What Is Digital Banking | A Guide to Services, Solutions, Trends and Apps

What Is Digital Banking | A Guide to Services, Solutions, Trends and Apps
Digital banking was already on the rise due to increased use of cell phones and apps, but the pandemic has accelerated that trend. Digitalization in banking allows consumers to access banking services via mobile phones or computers without having to go to bank branch offices. Cashless transactions and online payments are now part of our everyday lives.

Digital banking solutions make managing your finances easier, but what is digital banking exactly and what are its benefits that you can take advantage of? We’ll give you some insight into how the digital banking ecosystem works and what it allows people to do, and we’ll discuss digital banking trends and digital banking services you can use to save time, manage your finances efficiently and improve your banking experience.

What is digital banking?

Let’s start with the definition of digital banking, which is simply the availability of banking activities online. Why is digital banking different from traditional banking services? The goal of the digital banking transformation was to automate banking services to keep up with the increased use of desktop and mobile technologies by consumers. With the transformation to digital banking, a bank’s customers were able to access a bank’s products and services via an online platform.

What is the difference between online and digital banking?

Digital banking is an umbrella term that covers online and mobile banking.

Online banking is when you use your computer to access banking features and services via your bank’s website. Most established banks have online banking portals where you can pay bills or apply for a loan or a credit card

According to Wikipedia, mobile banking “is a service provided by a bank or other financial institution that allows its customers to conduct financial transactions remotely using a mobile device such as a smartphone or tablet.”

You need to have a bank’s app installed on your mobile device to access mobile banking features. These apps are proprietary. Every bank has its own app, and the app generally uses the same login information as your online banking portal. Mobile banking apps offer the same popular banking services including:

  • Deposits and withdrawals
  • Bill payments
  • Account history and transactions
  • Peer-to-peer (P2P) payments
  • Funds transfer
  • Mobile check deposits
  • Real-time card activity tracking and financial alerts like fraud detection and low balance notifications

Digital banking includes both online and mobile banking and allows people to conduct their bank transactions remotely with a few swipes on their phones.

Digital transformation in banking has also led to digitizing the operations of the bank, both core and non-core ones, so that customers can manage all banking transactions from any place at any time.

The COVID-19 pandemic and the shift in consumer behavior because of it has advanced the use of digital banking services by allowing people to avoid in-person services.

What types of digital banking are there?

Digital banking for financial institutions and their customers is powered by innovative ideas and big data, Artificial Intelligence (AI) and analytics are huge fields for the growth and development of new financial companies, as well as services and features.

According to Statista, in 2020 as many as 1.9 billion people worldwide actively used online banking services, and the forecast is that the number will reach 2.5 billion by 2024. The Globe Newswire report indicates that the global digital banking platform market is expected to grow at a CAGR of 11.2% from 2021-2026.

The way that people bank now is pretty different compared to just a decade ago. New types of digital banks have emerged offering customers innovative ways to conduct transactions, and offering banks new ways to provide services to their customers. Below are some new types of banks that were created with the help of digital banking:

New challenger banks

Challenger banks are Fintechs that have full banking licenses and are direct competitors of established banks. These new banks offer traditional banking services, but they are more flexible with digital options and user-friendly experiences. New banks usually have branch locations, but not many. Examples include RevolutMonzo and N26.

Neo banks

Neo banks are those that partner with financial institutions to offer bank-licensed services instead of obtaining their own banking license. These are completely digital banks without any physical presence, which means they cannot offer some banking services. Neo banks use mobile banking apps and online platforms to connect with their customers, but they still require consumers to have an account at an existing bank that is licensed. Examples of neo banks are MovenWeBank by Tencent and GoBank.

Beta banks

Beta banks are created as subsidiaries of existing banks and they operate through the parent company’s license. These banks offer financial services in new financial markets which are more limited than the services of parent banks.

Nonbanks

Nonbanks are Fintechs that have no connection to traditional banking licenses and are not considered full-scale banks because they do not offer lending and depositing services. They provide financial services through other means independent of traditional banks.

All of these types of digital banks provide tech-savvy customers with mobile-first, branchless banking services.

What can you use digital banking platforms for?

The primary driver of change in the digital banking ecosystem is customers who demand holistic, personalized experiences to fill the gaps in services offered by traditional bank branches. Digital banking platforms have embodied a digital banking strategy enabling banks to compete in the digital era and transform banking services into digital ones. Digital wallets, P2P lending, remote digital advisors and personal finance management are just a few examples of new options popular with users of digital banking services.

Digital banking platforms are financial services provided solely online, which rely on process automation, web-based services and application program interfaces (APIs). Customer convenience and user experience are at the core of these services, which is why digital banking platforms give customers and businesses many options to manage all their personal finances including payments, investments, spending analysis, and more, right from their smartphone or other online channel.

According to Finextra, some common options and capabilities that digital banking platforms offer are:

  • Checking and savings accounts
  • Competitive interest rates compared with traditional banking
  • Digital banking apps (mobile banking)
  • Financial management tools
  • Real-time transaction alerts
  • Digital wallets
  • Virtual cards and cardless payments
  • Person-to-person payments
  • Remote deposits
  • Deposit insurance
  • Cash withdrawals
  • Competitive exchange rates
  • Full compliance with regulators

Digital Banking Safety

Digital banking is the preferred method of banking for many people due to social distancing and other pandemic restrictions, which is why most financial institutions are using breakthrough technologies and advanced mechanisms to guarantee security to consumers.

What do banks do to ensure safety? These are some common measures:

  • Identity checks. Online-only banks and Fintech companies that provide financial services can confirm the identity of a customer prior to opening an account via a video chat or by taking a passport photo and a selfie.
  • Two-factor authentication, or two-step verification. When logging into your account you must enter a unique passcode which is sent to your mobile phone by SMS.
  • Biometric identification. To authorize access and validate transactions, digital banking apps use biological traits such as fingerprint, voice and retinas.
  • Card locking features. As an extra layer of security, users can lock a debit card when it is not used for a certain period of time or if it is lost or they can lock on certain types of transactions.
  • Encrypted data. The data is encrypted in a way that can only be read only by you and your bank while it is being transferred across the internet.
  • Logout. Customers can log in to the bank from only one device at a time. The app or window of the digital bank page is automatically closed when you log out.

Digital banking is not risk-free, but digital banks take security measures powered by advanced technologies, infrastructure and security mechanisms, which are more innovative and secure than those used by many traditional banks.

Advantages and Disadvantages of Digital Banking

Digital banking represents cutting edge financial services as the world moves online and goes cashless. The digital banking ecosystem ensures easy access to bank accounts. Below are the benefits to customers and banks:

For customers

  • Convenience and 24/7 access. With both desktop and mobile access, digital banking solutions enable consumers to perform banking functions from anywhere at any time.
  • Better rates and lower fees. With online banks driving fees down, consumers can now choose between new financial service providers and traditional financial institutions to find the best bank for their needs.
  • Automatic payments. Users can schedule automatic payments for regular bills like electricity, gas, phone and credit cards, and avoid late fees and missed payments.
  • Extend service to remote areas. Digital banking services are accessible to rural populations.

For banks

  • Reduced costs and overhead. Up-to-date digital banking solutions eliminate the need to invest in legacy hardware or software.
  • Restrict the circulation of black money by promoting a cashless society and the ability to keep a track of fund movements.
  • Higher levels of sales. Better user experiences allows banks to retain current customers and attract new ones.
  • Compliance. Digital banking technologies allow banks to stay compliant with the latest regulations much better than older legacy systems.

While it is convenient and easy to access, digital banking isn’t without its challenges: Here is a rundown of them for customers and banks:

For customers

  • Downtime. Ifthere is an online or mobile app outage, bank customers could have problems accessing their accounts.
  • Security. Like traditional banks, online banks use a number of security measures to reduce risk, but there is always a chance that your username and password could be hacked.
  • Time to learn. If you aren’t tech-savvy, you’ll have to spend time learning how to use online banking and mobile banking apps.

For banks

  • Legacyplatforms. Legacy systems contain important information about accounts and customers and it takes a lot of manual labor to transfer and upload that data when shifting to digital banking.
  • Finding qualified staff to perform digital transformation. Shifting to a digital platform can be difficult from a technical standpoint and requires skilled staff to move data and features online.
  • Winning and retaining customer trust. Digital attacks and cyber threats are things that scare consumers, so banks have to establish the most up-to-date security measures and policies to gain customer trust.
  • Regulatory compliance. New regulations and rules are adopted continuously as the shift to online banking continues, and it can be difficult to maintain compliance with these changing rules.

The Future of Digital Banking

Innovative and integrated digital banking solutions are designed to deliver a digital experience that will attract customers and keep them connected to banking services on any device from anywhere. The move to mobile banking is the leading trend in the banking industry as most users have access to smartphones which facilitates rolling out services.

Banking tools powered by machine learning, cloud computing, and artificial intelligence (AI) is another trend, and these technologies can be leveraged to aid millennials with online banking and teach older generations to bank digitally.

Other trends that are on the rise include Banking as a Service (BaaS) which allows third party integration in banking services; Banking as a Platform (BaaP) that is used for integrating core systems with software, and cloud-based Infrastructure which has less reliance on IT staff.

People and businesses are relying more on digital banking which is reshaping the banking landscape, and the policies of banks will become more open and include the ability to customize and introduce tailored products to cater to the needs of increasingly sophisticated customers.

Final Thoughts

Digital banking is here to stay, making a digital banking solution a worthy investment for those who deal with the provision of banking services. Being able to attract and service more customers while offering advanced banking features is something banks need to have in place to be competitive. If you are considering implementing a digital banking solution or establishing a digital platform for financial services, give us a call. At Cprime Studios, we are adept at facilitating businesses in adopting fintech to help them gain a competitive edge.