Digital Banking Trends Propelling the Industry in 2023

The beginning of the decade became a powerful impetus for digital transformation in nearly every sector of the economy. Trends that changed existing processes also affect the banking industry. The financial services revolution has ushered in a wave of transformative changes, giving rise to a multitude of entirely digital companies. At the same time, significant transformations were prompted within established banks and other financial organizations. 

We still use “digital transformation” to describe banking innovation efforts in 2023 that change the industry landscape. It plays a key role in driving the economy and significantly impacts the banking industry. Therefore, the adoption of financial technology (FinTech) has seen a surge, influenced by the latest trends in digital banking.

In response to digital development, traditional banks worldwide are also undergoing a significant transformation. First of all, this transformative shift is driven by the changing expectations and preferences of customers who increasingly demand seamless and convenient digital experiences. To stay competitive and meet the latest digital banking trends of 2023, banks are embracing new business models and rapidly adopting purely digital banking services.

Several factors combined, such as customers’ preferences, the global shift to remote jobs, the adoption of smartphone apps, and the demand for increased response speed, accelerate the rapid spread of digital banking. In this article, we will explore digital banking trends expended in the industry, including those you should consider incorporating into your online services, such as banking apps.

What is digital banking, and how does it work?

Digital banking, also known as online banking or e-banking, refers to the provision of banking records, services, and financial transactions through digital channels primarily conducted via the Internet, mobile applications, or other devices. It enables customers to access banking products and other financial services without the need to visit a physical bank brunch. 

The functioning of digital banking involves a combination of technology, secure networks, and financial infrastructure to facilitate seamless and convenient banking experiences. 

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. Most digital banking services can be provided by websites or mobile applications.

In terms of software development, digital banking refers to digitizing all aspects of digital platforms, from the front end to the back end. Usually, e-banking uses additional tools, such as machine learning and artificial intelligence, in order to automate back-end activities, administrative work, data processing, security features, and data protection measures, relieving a significant part of the personnel of the burden of completing daily tasks.

Digital banking vs traditional banking

Digital banking and traditional banking represent two different approaches to providing financial services. Although most traditional banks strive to create their own digital platforms as well, we would rather compare the two approaches as concepts. 

Digital banks offer unparalleled access and convenience. Customers can manage their accounts, make payments, and access other banking services anywhere in the world at any time using websites or mobile applications. In contrast, traditional banking institutions require in-person visits to physical branches during specified hours. 

While digital banking relies on e-channels, traditional banks emphasize personalized customer service and relationship management. Face-to-face interactions, personalized financial advice, and a physical presence for problem resolution are significant advantages of conventional banks. In contrast, digital banks primarily rely on self-service platforms with limited scope for in-person assistance.

The fees are typically lower for digital banks due to lower maintenance costs, while service is way quicker. However, the scope of services offered by traditional banks generally is broader (for instance, retirement deposits). Additionally, traditional banks simplify obtaining certain documents, such as physical cashier checks. Both approaches have their own pros and cons, and the choice between the two depends on individual preferences, needs, and circumstances.

Digital transformation in the banking industry

The COVID-19 pandemic 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 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. 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 the latest online banking trends with the biggest banks in the financial services industry. Everything from account creation to fast money transfers online can be easily received through the website or mobile banking apps. 

Most important digital banking trends

As digitalization continues to reshape the financial landscape, it’s crucial for banks to stay ahead of the curve by embarrassing emerging digital bank trends. These digital technologies not only redefine the way financial institutions operate but also shape the way customers engage with banking services.

Mobile Banking

Mobile banking will continue to be on-trend. Mobile banking is highly handy in today’s digital age, with many banks offering remarkable apps. Mobile banking solutions offer unparalleled convenience and accessibility, allowing customers to manage their accounts, make transactions, and access a range of financial services right from the palm of their hand. The trend of mobile banking is driven by the desire for on-the-go banking, quick one-click transactions, and the ability to monitor and control funds anytime, anywhere. As technology continues to advance, mobile banking is evolving with enhanced security features, biometric authentication, and innovative functionalities such as mobile-check deposits, P2P/P2M pay, and real-time notification considering their account current status. The beginning of the 20s enhanced mobile banking for those who were hesitating about using it. Most financial institutions now provide mobile banking as a standard feature; it’s rather a must-have functionality nowadays than know-how.

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. 

Another point to consider is the higher efficiency of digital-only banks. According to a survey by McKinsey, large traditional banking institutions fail in digital banking transformation, being 40% less effective than digital-native solutions.

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 often 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, as well as those who want to perform most of their banking needs online via a smartphone without the need to visit physical branches regularly.

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 one of the most discussed trends in online banking. The process involves banking outside a bank branch, site, or mobile app. 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 2032, embedded finance is estimated to generate USD 106 billion in revenue, up from USD 14.5 billion in 2022. As more fintech companies 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.

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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.

Multi-cloud adoption for consistent digital experience

Banks invested more in transferring their systems to the cloud recently. 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-clouds 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. Most financial institutions have robust strategies in place to integrate technology into their operations, with many already underway in testing multiple applications.

The digital banking trends for 2023 indicate that real-time AI-based bots will be used to collect data on consumer preferences. By leveraging this data and advanced analytics, financial marketers can enhance their services and provide personalized experiences that are more targeted and predictable. 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 

The increasing demand for secure web information accompanies the convenience of digital banking, driving the development of advanced access technologies. During 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. That’s another logical step to biometric security provided by the company. Since the launch of their client voice authentication technology, HSBC has seen a 50% reduction in banking fraud.

Blockchain

Blockchain trends 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, however, will likely be viewed as supplementary technology to existing systems rather than outright replacements.

Fast digital banking service

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

Every bank needed 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.

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

Despite the prevalence of businesses and banks relying on human data entry, there is a growing need to develop strategies that reduce dependence on manual work. Managers should focus on making strategic decisions rather than spending valuable time creating and reviewing reports manually. 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. A significant number of customers are unhappy with the complicated structures of traditional financial institutions, and this number continues to grow. 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 trends 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.

How digital banking benefits individuals and businesses

Digital banking, wanted or not, has already revolutionized the way both individuals and companies manage their finances, offering various benefits that traditional banking methods cannot match. 

Benefits for individuals:

• Accessibility: Digital solutions allow individuals to organize their finances regardless of their location 24/7. It is especially helpful for a population of remote regions or travelers where access to physical banks might be limited.
• Convenience: Convenience provided by neobanks is one of the most significant benefits of digital banking transformation. Possibility to conduct transactions from the comfort of home or on the go, using the Internet saves a lot of time and effort for users.
• Mobile banking apps: Most banks offer mobile apps that provide user-friendly and intuitive interfaces for various financial services. Banking applications often come with features such as expense tracking, budget management, and mobile check deposits, making financial management easier for individuals.
• Paperless transactions: Digital banking reduces the need for paper-based transactions, contributing to environmental conservation efforts and reducing paperwork (typically considered exhausting) for individuals.
• Lower fees: Digital banks typically have lower operational costs, offering customers lower fees as a consequence.

Benefits for businesses:

• Improved cash flow management: Digital banking tools enable businesses to monitor their accounts in real time, providing a clear view of cash flow and facilitating better financial decision-making.
• Efficient payments and collections: Digital tools streamline payment processes, making it easier to send and receive payments from customers and partners, reducing payment processing time, and improving cash flow.
• Online payment gateways: Businesses can integrate online payment gateways into their websites or e-commerce platforms, allowing users to make purchases seamlessly, leading to increased sales and customer satisfaction.
• Cost savings: Digital banking reduces the need for physical bank visits and manual transactions, reducing the elapsed time of employees. This factor, combined with lower fees, results in significant cost savings for businesses.
• Easy access to financing and credits: Digital banking platforms often provide companies and organizations with access to various financing options, such as loans, lines of credit, and overdraft facilities, making it easier for them to manage working capital needs.
• Data and analytics: Digital banking systems offer advanced data analytics capabilities, helping businesses gain valuable insights into their performance, customer behavior, and market trends. 

Key challenges in digital banking

Cybersecurity threats

One of the crucial challenges in digital banking is the ever-evolving landscape of cybersecurity threats. Banks and financial institutions rely heavily on digital platforms, becoming attractive targets for cybercriminals seeking to exploit system vulnerabilities. Safeguarding customer data, transaction information, and sensitive information requires continuous investment in robust cybersecurity measures and a proactive approach to identifying and mitigating potential risks.

Digital inclusion

While e-banking offers numerous benefits for its users, it also exacerbates the issue of digital exclusion. Not everyone has access to digital devices or reliable Internet connections, especially in remote or underserved areas. Ensuring digital inclusion for all customers is a challenge that banks must address to provide equitable access to financial services.

Customer trust and fraud prevention

Building and maintaining customer trust is crucial for the success of digital banking. Instances of data breaches, scams, or fraud can erode customer confidence, making it vital for banks to implement effective fraud prevention measures and transparent communication to reassure customers about the safety of their financial transactions.

Technological integration and legacy systems

For traditional banks transitioning into the digital realm, integrating new technologies with existing legacy systems can be a complex and time-consuming challenge. Interoperability between different systems, databases, and software is essential to ensure smooth operations and a cohesive digital banking ecosystem.

Regulatory compliance burden

The financial industry is heavily regulated, and digital banking introduces additional compliance challenges. Banks must adhere to various national and international regulations, anti-money laundering (AML) laws, Know Your Customer (KYC) requirements, and more, which demand significant resources and attention to detail.

Digital identity verification

Verifying the identity of customers in digital channels is another unresolved challenge. Banks must strike a balance between frictionless onboarding experiences and robust identity verification to meet compliance obligations and prevent fraudulent activities.

Infrastructure issues and technological obsolescence

As the digital banking sector continues to grow, banks need to ensure that their infrastructure is scalable enough and can handle the increasing volume of transactions and users. At the same time, digital banking technology trends evolve so quickly that banking solutions can become obsolete even before their implementations. Banks should continuously invest in research and development to keep up with emerging technologies and provide innovative and up-to-date services to their customers. Failure to do so may lead to losing customers to more technologically advanced competitors.

Promising future for digital banking

Customers expect financial institutions to keep up with digital banking future trends, understand their needs, and actively assist them. The shift to digital services, which began in the mid-10s, 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.

Banking 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 online banking services.

Conclusion

We highlighted major banking industry trends that will transform the market during the last several years, as well as tendencies that are likely to come in the imminent future. 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 development 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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