Between evolving customer expectations and the pandemic fuelled digitisation of the financial services industry, instant digital service has become the base line expectation of today’s banking customers. Only a handful of industries have seen such a rapid evolution during the last 3 years with Technology, Analytics, AI and Blockchain finding new homes across the sector.
Why has this happened?
Pandemic aside, evolution of user experience software and integrated services offered by BigTech and Fintech companies have forced traditional banks to adapt and adopt digital banking and digitisation to remain relevant, positively placing customers at the centre of strategy whilst opening the gate to new and emerging technologies. With banks adopting and implementing new era technology to improve customer care and customer retention, greater budgets have been allocated towards technology, pushing research, creativity and development, advancing and legitimising the use of once obscure and niche technologies.
So what is Digital Banking?
True Digital Banking encompasses digitising every program and activity undertaken by financial institutions for their customers, from the initial onboarding process of opening an account through to completing transactions.
Digital Banking in itself is therefore not a fixed concept but a spectrum. Depending on the business strategy of the provider, the technology, tools, features and services offered determine where on the digitised spectrum these providers place themselves.
Digital Banks have numerous synonyms; Neo Banks, Challenger Banks, Online Banks, Virtual Banks, Mobile Banks. They are first of all Financial Technology Companies and are inherently branchless, keeping the need for human interaction and cost to a minimum.
Well known examples of Digital banking platforms are Revolut, Monzo and N26.
With the ability to open and use online accounts within minutes, it is easy to see how the convenience that came from BigTech and FinTech providers has pushed the digitisation agenda. However, there are some drawbacks to these BigTech and FinTech platforms.
- Often they do not have a banking licence, so many partner with a bank or regulated provider to offer all the front-facing services such as current and savings accounts.
- More often than not, digital banks will offer essential financial services only and forego overdrafts, mortgages and loans, meaning there will always be a space for traditional banks in society.
- Reduced administrators and client support teams are used to keep costs down but limit interaction and accessibility for less tech savvy users which can mean delays in support or slow complaint handling.
What does it mean for the future?
In the short term we anticipate banking, payments and investment solutions to merge into simple, secure and comprehensive apps. To remain relevant in a competitive market, providers will likely offer greater visibility, faster payments and fringe benefits, whilst competition in the space will push providers to drive up their offerings and interest rates payable to savers whilst simultaneously pushing down their platform fees.
With digitised systems, resistance decreases and access to overseas goods and services increases. Providers will begin to explore blockchain and ledger based systems opening multicurrency cross-border banking to the masses.
By providing access to solutions previously only available via regulated advisers, digital banking services would create full suites of financial services that are increasingly borderless and absent of actual advisers themselves opening up a wider range of investment opportunities to the public.
From a user experience standpoint investment and saving accounts could also be designed around personal goals and with instant visibility of banking, income and credit scores, users could have access to prequalified loans that could be accessed almost instantaneously.
The BAAP concept
The true potential of digitisation is realised in Banking as a Platform (BAAP).
BAAP enables third-party developers to build products and services for bank customers. Third parties can then focus on extending platform functionality whilst the platform itself manages data exchange and oversees authentication. This provides banks with an opportunity to build partnerships and reach new customers and wider audiences. With their recognisable brands and extensive ‘Know Your Customer’ research, banks can tap into more of the Global market.
It is evident that there are plenty of opportunities for banks to integrate and accelerate financial technology. Meanwhile, Fintech’s can use this opportunity to continually innovate and create new products for the ever-demanding consumer.
In this rapidly evolving market, providers must take the view whether to innovate or integrate and collaborate to remain relevant in the future.
Internet of Things (IOT)
In a world where a consumer interacts with so many devices throughout the day, with the help of IoT, banks can interconnect all such devices allowing customers to operate their account from the comfort of their home. Not only does this tick the box of convenience but by being a part of a consumer’s everyday use devices the providers will also get to know their customers better.
Advanced AI technology can then power these insights to execute a more engaging and user friendly experience personalising interfaces, offerings and other communications.
Open banking is the practice where legacy banks open up their API’s to external parties allowing them to integrate third-party services into their systems. It enables third parties to access the data and processes of the banks and blend their services accordingly.
This model solves the issue for banks to chase the advancements in technology constantly. They can connect with FinTech solutions and leverage their technology. It’s a collaborative approach to tackle the ever-evolving technology where banks lend their data and network to FinTech companies whilst FinTech would be responsible for driving innovation. It helps banks to embrace digitisation without having to learn and spend on additional resources.
With consumer demand, expectation and convenience at the forefront of technology platforms, the digitisation of banking processes across the Globe was inevitable. Now that process, procedure and protocol is more clearly established the industry players are forced to consider innovation or collaboration. As a result, new tech based offerings and digital banking models will grow in popularity, reshaping the future of financial services.