Find out the trends that will mold digital banking and how they will impact its future—the rise of FinTech and their association with FinTech. Until 2020, digital banking for banks was confined to having a web and mobile app, but the word now has a different meaning altogether. Last year has made banks realize the gaps in their digital banking journey; FinTech has given users a look into what is possible, enabling banks to rethink the speed at which they have been evolving.
It has compelled banks to level up their digital transformation and actively seek to implement the latest advancements.
Consequently, they are re-evaluating their digital maturity. As per research from the Digital Banking Report, banks now rank themselves lower on the digital transformation maturity bar than they did in 2019. Banks understand that there is a long way to go before they have a fully mature digital banking system.
Hence they are now focused on accelerating their transformation rate in the digital banking area, considering users have already moved on with the latest technology.
As an effect, the digital banking sector could undergo immense development, and the following could be some trends that will shape its future:
Blockchain empowers financial institutions to process cross-border transactions in a faster, cheaper, and more efficient manner. FinTech already has a stronghold on it and is giving a tough time to the inter-banking systems.
Additionally, payment giants like Mastercard and Visa are also exploring blockchain implementation, with companies like Veem already reaping its benefits.
The banking industry also has just started to pick up on this technology, with banks like Bank of America and HDFC partnering with Ripple.
IoT (Internet of Things) -
I bet you have at least two if not more internet-connected devices at an arm’s distance, and there could be more such devices in your house like Smart Speakers, Smart TVs, etc. In a world where a consumer interacts with so many devices throughout the day, you must make it convenient for them to use your services from multiple interfaces.
With the help of IoT, banks can interconnect all such devices allowing customers to operate their accounts from the comfort of their sofa using smart speakers or while they are jogging with a smartwatch on their wrist.
Tech giants like Microsoft, IBM, etc., are also scouting this segment. In fact, IoT is forecasted to reach $116.27 billion in the banking, financial services, and insurance industries by 2026.
Not only this but being a part of their everyday use devices will also allow banks to know their customers better.
Data, Insights, and AI fuelled Experiences -
This point could be an extension of the above topic. IoT equips banks with extensive data and insights into users’ lives which banks can utilize to study their customers, derive insights about their behavior, and forecast their requirements.
AI can then power these insights to execute actionable like customizing chatbot responses, personalizing interfaces and offerings, and other communications.
Data, Insights, and AI together will ultimately rule the industry and drive its efficiency (By cutting costs and automating repetitive tasks) and effectiveness ( through relevant conversations).
Future of Digital Banking
All the above trends are the tools for change; the following might be how digital banking would be redefined:
Open banking is the practice where legacy banks open up their APIs 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 of banks chasing 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, and FinTech would be responsible for driving innovation.
It helps banks to embrace digitization without having to spend any substantial resources.
Neo banks add another dimension to open banking. They are digitally native banks with no offline presence.
Neo banks excel in operating and managing front-end channels and the user interface and user experience but have regulatory constraints to offer products and services because of their online-only nature. However, open banking allows them to tie up with legacy banks and avail of end and compliance support.
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To sum up, the digital banking industry may undergo a collaboration phase where legacy banks will collaborate with FinTech rather than compete. As a result, Open banking, Neo banking, Agent banking, and more such banking models will grow in popularity.
However, some legacy banks might retaliate and try building solutions internally using advanced techs like blockchain, IoT, and AI, but their time to market and cost would be much higher than those who choose collaboration. You can learn about this in detail here.
Whatever might be the case but banking in the forthcoming future will never be the same as it was.
The author of this blog is Ankur Mishra COO of Paynet Systems one of the leading digital banking and payments solutions. He is a visionary leader whose flamboyant management style has given profitable results for the company. He believes in the mantra of giving 100% to his work.