The consumer market today is more competitive than a few years ago. Giants like Google disrupted almost every industry and digitized all aspects of life. New technologies are finding their way into people’s financial lives, and if conventional banks fail to keep up, they will soon be out of business.
Jumping into digital, however, requires a strong strategy that is not only sustainable but also sets in well with the current operations of the bank. Let’s discover how you can develop a successful digital banking strategy for your bank.
What is digital banking?
Digital banking is the automation of all traditional processes and activities that occur when a customer visits a bank. This includes cash deposits, withdrawals, transfers, bill payments, loan services, investments, etc.
The advent of digital banking was a result of customers becoming tech-savvy and demanding tech-driven services. Due to this huge demand, banks started shifting to the digital-first philosophy. As of 2020, as many as 1.9 billion consumers globally used online banking services, and this number is expected to reach 2.5 billion by 2024.
Benefits of digital banking
Digital banking introduced many conveniences for customers. Here are some of the most important benefits it has to offer:
Increased efficiency and accuracy: The involvement of AI in digital banking has made operations highly efficient and accurate. The algorithms leverage real-time data to make important decisions, and the room for human error is eliminated.
Lower costs: There is no real estate or paperwork involved, and software automates most manual tasks. This reduces operational costs and increases the bottom line.
Agility and mobility: With cashless transactions and minimal paper processing, digital banking allows bulk cash to be processed very quickly. There is zero lag in transactions, and banks react to risks and opportunities quickly.
Convenience: Remote banking services bring convenience to the bankers and the customers. They don’t have to carry cash or other paper documents, which makes the experience even better.
Security: Security measures such as multifactor authentication and biometric verification make it very hard for malpractice to occur.
Better Control: Digital banking makes it easier to navigate daily transactions and track all related activities. Customers can self-serve through mobile apps and are in better control of their banking operations.
The benefits listed above are substantial and prompted the digitalization shift even for those who were hesitant.
Trends in digital banking
Since the whole sphere of digital banking is consumer-driven, it evolves with changing customer demands. Below are some of the most important trends digital banking has adopted with time.
Artificial intelligence has automated several analytical tasks that were previously handled manually. AI-driven bots can handle complex calculations with minimal error rates.
Mobile banking apps put customers in charge of their banking operations. This has created an ecosystem of cashless transactions, which has found applications in other industries as well.
Digital banking enabled data monetization such that the data collection is now streamlined and more data-driven decisions are being made.
Blockchain technology introduced a new era of banking based on cryptocurrency. It also makes transactions more secure and safeguards customer data.
An extended banking ecosystem that is not limited to payments and investments but also includes adjacent activities such as cash flow analysis, accounting, tax management, etc., was developed.
Banks are now better positioned to track the customer’s journey and target them better through advanced marketing strategies. Data analytics have played a huge part in making this happen.
All digital banking operations are being managed through smart management techniques. This involves shifting to the agile framework for managing tasks and improvising strategy as new challenges come forth.
Digital banking is continually evolving, so new trends are expected to surprise us soon.
Pillars of digital banking
The digital banking framework is supported by four primary pillars: omnichannel banking, modular banking, open banking, and smart banking.
Omni-channel banking involves setting up a central digital hub where all banking channels merge and then disperse for customers to use. The conventional approach was based on siloed channels where everything had to be managed separately. However, bringing everything to the same place orchestrates customer interactions across any touchpoint.
Modular banking architecture turns banks into marketplaces for financial tools powered by the bank’s core deposit. New services can be easily designed, offered, and scaled with minimal marginal cost, so the bank becomes more responsive to customer demands.
Open banking is a practice where banks provide third-party financial service providers open access to their financial data to collaborate with the bank on enhancing their service offering.
Smart banking allows banks to leverage technology to move expensive in-branch activities to online platforms. It allows banks to take an intelligent approach to customer service and provide multiple products from small kiosks or mobile devices.
How to create a digital banking strategy
Now that we covered what digital banking is and how it has transformed the entire sphere of financial services, let’s discuss creating a digital banking strategy.
Start with a discovery phase
The discovery stage requires you to analyze your target audience and identify the right product-market fit. You may also identify important customer touch points and analyze your competitors to see how they solve the same problems.
If you skip the discovery phase and jump into product development right away, you may run the risk of making mistakes that can’t be fixed later.
Choose the business model
When starting out, you could choose a full-stack neobank model or one focused on the front end only.
Full-stack neobanks usually have a proprietary CBS and operate with a banking license. This enables them to manage everything from the front-end to the back-end and control the entire value chain.
Front-end focused neobanks rely on larger partner banks to establish a CBS. They focus solely on the tech side of things, while the financial operations are handled by the partner bank.
A full-stack digital bank allows you to handle the complete customer journey and offer a wide range of services, while the front-end model limits the scope a bit. Nevertheless, the latter allows you to specialize in one area instead of being a jack-of-all-trades.
Create a customer-centric mindset
A customer-centric mindset is essential to the implementation of digital in organizations. For banks, this works in three parts; you need to be attentive and pragmatic, embrace creativity and innovation, and redefine the role of your branches altogether. The goal should be to anticipate clients’ expectations and use technology to build solutions in advance.
Put innovation as a basis of all strategies
Digital requires you to stay on your toes and keep adapting to the changes in the environment. Make sure that whatever strategies you build have the room to absorb innovation transform the operations without disrupting older processes.
Use data analytics
When all of your systems go digital, the influx of customer data will also skyrocket. You can use this data to run different analyses and get insights about your customers. This data could also help make your segmentation models more effective and provide personalized services to each customer.
Develop a fully digital ecosystem
A fully digital ecosystem means that all stakeholders and third parties adapt the same strategies you do so that there can be efficient collaboration. Having everyone on the same page helps create new sources of revenue, lower process costs, and greatly enhance the speed of innovation and technology adoption.
Ensure key regulatory compliance
With customer data going online, the risk of breaches and other security issues increases. Thus, you need to have adequate security risk handling frameworks in place. Make sure that the new model you implement complies with all regulatory requirements so that there is no legal interruption later on.
Get mobile banking right
Mobile-first banking is another important aspect you need to strengthen if you plan to go digital. Mobile banking needs to be very simplistic, help build client relationships, and keep up with the speed of innovation.
Focus on making the mobile interface smart and easy-to-use. You could leverage social media to develop emotional relationships with your audience and channel quality traffic to your app. Also, make sure your app keeps up with mobile OS updates. Besides, the dev-team needs to be super-efficient in identifying security risks. You could also collaborate with third parties for anti-fraud and financial crime prevention activities.
Denys Kashperskyi from Geniusee, while talking about mobile banking, said:
“The development of banking applications has its own features, which are determined by the scope for which the application is being developed. The main feature is the construction of service in terms of security of funds transfers, protection of user data, and information transfer within the service. The banking sector especially needs to implement all best practices provided by partners and services used in constructing the application. It is also necessary to have a consultant who is familiar with the laws of the country for which the team builds the application to avoid legal problems. An important role in our case is played by the partner bank that will conduct operations.”
Use API gateway as part of your open banking strategy
Using open banking APIs allows you to communicate with third parties for financial data and improve the service offering.
A simple example would be how loan processing before required considerable paperwork but with open banking, customers may obtain loans from their preferred financial institution by consenting to share their financial data with other lenders. This way, financial institutions can grow their relationship with the consumer by providing low-friction access to loans.
Risks of going digital without a strategy
Going digital all at once will lead you to a plethora of problems related to security, inefficiencies in processes, and a waste of time and money.
The change is going to be uncomfortable, but you will need to find ways to adjust to it slowly but steadily. If you go all-in from day one, you will be completely lost. Instead of speeding things up, you will be wasting a lot of time in development, as there will be a lack of a timeline and a clear roadmap that defines the goals at each stage.
This situation becomes worse when you have an executive team or a team of investors to report to. There will be a lot of pressure on their end, and you won’t be able to show any results, at least in the short term.
Zedosh is a modern digital advertising platform designed to financially empower Gen Z. Through open banking, Geniusee provided many analytical services on the platform.
We provided insights into the spending behaviour of the audience, tips on how to master money, and crucially, the ability to monetize their attention through a disruptive advertising model.
The idea was to fuse FinTech and AdTech to create a highly consumer-centric solution, which was realized effectively through the collaboration of both companies.
The modern banking customer demands a tech-driven experience that utilizes innovative technologies yet is convenient to adapt to. Rushing into the implementation of such solutions without proper preparation can be very harmful to banks. We recommended you go in with a robust strategy that stands strong in the dynamic tech environment.
If you need help developing a digital strategy for your bank, the Geniusee team is always available to help you out.