The pandemic might have brought the importance of digital banking to the attention of a much broader array of customers—but it merely expedited a phenomenon that was already making waves among tech-savvy consumers and perturbing the incumbent banks.
Traditional banking methods, whether in a branch, by phone, or at an ATM, lost much appeal during the height of COVID. Banks limited their branch hours or closed branches altogether, customer service phone lines were backed up to an unprecedented extent, and merchants insisted on card or Google or Apple Pay rather than cash transactions. This is where challengers and neobanks came into their own, empowering customers with new technologies and superior experiences.
For example, 76% of Americans have used their primary bank’s mobile app during the pandemic for everyday banking tasks such as viewing their account balance or depositing cheques. “COVID accelerated consumers’ use of digital banking, including those who were less digitally savvy, but even those users found the tools weren’t as intimidating as they’d originally thought”, said Matthew Williamson, Global VP of Financial Services for digital consultancy Mobiquity.
The changing economics of digital banking
Banks must find their place in an increasingly volatile landscape of digital currencies, fintech disruption, and new payment mechanisms. They must significantly boost their deals and partnership activity with flexible new players. The economics are changing, too, such as with the growing availability of integrated platforms, the bundling of elements that previously had to be built individually, increased customer retention, and greater shares of wallet growth.
So with an increasing number of entrants disrupting the payments market, the pandemic showed incumbent banks how much they needed to up their activity and investment. Partnerships and acquisitions with payments and eCommerce organizations and agile fintechs will be crucial in increasing speed to market and building streamlined digital solutions.
Furthermore, as banks forge partnerships and joint ventures with fintechs, they will also create large-scale alliances with major network players such Worldpay, UnionPay, Visa, and Mastercard. Through significant acquisitions of their own, these companies are curating capabilities banks can leverage—to the benefit of the customer.
How does digital banking benefit customers?
Digital banking presents unparalleled convenience to customers by enabling them to use mobile and online banking solutions whenever and wherever they need, whether they want to transfer funds or set up a notification alert for an overdraft. What’s more, digital banking negates the need for cash transactions, which present possible hygiene risks, and don’t allow for funds tracking. Most mobile banking apps also utilize biometric authentication for login, and automatically scan for certain risks, such as login from an unknown device.
A banking app means customers can access a plethora of useful features, such as savings tools, personalized financial advice, purchase calculators, and a virtual assistant, in one place. Arguably even more valuable are those features that help customers accomplish day-to-day transactions, such as mobile cheque deposit, as well as paying bills and viewing statements and account balances.
The very nature of digital banking is evolving
The needs of today’s customer aren’t set in stone, but the principles underlying their needs are straightforward: they desire banking services that are simple, smart, and secure. Customers still need to borrow, save, and invest, but digital advancement and increasing financial literacy are helping them find more efficient ways to do so. And in direct response to customers’ growing savviness, incumbents and challengers alike must compete intensely to become their trusted interface of choice.
Moreover, banks will become even more invisible as we move towards an ever more interconnected way of life. Banking will become melded seamlessly into ‘super-apps’, which fulfil multiple essential daily functions. Take embedded banking, banking-like services offered by non-banks which have the potential to make every company a fintech company. Organizations as diverse as Big Tech, retailers, telcos, insurance providers, software companies, logistics firms, and car manufacturers are embedding financial services to serve consumer and business segments. Embedded banking means enhanced ease of use for customers, and helps them enjoy integrated experiences as they seek more holistic and direct banking services, which address their shifting expectations for data and account information portability.
Ultimately, then, technology is seeing that customers’ unique sets of preferences are met even as they change—and the array of technologies that are expanding and exponentially improving customers’ lives makes for a compelling list:
DLT and blockchain
Distributed ledger technology (DLT) is a database of asset transactions shared and stored in multiple locations simultaneously, without need for a centralized administrator or location of storage. When a ledger is updated, each machine in the network votes to determine which copy is correct. Then every other machine updates itself with the new copy of the ledger. Blockchain is a type of DLT, in which data is structured into blocks, linked together, and securely encrypted. Blockchain doesn’t allow for editing or removing data, only adding it, which means every party with access can view all historical transactions. Blockchain therefore greatly benefits customers through such innovations as open banking, fraud prevention, and smart contracts by providing a distributed ledger that can never be amended after the fact.
Biometrics
Customers demand absolute trust and confidence in privacy protection when it comes to investing in a new technology. Biometric technologies—especially in conjunction with realtime AI security profiling—provide continual user identity validation, all but negating human error, as well as the need for PINs and passwords.
IoT
The Internet of Things is the collective term for everyday objects that send and receive data via the internet, such as bins, sportswear, and fridges. The IoT will enable financial services to track and monitor use of products aligned to insurance and loans. For example, extensive use of machinery taken out on a loan will increase repayment burdens, and vice versa, as more use will generally depreciate the machinery’s value. Insurance premiums will be charged based on performance rather than blanket demographic categorizations.
AR and VR
Augmented reality (AR) serves as a visual tool for contextualizing the real world, layering in rich information to help people multitask and execute more effective decisions. AR could play a role in helping customers find their bank’s closest branch, with virtual arrows appearing in the real world guiding them along their route. Virtual environments built by virtual reality (VR) will enable customers with disabilities or other difficulties visiting a branch, or those living in a remote location, to nevertheless receive an in-store experience by way of a virtual face-to-face meeting. In their totality, then, AR and VR can augment bricks-and-mortar by helping embed financial services and digital banking within the UX, such as by gamifying payments and including them in sporting environments to make them appear seamless. This in turn means financial services institutions will be able to create completely new customer experiences, transforming formerly mundane encounters into something memorable and exciting.
Great news for customers: incumbent banks are driving change to keep up
While mainstream banks certainly face intensive pressure from new entrants left, right, and centre, they still have the edge insofar as they wield dramatically greater numbers of resources, which they can leverage to launch their own digital businesses. Hyper-personalized solutions are the future, as customers have an ever-increasing selection of financial services providers to choose from, every one of them willing to tailor what they do to precisely what the customer wants.
Digital banking empowers customers to take control of their financial lives like never before, and provides many new tools and features previously unavailable via traditional banking. That being said, many incumbent banks have been slow on the uptake—and it’s time for challengers to strike while the iron’s hot. Building a new digital business from scratch means excelling on multiple fronts, combining the strengths of an incumbent with the agility of a startup. But you also need a unique idea, an expert team, and a clear path to profitability. None of this is easy—but Toqio can give you a huge head start.
Toqio’s white label digital finance SaaS enables challengers to quickly launch and monetize new financial solutions to their customers. With Toqio, in less than eight weeks you can configure your product suite, select the right partners, apply your branding, and execute an effective launch. Our ready-to-go fintech platform and marketplace means innovation has never been simpler—at a time when the opportunity for banking stardom has never been more within reach. Get in touch today, and one of our friendly advisors will help you get the ball rolling setting up your very own distinctive digital banking solution.