The future of digital banking

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Digitization has taken the world by storm, with advanced analytics and technology penetrating every industry. Fintech companies have their sights set on the banking industry, positioned to supersede its primacy—but all manner of challengers are right behind them, with non-banks and corporates looking to embed financial service offerings into their customer journeys at lightning speed.

Challengers must adapt as banks and non-banks alike seek to utilize modern tech to adopt digital banking at speed. Otherwise, they risk being left behind. Mass digitization is no longer a choice, but an inevitability—and they have to embrace the change.

What is digital banking?

Digital banking is simply the digitization of banking services. It negates the need for consumers to visit a store—a benefit that truly came into its own in the wake of a global pandemic. Consumers demand banking services that are efficient and accessible—and that’s where Big Tech can really give traditional banks a run for their money, by offering banking and financial services products direct to consumers—and at the tap of a button.

Big Tech leverages its vast user base to build on its existing infrastructure and offer a diverse array of digital services and products to consumers. This poses an almost existential threat to traditional banks—and adapting at pace won’t be easy. After all, it entails two apparently contradictory objectives: achieve the speed, agility, and flexibility innate to fintechs, while managing the security standards, regulatory requirements, and scale of a traditional financial services institution.

These forces create a spectrum within the realm of digital banking, with different banks adopting digitization to varying degrees. And this in turn is but a stepping stone to perhaps the true future of banking: platforms. The concept of banking as a platform (BaaP) is relatively recent, but already has immense potential. BaaP would provide a digital marketplace for banking (and perhaps even non-banking) services, raising the limits of what it could provide. But this goal is by no means within reach for every enterprise.

How can banks stay competitive in an exponentially digitized landscape?

There are several paths banks might take to mitigate the threat posed by digital disruptors in the financial services industry. Take Natwest, who in 2019 launched Mettle, a standalone digital-only business bank catering to limited companies and sole traders. Features include bookkeeping, invoicing, and tools enabling small businesses to be better prepared for their fiscal responsibilities. Or HSBC UK, who in 2021 launched HSBC Kinetic, a mobile-first banking service specially designed to help ambitious small businesses work more smartly at a time when they’ve never needed to be more agile to stay on top of their finances.

Then there’s Apple, who identified this opportunity and partnered with investment bank Goldman Sachs to launch Apple Card, a radical digital payments solution which also avoids certain regulatory requirements. By relying on existing banking infrastructure, tech companies can focus on what they do best: innovating novel products while competing with traditional banks. More and more enterprises are coming round to believing this is their next logical step in adding products to their core business models.

Moreover, the dynamic relationship between financial services and fintech spawns a symbiotic ecosystem in which both may coexist while staying relevant. In 2020, for example, HSBC launched Contour, a blockchain trade finance platform backed by Citi and Standard Chartered. Similarly, JPMorgan launched a blockchain platform on which they’re now testing their own digital currency, JPM Coin. This shows just how much of an integral weapon blockchain has become in an institution’s digital banking arsenal, along with such concepts as digital wallets (for retail) and digital treasuries (for corporates).

The time is now for banks to embrace digital banking

If a bank wants to not only survive but thrive in the future, it must adapt to emerging technologies, stay flexible in adopting evolving business models, and put customers and their ever-changing demands at the centre of every strategy—starting today.

There are numerous opportunities for banks to integrate and accelerate financial technology, and in the meantime fintechs can leverage this moment to innovate new products for the modern, financially savvy corporate or retail consumer. There’s omnichannel banking, where customers can access their banking services in real time through any channel, be it at a branch or ATM, through a call centre, or online. By implementing omnichannel banking, banks empower customers with the liberty to use their services anywhere, anytime, via whichever medium is most convenient. Then there’s open banking, which draws on open data to move towards greater transparency and ease of banking by enabling customers to access all their financial services in one place, whether they’re looking for a mortgage, loan, or to pay their bills.

All this being said, first traditional banks must identify their place on the digital banking spectrum, whether through a fintech–financial services partnership, BaaAAP, AI, or blockchain. Only then will they be able to formulate a clear and future-proof strategy.

The fintech revolution is set to continually disrupt traditional banks, so they must allocate their resources accordingly to keep up pace with ever-evolving financial technology in a volatile business landscape. Only when they innovate, integrate, and accelerate will they be able to stay not only relevant, but competitive, too.

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