Digital Banking Trends Propelling the Industry

The global epidemic has caused havoc in nearly every sector and changed existing processes. This trend also affects the banking industry. The financial services revolution has introduced many new fully digital companies, as well as significant transformations within established banks and other financial organizations. 

Customers’ digital experiences are reshaping traditional banking services all across the world. Banks are undergoing a digital transformation by moving to new business models and offering purely digital banking services to meet the digital banking trends of 2023.

Lockdowns expedited the spread of digital banking. Consumers promptly adopted digital payments via smartphone apps. We’ll go through the digital banking trends expected in the industry, as well as the trends you should consider adopting into your online services, like banking apps.

Industry trends in digital banking

We still use the term “digital transformation” to describe banking innovation efforts in 2023. It plays a key role in driving the economy and significantly impacts the banking industry. FinTech adoption also surged as a delayed consequence of the global pandemic, reducing contact between merchants and customers. Consumers have higher expectations for digital customer experiences and new banking solutions in our digital age.

What is digital banking, and how does it work?

Consumer need for a more efficient means to access banking records and execute financial transactions outside local branches prompted the development of “digital banking.” Customers can use a digital platform to get banking products and services through digital banking. Digital banking entails digitizing all banking processes and replacing the bank’s physical presence. The new concept only uses an online presence, removing the need for customers to visit a bank branch.

Digital banking refers to digitizing all aspects of banking, from the front end to the back end. Usually, e-banking uses artificial intelligence to automate back-end activities, including administrative work and data processing, relieving personnel of the burden of completing daily tasks.

Digital banks allow users to create accounts and remotely make deposits and money transfers. They also make it easier for consumers to apply for loans and get custom financial planning services.

Digital transformation in the banking industry

The lockdown has highlighted the banking and finance industry’s urgent need for digitization and custom software development. Even though most banks worldwide were gradually implementing systems, the pandemic showed their inability to serve customers in moments of need.

The development of digital banking is transforming the landscape of traditional retail banking. Improved self-service capabilities, speedier account opening, more secure transactions, and greater transactional accessibility contribute to a better client experience.

Retrospective of the pandemic’s impact on the digital banking

Digital transformations are now happening faster than ever. The lockdowns drove banks to expand their digitization efforts to stay competitive. The coronavirus pandemic has posed unprecedented challenges to the status quo, according to BDO’s “2021 Financial Services Digital Transformation Survey,” which surveyed 100 executives at banks and other financial institutions in the US in July 2021. According to the survey, most banks have developed digital transformation strategies, and almost half have sped up existing digitization plans.

In a report released in September 2021, the European Banking Authority states that the use of digital platforms to connect customers and financial organizations is rapidly increasing. Platformization offers both EU consumers and banks a range of benefits. Some of these opportunities are related to the fact that most banks’ IT systems are obsolete. Legacy systems should be replaced, while there is also a need to modernize the user interface, server architecture, and mobile applications.

Banks have gained advanced digital technology in Ukraine, where thousands of global software development companies and IT outsourcing providers operate. Customers benefit from various digital capabilities and self-services online with the Privatbank bank’s Privat24 mobile app and the digital-only bank Mono’s mobile app. From account creation to fast money transfers online, the app’s user interface is pleasant and intuitive.

Mobile Banking

Mobile banking will continue to be on-trend. In today’s digital age, mobile banking is highly handy, with many banks offering remarkable apps. Customers like mobile banking because it allows them to net cash inflows, pay for goods, send money to relatives, or quickly locate an ATM. Lockdowns enhanced mobile banking for those who were hesitating about using it. Most financial institutions now provide mobile banking as a standard feature.

More digital-only banks

Consumers have been frustrated with traditional banking service providers due to their outdated technology and expensive charges. These shortcomings and a growing demand for digital solutions have sped up the transition to digital-only banking. It has prompted neobanks to introduce fancy features such as overdraft protection and sign-up bonuses.

The rise of neobanks, digital-only banks that operate without a single physical office and provide their services entirely through mobile apps, has been unstoppable. It’s simple to see why they’ve recently become so popular, given they almost always offer better rates and lower costs than their traditional banking counterparts. With less overhead costs, digital-only banks create a niche among banking customers. They are especially interesting for those who want to keep their fees as low as possible and those who want to perform most of their banking needs online via a smartphone.

According to the US Neobank Market Report, digital-only banks are poised to outperform traditional US banking due to their capacity to match the demands of tech-savvy consumers. Neobanks do not rely on physical branches for financial and customer assistance. Instead, they’re driven by digital channels that appeal to millennials and Gen Z.

Digital-only banks are divided into two categories. A full-stack neobank is a self-contained bank with a banking license that can operate autonomously. In contrast, a front-end-oriented neobank does not have a banking license and must supply its services to customers in collaboration with either a traditional bank. Digital-only banks are expected to continue to increase their market share.

Embedded banking will grow in popularity

Embedded banking, or the use of API-driven interfaces to integrate financial functions into digital environments, is now the most discussed banking trend. The process involves banking outside of a bank branch, site, or mobile app that has grown during the pandemic. And, in our opinion, the situation will not change much in the coming years. According to research from J.P. Morgan, the income per customer of software companies that integrate payments into their systems increases by 2-5 times. Furthermore, by 2025, embedded finance will generate USD 230 billion in revenue, up from USD 22.5 billion in 2020. As more fintech seek bank partners to provide financial services, banks can provide a banking-as-a-service option via their API platform, leveraging current licensed and regulated infrastructure.

Customer-driven digital banking

Financial institutions that are digital-first must quickly react to shifting customer preferences. Banks have focused on developing a customer-centric mindset. To improve the consumer experience, banks are innovating quicker than ever. To stay up with customers’ demands, companies are moving away from outdated infrastructure and toward flexible, cloud-based solutions.

Through improved self-service capabilities, easier account creation, more secure transactions, and greater transaction accessibility, the rise of digital banking results in a better client experience. Through cross-selling of financial goods, banks have established new business opportunities due to increased consumer engagement. Automated procedures transform service quality in the banking industry, with self-service tools backed by advanced analytics assisting clients in making faster and more informed decisions.

Improved user experience

The customer-centric approach underpins their operations and allows digital banking to understand their clients’ demands better. Banks will adopt data-driven personalization to offer hyper-personalized services for their clients. Hyper-personalization entails assisting banks in gaining a comprehensive view of their customers’ financial lives and connecting the bank’s channels to offer the best product for that customer’s personal needs based on real-time data.

Application modernization

Banks are upgrading their retail platforms in order to boost revenues, improve efficiency, and reduce expenses. Modernizing an app requires a mix of skills and technologies to understand clients through data better. Analysts, bankers, and developers collaborate to create compelling customer app experiences and get more competitive selling points. As hyper-personalization requires real-time transaction analysis, many banks are turning to artificial intelligence and machine learning, as well as migrating analytics infrastructure to the cloud.

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Multi-cloud adoption for consistent digital experience

In 2022, banks invested more in transferring their systems to the cloud. According to a Genpact study, CIOs in the banking industry found that “re-platforming apps to operate in the cloud” helped their organizations to adapt to modern trends. Banks are increasingly integrating with public clouds to address the difficulties of app modernization and digital workspace, attracted by their flexibility and unlimited scalability. Multi and hybrid clouds allow current apps to communicate with traditional banking systems for a responsive and seamless customer experience. Multi-cloud and hybrid clouds also provide the flexibility to meet various regulatory needs. On the other hand, the poll notices that banks are taking steps to limit risks associated with using external cloud technology.

AI and chatbots help banks improve their client relationships

AI-powered chatbots will be capable of handling a wide range of tasks. For instance, chatbots often specialize in accessing a user’s financial information. They can recommend things that would benefit them, such as upgrading their current credit card or starting a new savings account. Chatbots aren’t the only application of AI. Other AI apps being investigated by banks include virtual assistants that can manage customer requests via speech or text-based chats, as well as “simulations of physical bank offices that customers cannot physically access.”

AI will continue to expand. Artificial intelligence will most likely remain a popular tool for digital banking in the future. AI can assist a bank in developing a more secure system for its clients. It can help understand clients’ needs and offer real-time solutions. The majority of financial institutions have solid plans in place for integrating technology into their operations, and many have already begun testing multiple applications.

The digital banking trends for 2022 indicate that real-time AI-based bots will be used to collect data on consumer preferences. Financial marketers can use this data and advanced analytics to offer predictable personalization and improve their service. A bank can use AI to understand its clients’ wants better, find and give data-backed solutions for these issues, and conduct quicker assessments to be more efficient.

Biometric security technology 

With the convenience of digital banking comes a greater demand for safer web information access technologies. In the next few years, biometric security will be a disruptive banking trend to follow. Biometric technology scans validate physiological traits such as fingerprints, facial features, speech patterns, and more, which are used to identify a person. As a result, HSBC, one of the world’s major banking and financial services companies, will likely embrace the digital banking trend through 2023 and beyond. Since the launch of their client voice authentication technology, HSBC has seen a 50% reduction in banking fraud.

Blockchain

Blockchain technology will be increasingly used in digital banking. Financial institutions will likely migrate their Authentication and Customer Due Diligence operations to decentralized platforms in 2023 as digital identities become more widely adopted. Customers’ data will be stored on distributed ledgers, allowing for more effective identity verification, lower data storage costs, and greater data protection mechanisms. 

Platforms for blockchain-based transaction processing are being developed. More blockchain-based transaction processing technologies are predicted to be available at the end of 2023. Blockchain-based transaction processing platforms, on the other hand, will be seen as complements rather than replacements for existing systems.

Fast digital banking service

Financial institutions made rash decisions in crisis mode when COVID-19 hit. Both trendy technologies and new procedures were developed and deployed to make remote working a reality. Banks and credit unions need to find ways to maintain the focus on speed of delivery as the industry recovers from crisis mode.

Every bank needs to increase its efficiency by replacing its current bureaucratic system. Businesses must now make faster decisions, demanding the use of a reliable and speedy banking partner to move their capital more efficiently and quickly.

According to a survey by McKinsey, 59 percent of banks are unable to have fast systems due to a lack of cross-functional collaboration. The stakes for ‘being quick’ have never been higher, with consumers changing their banking transactions conduct and accounts management and with technology allowing them to exploit data and insights in real-time.

Automation to use finances efficiently

There are still businesses and banks that rely heavily on human data entry. Instead of developing a strategy, high management checks manual work. Managers should make strategic decisions rather than manually creating and reviewing reports. Automation and digital solutions can help banks save money, boost efficiency, and free up time for future innovation. More traditional financial institutions are likely to implement automated solutions for daily tasks, including back-office services and customer relations.

Banking app intuitive design and usability 

Any service now requires a user-friendly and intuitive visual interface. There is a demand for complete financial solutions based on superb usability in line with individual customer needs. Most customers are unhappy with the complicated structures of traditional financial institutions. The design system is crucial in providing fast and consistent digitalization due to the complexity of financial services. The ongoing demand for revisions and improvements is difficult for banks because digital financial services are more sophisticated than many other items. IT outsourcing may help the company with all UX/UI standards, assets, and the overall product development vision, ensuring it fulfills all new customer expectations. We can predict new banking app features and capabilities in the following years.

Promising future for digital banking

Customers expect banks to keep up with modern trends, understand their needs, and actively assist them. The shift to digital services, which began well before the global pandemic, has intensified. Due to rising consumer demand for a more effective and easy way to handle their bank accounts online, digital banking hit the mainstream. Fintech trends, including online deposits, mobile apps, enhanced personalization, and other digital banking trends, have caused significant shifts in the financial sector. Through digitization at every level of banking, they are all addressing the ever-increasing needs of consumers.

Financial services providers’ digital transformation has brought new features such as robo-advisors, peer-to-peer lending platforms, and digital wealth management tools. These efforts have been supported by open banking APIs, which allow clients to handle many accounts simultaneously through digital self-service platforms.

Baking digital trends have also given financial businesses a chance to reconsider their vision, change their core mission, and make the digital banking experience more personal and emotional. There’s plenty of room for new ideas and innovation in the banking industry lately. They can benefit consumers and companies, whether we’re talking about traditional banks, fintech, or neobanks that provide banking services.

Conclusion

We highlighted major banking industry trends that will transform the market in the last years, 2023, and years to come. Banks have recently begun employing modern technologies such as artificial intelligence, cloud computing, and machine learning. This decision may impact the user experience, helping to acquire a competitive advantage compared to traditional banks. Bank policies and standards have become much more transparent and customizable. 

Banks will produce innovative specialized products to meet their clients’ evolving demands and expectations. They will need to respond rapidly to new-age customer service. Visualization, privacy, and cybersecurity will become vital. Banks need a strong IT partner to succeed in this rapid development, enhanced digitization, and continuous mobile app improvement. Contact our experts if you’re looking for a reputable app development company with extensive fintech experience.

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