Top HR Challenges in the Banking Industry in 2024 [With Solutions]

The banking industry is on the path of transformational growth. HR in the banking industry will be responsible for facilitating growth and innovation in the sector. However, such transformational changes are seldom free of trials. In this article, we will explore the HR challenges that the banking industry will face in the year 2023.  

The banking industry has a very aggressive growth mandate in front of it. The global banking industry hit US $2.48 trillion in 2021 and US $2.67 trillion in 2022. This growth is only positioned to speed up in the coming decade. The scope and importance of the HR function in the banking sector have also experienced an incredible ramp-up over the last few years. As the industry witnesses various emerging trends, such as the rise of remote working and digitalization, rigorous regulatory compliance, revitalization of HR policies, talent management, etc., it is evident that HR will be critical in spearheading the growing movement in the banking sector. Let's look at the challenges that will be faced by HR in banking as they embark on this path of growth and transformation. 

Learn More: 23 HR Trends in Banking for 2023

HR Challenges in Banking for 2023 

1. Talent Acquisition and Management 

 The banking industry faces particular HR challenges due to the difficulties brought on by managing a large number of people. HR professionals in the banking sector work with a large number of employees with a variety of skills and levels of experience due to the unique nature of the industry. Let’s delve into the talent-related challenges that HR in the banking industry will face in 2023. 

1. Upskilling and Reskilling: The banking sector is quickly entering the digital sphere. As they foray into disruptive technologies like Artificial Intelligence (AI), Machine Learning (ML), and Blockchain, the responsibility of wielding them effectively will rest on skilled and qualified employees who know the nitty-gritty of the trade. 
2. High-volume skill-based hiring:  The recruiting trend in this era of digital culture will be centered on competency to cater to the increasing need for convergence between the domains of Banking and IT. HR will need to facilitate the high-volume recruitment of candidates with a special focus on skills and proficiencies. 
3. Recruiting and Retaining Millennials and GenZ: Younger generations are sought after to fill several positions in the banking industry. However, organizations may still have trouble keeping young talent. Around 54% of banks in a survey responded that retaining younger talent is “somewhat challenging,” 12% responded that it is “very challenging,” and 34% of banks responded that retaining younger talent is “no more challenging.” 
4. Learning and Development: Banks want to attract and retain talent but cannot compete with other sectors. Remuneration alone isn’t sufficient to motivate staff. Banks must create a cohesive team, a likeable workplace culture, and a productive learning environment and support their employees' professional and financial development.
   Learn More: Digital Transformation in L&D: A Culture of Innovation & Re-modelling (darwinbox.com) 
5. Workforce Planning: The banking industry has been facing high attrition, a huge number of absconding employees, and challenges in recruiting at scale and speed. In the coming years, to keep up with the pace of growth required and maintain efficiency in processes, workforce planning will be indispensable. 
6. Employee Performance and Engagement: Employee performance plays a vital role in improving the operational efficiency and effectiveness of banking processes. Performance management and rewards and recognition programs focus on maximizing employee engagement, and development, and improving the performance of individuals and the organization, as a whole. However, implementing these programs is a challenge in the industry as it requires end-to-end visibility of workforce productivity. Further, engaging with on-field, white-collar workers is a challenge because of no access to HR-related tasks on mobile, particularly while travelling (attendance, helpdesk, etc.) 
   

Solutions: Banks can opt for automated, AI and ML-enabled recruitment and separation to facilitate faster onboarding and exit processes. To further tackle attrition, banks can build a talent pipeline, invest in succession planning, and nurture employees displaying leadership capabilities. Skills consolidation and training, re-skilling and upskilling employees, and providing them with sufficient growth and development opportunities will be crucial for the industry. Reporting tools and AI-driven predictive analytics for various functions, such as hiring, attrition management, budgeting, etc., can also be used.  

Further, given the distributed nature of the workforce, which includes on-field employees and remote workers, mobile access to HR services has become indispensable in the banking sector today. An end-to-end HRMS platform that caters to various talent acquisition and management functions such as learning and development, performance management, career planning, employee engagement, etc., can be used to tackle all talent-related HR challenges in the banking industry.   

Learn More: 3 Talent Management Challenges That Can Be Solved With Technology

2. Data Management 

Banks work with mountains of employee data. Employee data management is all about having a plan for how data is collected from employees, how the collected data is organized, and how it can be retained to ensure compliance with legal regulations. Let’s look at the challenges banks are facing when it comes to data management:  

Learn More: 10 HR Data Analytics metrics you should be tracking (darwinbox.com) 

1. Disparate Systems: The banking industry works with enormous amounts of employee data, which is stored in multiple, disparate systems. This siloed approach and lack of efficient collaboration results in inefficient efforts in data management. 
2. Outdated infrastructure: Most legacy systems are inadept at handling the increasing workload, especially in light of the evolution of digital technology. When banks attempt to collect, store, and analyze the required amounts of data using outdated infrastructures, the overall system’s stability can fall apart very quickly. 
3. Consolidation of Banks: The value of a unified system of records is enhanced in the context of consolidation in the banking industry, which has created the need to break silos and unify data and processes.   
4. Data Security: Banking providers have been using legacy infrastructure systems to store sensitive consumer or business data. These systems seldom meet the security and safety standards of modern times when cybercrime is commonplace. In the absence of a strong security infrastructure, data leakage is a threat. The security of the data that banking service providers acquire must always be maintained. 
5. Data maturity: This refers to how banks and other financial service firms use the data they have to get the most value possible from it. More data-driven decisions result from greater predictive analytics capabilities, which are brought on by higher data maturity. However, because of the knowledge and technological gaps in the process, most banks continue to use antiquated methods for deriving insights from unstructured data.  

Solutions: A central HR database will help improve efficiency across all HR functions and unify data systems across the organization. A master data system will facilitate collaboration across units and eliminate duplication of efforts. A futuristic HRMS platform can bring all the data together and serve as a single source of truth for the organization. Having a centralized HR system can also help with better data management and provide HR leaders with data-driven information that can be used to improve processes further. Further, data and analytics can be used to meet regulatory and security requirements. 

3. Compliance 

In light of continuously changing government regulations and norms, HR professionals in the banking sector will continue to struggle with ensuring compliance.  The tasks that compliance requirements will bring to HR leaders in 2023 are: 

1. Hybrid Work Policies: Hybrid and remote employment add a layer of compliance issues for banks. Organizations will have to adjust to continuously evolving regulations and update internal processes and procedures to accommodate a remote workforce as flexible work options are increasingly being adopted. A thorough policy review will be necessary before work-from-home is made a permanent option, especially because of the need to protect confidential data that employees might work with outside the office. 
2. Regulatory Changes: Regulatory requirements, and the related procedures and controls, will need to be closely monitored by HR teams in the banking sector. This requires collecting and managing huge amounts of regulatory data and updating the organizational processes, controls, and policies accordingly. This is a challenge as legacy systems are not equipped to handle such large amounts of data. 
3. Digitalization: When it comes to banking compliance, digital transformation is still a bit of a grey area because there isn't a one-size-fits-all method of regulating it. Over the past ten years, digital innovation has developed gradually, giving authorities the time to adjust without seriously upsetting the markets. Nowadays, the rate of digitalization is challenging regulators, particularly in the fields of Machine Learning (ML), Artificial Intelligence (AI), and Big-Data Analytics.
4. Consolidation of Banks: With a large number of mergers and acquisitions in the banking sector, there’s a need for data accessibility and reporting for audit and compliance purposes. 
   

Solutions: When employees work remotely, there may be less oversight, which could result in higher rates of noncompliance. HR will need to make sure there are clear attestations, certifications, and training processes in place for remote working. Long-term concerns must also be addressed, such as digitally managing employees’ personal development or keeping track of their health and well-being.  

There’s also a need for banks to strengthen their cybersecurity and data security systems and equip their IT teams to comply with data privacy and security regulations across the globe. In addition, there will be a need for risk and compliance specialists to support the digitization of these systems. HR leaders will have to hire skilled leaders to take on such responsibilities and invest in educating and training the entire organization on the importance of compliance, cybersecurity, etc.  

Organizations could invest in a unified HRMS that supports risk management, robust security infrastructure, data analytics, and workforce management. Darwinbox streamlined compliance and regulation for Kotak Life enabling them to roll out partners with 100% compliance and facilitated 17K to 36K onboardings within a year. 

Learn More: Why is Darwinbox Implementation Faster than Others? 

4. Digitalization 

Digitization and digitalization are the two main factors powering the digital banking movement. According to Simon Paris, CEO of Finastra, “Digitizing means converting into digital format anything which is currently manual or paper-based. Whereas digitalizing is a whole new way of thinking”. Currently, the banking industry stands at a stage where it has witnessed digitization, but not digitalization. The following challenges will be faced by HR in the year 2023, vis-à-vis achieving true digitalization:  

Learn More: Key IT Strategy & Implementation Best Practices for an HR Digital Transformation 

1. Resistance to Change: Traditional banking systems are still used by many physical banks. The switch from these outdated and disjointed legacy banking systems to a contemporary, digitally connected environment can be challenging for organizations. 
2. Huge Investment: A shift to digital will necessitate large up-front expenditures for the required applications, procedures, system interfaces, security, and upkeep.  The amount of investment that yields noticeable outcomes while a bank is conducting the active phase of transformation is roughly 10% of the bank's yearly spending. The level of investment may gradually decline in the future, but it needs ongoing financial assistance. 
3. Security: Financial institutions are forever being challenged by cyber criminals. In the banking sector, cyberattack costs reach a total of $18.3 million per organization each year. Banks must therefore make sure that cybersecurity is at the top of their list of priorities. 
   Learn More: Darwinbox HRMS – Platform Security 
4. Digital Training: Employees will have to be trained and skills will have to be constantly updated to enable organizations to maximize their investment and derive great value from it. 
   

Solutions: A push to digitalize can be validated by concentrating on metrics that indicate the gains the bank will experience from investing in digitalization. This includes an increase in productivity by eliminating erroneous, people-dependent processes like manual communications and feedback, manual performance management systems, candidate documentation, offer letter generation, etc. Automation of processes will lead to increased efficiency and accuracy in processes.  

Further, upskilling will be essential, given how quickly the banking sector is entering the digital sphere. To function more effectively in the modern workplace, the HR professional's role has been adjusted to include digital HR. Additionally, banks are increasingly adopting intelligent technology to save costs and increase process efficiency and customer satisfaction. Therefore, it becomes critical to incorporate new skills into leadership, functional, and behavioural development frameworks. 

The Way Forward 

The banking industry is positioned for transformational growth and innovation in the coming year. Emerging trends in technology and processes will transform mechanisms and shape the future of the industry. Such colossal changes will come with their set of challenges, and banking organizations will need to face challenges head-on and learn to be agile in the face of disruptive changes.  

In this scenario, the role of HR will be far more exciting and strategic than in the past. An end-to-end, module-based, highly configurable HRMS platform can be a great ally of the HR function in the banking industry. 

 Interested in exploring further? Find out how Darwinbox can simplify human resource management for your organization, book a demo today!