The new age of digitalization is progressively making inroads, nibbling away at the old age perception, radicalizing banking. Innovations such as Wechat and Paytm are diminishing the need to visit an ATM. The laser focus is on customer habits and behaviour, contrary to the traditional banking methods solely gravitating towards their own strategic agendas. There is a degree of freedom identified with the digitalization of banking and other financial services like insurance and online payments which is only going to expand the horizons of digital banking in 2020.
The Importance of Digital in Banking and the Trends that are going to shape its Future:
1. FinTechs take up Banking Roles
FinTech companies, both small and large are eyeing the banking sector with keen interest. Keeping in mind the current digital transformation, their involvement is going to grow ten-folds. By offering unconventional services such as non-bank money transfers and in-store mobile payment options, FinTech companies continue to influence the consumers’ purchasing behaviour.
According to a survey done by PwC in 2019, it was noted that approximately 47% of the financial services companies round the globe would partner with a fintech firm to expand their business.
FinTech startups tend to be exceptionally good at filling up specific market niches and even market giants such as Apple’s “Beautifully Clear” credit card, promising exciting cashback for the purchases of Apple products and paying with Apple Pay. The year 2020 is about to welcome the arrival of Google Checking Accounts where Google would be acting as an intermediary between the customer and the financial institution.
2. AI Substituting Humans
Artificial Intelligence is a revolutionary concept on its own and its collaboration with the banking industry is very beneficial. From providing customer support 24/7 to giving personalized suggestions to the clients through chatbots, robotic process automation is prevalent in almost every area of the digital banking environment.
Banks are increasingly leaning towards the use of AI and the three main channels where it can be put to use are front office, middle office and back office. Robots have a quintessential role in saving the company’s cost by decreasing the human labor while maintaining the human touch.
A 2019 report from IHS Markit stated that the business value of AI in global banking is expected to reach $300 billion by 2030 with North America becoming the largest market for AI banking in around the year 2020 to 2023 and Europe, Asia Pacific and other parts of the world taking the lead between 2024 and 2030. Tools like Success+ recently launched by GoCardless for the automatic retrial and recovery of failed payments in order to reduce time and cost of a business is a prime example of what awaits the future of AI. This also includes the adoption of voice-based channels in form of voice assistants.
3. Customer Centricity
Customers are demanding a modern banking experience as they are accustomed to on-demand, tailored needs being fulfilled. The importance of digital in banking is such that meaningful interactions with customers regarding their needs and expectations are getting simpler and better.
To bridge the gap between banks and the clients, the former is constantly adopting newer technologies such as IAO (Instant Account Opening) and LOS (Online Loan Origination Software) which are breaking the barriers for new customer acquisition and retaining existing customers. The monopoly of the banking sector would come completely undone with the new customer centric approach realizing the importance of digital transformation in banking.
Banks like Huntington have already extended artificial intelligence based software like Heads Up so as to give the customers virtual assistance on how to plan their spending and achieve their long term financial aspirations. Banks are rapidly switching from sell to serve and in the coming years simplifying the customer journey would be in the fore-front when it comes to creating marketing agendas.
4. Open Banking is the Future
Open banking also called, “Open Bank Data” seems to be the next big thing in the future of banking. It is a banking practice which involves providing the third-party open access to financial information of the customer, securely and with the help of Application Programming Interfaces (APIs). Although, open banking poses a considerable amount of risks, the undeniable advantages like getting a clearer picture of a customer’s financial situation and identifying the best financial services and products for them seem to outshine the former.
Through the use of open banking services, the financial institution could get a holistic picture of the customer’s finances and thus offer them services best suited to their requirements. Open Banking Europe (OBE), an initiative taken towards converting Open Banking from a concept to reality was started in 2018. OBE delivers several tools and resources for developers in the financial industry in hopes of making the financial industry more comprehensive. Innovative apps such as Acorns which utilizes open banking data, enables the client to make better investment decisions.
5. Reviving the Blockchain Solutions
With the upsurge in available data, comes the inevitable threat to safety. Banks are slowly easing into the unprecedented zone of blockchain solutions. What blockchain helps achieve is transparency and secure transactions by the decentralization of data storage.
Blockchain being a decentralized peer-to-peer network not requiring any middlemen or a central authority figure is ideal for financial institutions as they ensure transparency by maintaining a trackable record. In 2020, blockchain is to contribute heavily to the digitization of banking and is expected to deal with more responsibilities.
According to The World Economic Forum, in the coming months, the financial sector would keep experimenting with hybrid blockchain models. UBS (Union Bank of Switzerland) is already supervising full-scale transactions at we.trade which is a blockchain-based platform; furthermore, Deutsche Bank is working towards building an investment system with the help of blockchain technology.
A recent PwC report suggests that by the end of 2020, 77% of financial institutions are going to undertake blockchain technology to not only conduct faster transactions but also offers traceability for businesses.
6. Increased availability of Data
The transformation of banks from traditional to new digital methods has increased the availability of data, exponentially. With the help of new technologies such as AI-based models and geotagging, the automated generation, deployment and end-to-end monitoring of data is on the rise.
In 2020, data monetization is expected to be one of the leading digital banking trends as financial institutions would profit from selling their holdings to third party organizations in return of commercial services. The data driven approach is often being used the banking sector to propel their marketing strategies. Through Search Engine Optimization also known as SEO, banking sector accumulates all the information they need through gathering the search preferences of a particular customer from Google, Amazon, Microsoft, Facebook, Twitter etc.
The data collected via such a source can then be used to offer personalized services to a specific demography that holds an interest in buying the services. The importance of marketing in digital banking is such that it determines the future of the sector. Encouraging customers to engage in an automated banking experience during the adverse time of COVID-19 with the help of online/mobile banking seems to be the need of the industry hour.
7. No physical Bank
The Millennial and Gen-Z customers are expected to face a highly digitalized banking ecosystem which not necessary would have a physical branch because of the cognitive need and importance of internet banking in the modern scenario.
Challenger banks (small retail banks in the UK that only have an online presence and compete directly with the longer established banks in the country) and Neobanks have the potential to completely wipe out the existence of physical branches of bank in 2020.Due to the high adoption rate and successful business models, neobanks have already managed to grab the attention of investors.
Neobanks are strategically inching towards the unbanked population and their low cost model along with one-click accessibility is expected to further make it an obvious option amongst the masses.
What started with something as small as putting standard cheque encoders in place and Magnetic Ink Character Recognition to help in sorting and processing cheques has blown into this revolutionary digitalization of banks. Digital banking in 2020 would see massive changes unlike anything seen in decades including enhanced data utilization, strategic collaborations and advanced marketing performance. In this age of expansion, customer centric approach is adapted by every sector of the market and financial institutions are no different. Faster and more efficient banking experience is the future, according to the prediction of many economists. Is digitalization in banking really the best thing to happen to human kind since sliced bread? 2020 shall tell us.