment, transparency, and cross-functional commitment.
3. Develop a phased roadmap. Digital transformation in retail banking doesn’t need to happen all at once. Create a realistic, step-by-step plan that allows for gradual implementation, minimizes disruption, and provides room to adapt based on performance and feedback.
4. Modernize legacy systems. Start by upgrading or replacing outdated platforms, such as core banking systems, customer relationship management solutions, and loan approval tools. This will reduce technical debt and enable faster rollout of new digital capabilities in the future.
5. Establish robust data governance practices. Data is the foundation of digital banking innovation. Ensuring it is accurate, secure, compliant, and accessible across all functions is critical, especially before implementing AI-driven initiatives or advanced analytics.
6. Innovate at a measured pace. Begin with small-scale initiatives, validate them, and then scale the advantages to broader target groups. Focus on high-impact projects and ensure enhanced security from the start.
7. Find a trusted technology partner. Select a reliable, experienced tech partner who can guide your digital transformation journey—from strategy and system modernization to long-term support and innovation enablement.
How retail banks are embracing digital transformation: Real-life examples
Digital transformation isn’t just a concept—it’s actively reshaping how retail banks operate and serve their customers. With the right strategies in place and technical expertise on board, many retail banks are already seeing tangible results from their digital transformation efforts.
Below are real-life business cases showing how leading industry players are leveraging data and new technology to drive operational efficiency, improve customer satisfaction, and stay ahead of the curve.
PKO Bank Polski
PKO Bank Polski is the largest bank in Poland and one of the leading financial institutions in Central and Eastern Europe. It has been offering a comprehensive range of retail and corporate banking services since 1919. To enhance operational efficiency and customer experience, PKO Bank has launched several digital initiatives together with Neontri:
- Data Hub—a robust offloading system capable of handling up to 10,000 requests per second.
- Data enrichment feature to give customers more detailed insights into their spending, such as categories, merchant logos, and locations.
- IKO mobile banking app, which earned international recognition and was ranked #1 in its category worldwide for two years in a row.
Through its strong focus on digital transformation, PKO Bank has reinforced its market leadership and continues to set the bar for innovation in the banking industry.
TD Bank
TD Bank is one of the top banks in North America, headquartered in Toronto and operating across Canada and the eastern US. Known for its commitment to innovation and customer-focused services, the bank actively integrates new technologies across multiple functions.
For example, TD Bank leverages generative AI to accelerate mortgage processing and deliver more personalized experiences. It also equips branch staff with comprehensive customer insights via CRM systems while continually expanding offerings available through digital channels.
In 2025, TD Bank received the BIG Innovation Award for the fourth consecutive year—an acknowledgment of its sustained efforts to reshape the digital landscape in the financial sector.
Lloyds Banking Group
Lloyds Banking Group is one of the UK’s largest financial institutions, serving 27 million customers through well-known brands including Lloyds Bank, Halifax, and Bank of Scotland.
Recognizing the need to stay competitive in the digital era, Lloyds invested £3 billion (approximately $4 billion) to become a more customer-aligned and technology-driven organization. This investment has supported a wide range of initiatives—from leveraging data for advanced analytics to implementing hyper-personalized customer experiences.
Today, Lloyds continues to push forward with innovation. It is now experimenting with generative AI to deliver tailored financial advice and money management recommendations. The group’s executives see this emerging technology as a potential game-changer in enhancing customer engagement and differentiating their services.
The future of retail banking: Tech trends shaping the industry
The scope of digital transformation isn’t the same for all retail banks. It varies significantly based on an organization’s size, available resources, strategic business objectives, and, most importantly, its current level of digital maturity.
For example, a bank already leveraging cloud infrastructure will follow a different transformation process than one still reliant on legacy core banking systems. However, regardless of the starting point, it’s essential to consider the key trends driving the banking sector when developing a digital strategy.
Trend#1: End-to-end automation
Modern retail banks are streamlining workflows from start to finish by combining robotic process automation (RPA) with AI-powered solutions. While RPA automates repetitive, rule-based tasks such as data entry, AI takes a step further by enabling decision-making, pattern recognition, and adaptability. These advanced capabilities allow AI-driven systems to manage complex processes that would typically require human intervention. More importantly, they can learn and improve over time.
Today, intelligent automation is transforming nearly every core function in retail banking across both customer-facing and back-office operations. Key applications include advanced customer service with smart virtual assistants, credit scoring based on AI-driven underwriting models, and document processing, where AI can automatically read, interpret, and extract data from various files.
Research shows that banks using AI to automate document processing can approve loans up to 70% faster and reduce compliance costs by as much as 40%.
Trend#2: Personalized banking experiences
Delivering personalized customer experiences is now a core element of nearly every project on digital transformation in retail banking. This trend is largely driven by rising customer expectations: 74% of customers want more personalized services from their banks, and two-thirds are comfortable with their data being used to enable this.
Depending on the business objectives, retail banks can implement personalization across a range of services, touchpoints, and digital channels, including:
- Financial insights and recommendations, such as providing analytics on spending habits, smart budgeting suggestions, and alerts for unusual activity via mobile apps.
- Targeted marketing campaigns that offer relevant banking services based on current financial needs identified through in-depth customer data analysis.
- Tailored portfolio management, including personalized investment and loan recommendations based on each client’s goals and risk tolerance.
- Dynamic pricing, where interest rates, fees, and other terms are adjusted based on individual customer profiles and risk factors.
Banking leaders recognize that personalization is crucial in enhancing customer engagement and loyalty, ultimately impacting revenue. A Mastercard survey found that 86% of financial institutions see personalization as a clear strategic priority.
Trend#3: Intelligent fraud detection and prevention
Cybercrimes are on the rise in the financial sector. In 2024, 54% of financial institutions experienced cyberattacks—a 12% increase compared to 2023. Compounding the threat, cybercriminals are now using AI to launch increasingly sophisticated attacks. In fact, 57% of financial executives in Europe and 66% in North America say the growing use of AI by cybercriminals is the primary driver of increased risk exposure in 2025.
All this makes intelligent fraud detection a top priority in retail banking digital transformation. A recent survey found that 73% of financial institutions already use AI to fight economic crimes. Powered by real-time advanced analytics, fraud monitoring systems can process large volumes of data, flag anomalies, and even block potentially suspicious transactions as they happen.
By implementing such systems, retail banks can not only strengthen their risk management but also address customers’ growing security concerns associated with online banking.
Final thoughts
The pressing competition from fintechs and rising customer expectations, combined with the ongoing need to cut costs and meet strict regulations, are key drivers of digital transformation in retail banking. The specific initiatives within this process vary by organization. However, it’s essential to align them with current market trends, such as end-to-end automation, personalized services, and intelligent fraud detection.
That said, true retail banking transformation goes beyond adopting new technology. Success depends on a shared vision across the organization with strong stakeholder commitment, a phased and flexible roadmap, and a focus on high-impact, small-scale initiatives that can be scaled over time.
Ready to transform your bank for the digital era? Partner with Neontri, and our banking software experts will guide your journey from strategy to implementation. Don’t risk falling behind—contact us today to secure your institution’s place in the future of finance.
FAQ
How can banks balance the need for digital transformation with maintaining traditional services?
Balancing retail banking digital transformation with traditional services requires a hybrid approach. This means integrating new technologies while addressing the needs of customers who prefer in-person interactions. For example, as a bank implements modern solutions (access to services through mobile devices, AI-powered chatbots, etc.), it should maintain traditional options (in-branch human support, call center) at least during the transition.
This strategy enables banks to embrace innovation while maintaining customer loyalty across diverse groups: from tech-savvy millennials and Gen Zers to those who prefer traditional, in-person banking experiences.
Resources
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