GBO, a leading corporate services company, has conducted extensive research on digital banking trends and their potential impact on the financial industry.
This report delves into the evolution, statistics, legal framework, current trends, and the future of digital banking.
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What is Digital Banking?
Digital banking refers to the technological digitization of conventional banking services. It enables customers to access banking services through digital channels, such as mobile apps, web-based platforms, and internet banking, without requiring physical branches.
History and Development of digital Banking
The advent of automated teller machines in the 1960s gave rise to the concept of digital banking. However, with the advent of the internet in the 1990s, it gained momentum. The introduction of online banking allowed customers to conduct transactions, check account balances, and pay bills electronically. With a focus on user-friendly and convenient financial services, the rapid development of smartphones and mobile apps propelled digital banking further into the mainstream.
Data on Digital Banking trends
- To meet the growing demand, a significant number of traditional banks have adopted digital banking services.
- In recent years, the number of new digital banks (also known as neobanks or challenger banks) has grown exponentially.
- By 2025, it is anticipated that more than 3 billion people will utilize digital banking services worldwide.
- Legal Structure of Digital Banking in Europe and the United States.
- The Revised Payment Services Directive (PSD2) establishes a legal framework for digital banking services in Europe. It intends to promote innovation, competition, and safety in the financial sector. The European Central Bank (ECB) also oversees digital bank licensing and supervision.
- Digital banks in the United States are governed by federal and state laws, including the Bank Holding Company Act, the Community Reinvestment Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Office of the Comptroller of the Currency (OCC) and the Federal Reserve System are responsible for digital bank licensing and regulation.
Current Trends in Digital Banking 2023
Here are five digital banking trends for 2023 that currently shaping the industry:
- As smartphones have become pervasive, mobile banking apps have emerged as the primary channel for customers to access financial services. Banks are continuously enhancing their mobile applications to provide a streamlined and user-friendly experience.
- Open banking and APIs: Open banking initiatives, made possible by the use of Application Programming Interfaces (APIs), have fostered collaboration between traditional banks, fintech companies, and third-party providers. This partnership produces innovative financial products and services for the benefit of customers.
- Artificial Intelligence (AI) and Machine Learning (ML): Banks use AI and ML technologies to streamline operations, improve customer service, enhance fraud detection, and optimize credit scoring. These technologies aid banks in making decisions based on data and automating repetitive tasks.
- The rapid adoption of digital payments and mobile wallets has altered the manner in which consumers conduct transactions. Contactless payments, peer-to-peer transfers, and mobile wallets have grown in popularity, making it simpler for customers to pay without cash or plastic cards.
- Computing in the cloud and Banking as a Service (BaaS): Cloud computing is increasingly utilized by financial institutions to scale their operations, reduce costs, and increase agility. BaaS platforms enable banks to provide their services as a platform for other businesses, resulting in the creation of new business models and revenue streams.
The top ten digital banking trends that are anticipated to shape the industry’s future:
- Advanced data analytics and artificial intelligence will enable banks to provide hyper-personalized products and services that are tailored to the needs and preferences of individual customers.
- Financial wellness platforms: Digital banks will develop comprehensive financial wellness platforms that provide customers with tools and resources to manage their finances, save, invest, and plan for the future.
- The integration of financial services into non-financial platforms and applications, such as e-commerce, social media, and messaging apps, will produce seamless and convenient banking experiences.
- Digital banks will increasingly prioritize environmental, social, and governance (ESG) factors, providing eco-friendly banking products to customers and promoting responsible lending and investment practices.
- Decentralized finance (DeFi): The growth of DeFi platforms and services will result in increased collaboration between digital banks and DeFi providers, allowing customers access to decentralized financial products in addition to traditional banking services.
- As cyber threats become more sophisticated, digital banks will invest heavily in cutting-edge security technologies, such as quantum cryptography and zero-knowledge proofs, to safeguard customer data and transactions.
- Using virtual reality (VR) and augmented reality (AR) technology, digital banks will be able to create immersive virtual branches, allowing customers to access banking services in a more engaging and interactive setting.
- Cross-border banking: Digital banks will continue to streamline cross-border transactions and remittances by leveraging blockchain and other technologies to reduce costs, increase speed, and improve transparency.
- Smart contracts: The adoption of smart contracts will automate a number of banking procedures, including loan origination, underwriting, and compliance, resulting in increased efficiency and decreased operational costs.
- Collaborative ecosystems: Digital banks will collaborate with fintech firms, large technology companies, and other industry players to develop collaborative ecosystems that foster innovation, expand product offerings, and improve the customer experience.