As concerns over climate change continue to grow, the need for energy efficiency and renewable energy in buildings has become increasingly important. Banks have a critical role to play in financing various projects, but they face significant challenges, which include shifts in paradigm, digitalisation, data availability, and the complexity of building energy performance, among others…
In this article, we will explore these challenges in more detail and discuss how banks can address them to remain relevant and successful.
General Banking Challenges
Let us first get into the situation and look at some of the challenges facing the banking sector on a daily basis:
1. Adapting to new customers’ expectations
As someone employed in the banking industry, you are likely familiar with the terms “millennials,” referring to those born after the 1980s who came of age around the turn of the millennium and “Generation Z” including people born between 1997 and 2012.. The banking sector faces the task of adjusting to a demographic that has never experienced a world without the Internet or smartphones. Indeed, these generations have grown up in a digital age and have different expectations and preferences when it comes to banking services.
One of the primary challenges that banks face with younger customers is their preference for digital banking. Millennials and Gen Z are more likely to use digital channels, such as mobile banking apps and online banking, rather than visiting a physical bank branch. This shift in customer behaviour is driving banks to invest in digital technologies and platforms to meet the demands of their customers.
In addition, they have the tendency to prioritise experiences over products. These generations are more interested in personalised and engaging experiences than traditional banking products. Banks are responding to this shift by offering more personalised services, such as customised financial planning and investment advice, to attract and retain customers.
Younger customers are also more likely to switch banks if they have a poor experience or if they find a better offer elsewhere, which puts pressure on banks to deliver exceptional customer service and offer competitive products and services to retain their customers. Their method of communication also differs, as they tend to gather on social media platforms where they easily share their experiences whether good or bad.
Additionally, generations Y and Z are more focused on social responsibility and ethical issues. They expect banks to operate in an environmentally and socially responsible manner and may switch to a bank that aligns with their values. Banks can respond by offering sustainable banking options and investing in green initiatives.
In the UK, approximately 1/4 of the population (16.8 million) is classified as millennials. It is predicted that by 2025, millennials will constitute more than 70% of the workforce in developed countries, a crucial factor to consider when devising long-term plans. On the other hand, 15% of the British population is considered to belong to Gen Z.
2. The Tech Challenge: from Finetech to Blockchain without forgetting Bitcoin
Here you have already 3 challenges in 1.
2.1. Fintech
Fintech companies (abbreviation of “financial technology”) have given rise to the birth of a new sector in itself. They benefit from technologies such as:
- IoT
- Artificial Intelligence (AI)
- Machine Learning
- Blockchain
- The digitalisation of processes that banks performed slowly and analogically.
Fintech companies are disrupting traditional banking services as they are leveraging technology to create innovative and efficient financial services. As a result, they are rapidly gaining popularity with customers. These companies are offering alternative financial services often more efficient, user-friendly, and cost-effective than traditional banking services. As a result, they are taking market share from banks, particularly in areas such as payment processing, digital lending, and investment management.
Another challenge related to fintech is the way banks approach risk management. Fintech companies are leveraging data analytics and artificial intelligence to improve risk management, and banks must keep pace with these advancements to remain competitive.
Banks that adapt will remain competitive: in this sense, they are responding by investing in digital technologies and partnering with fintech companies to offer innovative financial services that meet the changing demands of their customers.
2.2. Bitcoin
Bitcoin has been another strong technological boost in the banking sector. The financial sector has seen the birth of a speculative market from zero with virtual currencies
What is the relationship between cryptocurrency and banks? Of course, the key is in customer service: Should the bank accept Bitcoin as a saving or payment method, etc? And as a source of income in ATMs or currency for the e-wallet?
Whether a bank should accept Bitcoin as a saving or payment method is a complex and controversial topic. Bitcoin is a decentralised cryptocurrency that operates on a peer-to-peer network, which means that transactions are conducted without intermediaries such as banks. It operates independently of government regulations, making it highly volatile and risky.
There are some advantages to accepting Bitcoin. For instance, it provides customers with more options for conducting transactions, and it can be faster and more cost effective than traditional banking methods. Additionally, it can help banks stay ahead of the curve and appeal to a younger, tech-savvy demographic.
However, there are also potential disadvantages to accepting Bitcoin. Due to its highly volatile nature, Bitcoin can be subject to large price swings, making it difficult to assess its value as a store of wealth. Additionally, there are concerns about the lack of regulation and the potential for fraud or illegal activity associated with Bitcoin.
Despite how juicy such a volatile and speculative market may seem for a bank, it has its challenges. These are technological, specialisation and, of course, security.
2.3. Blockchain
Finally, we should mention blockchain. Blockchain is a distributed ledger technology that enables secure, transparent, and tamper-proof transactions. While blockchain technology offers significant benefits, it also poses challenges for banks:
- Competition
Blockchain technology has the potential to disrupt traditional banking services by enabling peer-to-peer transactions, reducing transaction costs, and increasing transparency. As a result, banks must keep pace with blockchain advancements to remain competitive in the financial services industry. - Cybersecurity
Blockchain transactions are secure and tamper-proof, but blockchain technology is not immune to cyber threats. Banks must ensure that their blockchain transactions are secure and protected from cyber threats, such as hacking and data breaches. - Interoperability
Blockchain technology is fragmented, with different blockchain networks and protocols. Banks must ensure that their blockchain transactions are interoperable across different blockchain networks and protocols to facilitate seamless transactions and reduce transaction costs. - Regulatory compliance
Banks must ensure that their blockchain transactions comply with relevant regulations, such as anti-money laundering and know-your-customer requirements, to avoid regulatory penalties.
Now that you are aware of the general challenges, let’s delve into the energy management challenges for banking.
7 Energy Management Challenges in Banking
It is estimated that the energy expenditure for the annual banking and financial sector worldwide exceeds 10 billion pounds.
These are the main energy challenges that you will face if you want to reduce consumption in your bank in a real way and become a sustainable entity:
1. Energy dependence related to the Digitalisation of the sector
As banks increasingly adopt digital technologies, such as mobile banking apps, online banking, and cloud computing, they are becoming more reliant on energy to power these technologies.
Some of the main challenges related to the digitalisation of the sector include:
- Environmental impact
Digital technologies require significant energy resources to power data centres, servers, and other infrastructure, which contribute to greenhouse gas emissions and climate change. Banks must consider the environmental impact of their operations and take steps to reduce their energy consumption and carbon footprint. In this article, learn how to lower the Energy Consumption of Network Devices - Cost of Energy
As banks increasingly rely on energy to power their digital operations, the cost of energy is becoming a significant operational expense. Banks must manage their energy consumption and costs to remain competitive in the financial services industry. To better do so, implementing an Energy Management System is key. But if you’re wondering how to choose the right one we have compiled what you need to know in this free-to-download guide. - Energy supply chain management
Digital technologies require significant energy resources, and banks must ensure that their energy supply chain is reliable and sustainable. In other words, banks must work with their energy suppliers to ensure that their energy consumption aligns with their sustainability goals and to reduce their environmental impact. - Energy security
Digital technologies are vulnerable to cyber threats, which can disrupt energy supply chains and cause operational and financial losses. Banks must ensure that their energy supply chain is secure and protected from cyber threats to maintain the reliability of their operations.
2. Monthly Energy purchase planning with Volatile Prices
The volatility of energy prices, which have a tendency to increase, is impossible to control or predict accurately without having the right tools.
Those responsible for energy management must make their monthly assessment and planning of the energy purchases they will need for the following month, and this must then be accepted by managers so that the final price can be closed with the utility company.
Here are two key ideas that those responsible for energy in the banking and financial sector must adopt:
- Achieve fast and timely managerial approval. To achieve this, it is necessary to provide specific numerical data in a simple and visual way.
- Get a competitive price from utility companies to achieve the lowest possible cost. Here the key is to make a correct analysis of the data that the market gives us and make the purchase decision at the right time – prices can increase up to three times if you don’t act fast.
3. Identification of the Savings potential of each building
The identification of the energy-saving potential of each of the buildings owned by a bank is often a challenge. It must be taken into account that banking entities belong to the group of companies identified as multi-location, where each building is like “a tailored suit”.
These singularities by type of building, geographical area and activity will affect energy consumption, and for the energy manager, the challenge is knowing how to identify them in order to discover the saving potential of each building.
In this sense, one of the primary challenges that banks face when it comes down to identifying the savings potential of each building is data availability. Banks need access to accurate and reliable data on building energy consumption and performance to assess the savings potential of each building. However, this data is often limited, fragmented, or inaccessible, making it challenging for banks to conduct accurate assessments.
Secondly, we can think of the complexity of building energy performance. Building energy performance depends on various factors, including building design, equipment efficiency, occupancy patterns, and weather conditions. Banks must consider these factors and conduct detailed assessments to accurately determine the savings potential of each building.
Banks are facing challenges with stakeholder engagement. Building owners and managers may not be aware of the potential savings from energy efficiency and renewable energy projects, or they may be hesitant to invest in these projects due to cost concerns. That’s why banks must engage with customers to educate them on the benefits of these projects and to help them overcome any barriers to investment. Learn more about Energy Culture Management in Banking with our article and the example of Caixa Bank.
4. Implementation of Predictive maintenance in the Facilities
Maintenance of facilities: Proper maintenance of the facilities is vital for saving costs. Banks that have a good maintenance plan for their buildings and facilities ensure energy savings and improvements in energy efficiency.
The challenge for the banking sector is to implement methodologies that better accompany energy management such as predictive maintenance, which is based on the measurement and monitoring of the condition of the facilities. If they succeed, they will achieve high energy cost savings.
For example, the PRÓTYPO Project led by Dexma aims to build a tool that helps energy management based on the predictive maintenance methodology.
In addition, proper maintenance of the facilities and offices will ensure the comfort of employees and customers.
Finally, the digitalisation of the processes that maintenance requires is part of the challenge.
5. Regulation in Energy Consumption and Sustainability
Legal requirements and regulation of energy consumption to promote Sustainability: both national and international laws (European rules and regulations on climate change) demand a reduction in Co2 and appropriate management of our energy resources. These rules are mandatory for all sectors, so like any other sector, the banking sector must comply with them. For example, Spain and other European countries must comply with the European Energy Efficiency Directive
6. Analysis of a large amount of Energy Data
The need to analyse a huge volume of energy data (Big Energy Data) from thousands of locations. Although the banking industry has experience working with Big Data on a financial level, dealing with Big Data from energy data is not precisely its speciality. If the banks manage to apply advanced analysis technologies for large volumes of data, they will reduce their operational costs while guaranteeing the security and reliability of the data (this article by Juan Carlos Fernández, one of our data scientists, tells you why the quality of the energy data is so important).
7. Sustainability ranking as a reference for Investors
The emergence of rankings and sustainability indexes as a key reference for investors. One example would be the Dow Jones Sustainability Index (DJSI): an index that rates companies worldwide with respect to each other, based on social, environmental and economic criteria.
This index selects the 320 companies with the greatest social responsibility from among the 2,500 largest companies in the world.
You will have understood, banks play a critical role in financing energy efficiency and renewable energy projects in buildings, but they face significant challenges as we have seen in this article. However, by investing in data collection and analysis, adopting new trends, engaging with customers, and collaborating with industry stakeholders, banks can overcome these challenges and remain relevant to new customers. By doing so, they can provide financing for energy efficiency and renewable energy projects, reduce greenhouse gas emissions, and help to mitigate the impacts of climate change.
As you can see, banks face both energy and non-energy challenges today. If you want to learn how to manage your bank’s energy and overcome these challenges, this specialised guide in energy management for banks will help you. Click below to download: ⬇️
