The banking industry is undergoing massive digital disruption, with online deposits, mobile transfers, and e-bill payments fundamentally becoming the norm.
Increased consumer demand for digital banking services has given rise to numerous technological advancements in banking — with artificial intelligence (AI) at the core of these transformations.
Below, we break down what exactly digital banking is, how it’s evolved over time, and where the future of digital banking is headed.
What is digital banking?
Digital banking is the digitization of every level, from front- to back-end, of banking. This means that digital banks rely on artificial intelligence to automate back-end operations such as administrative tasks and data processing — which in turn alleviates pressure put on employees to complete day-to-day tasks.
Not only do digital banks allow users to make account deposits and transfers remotely; but they also provide them with the opportunity to more easily apply for loans and access personalized money management services.
Digital transformation in banking
“Digital banking” emerged with heightened consumer demands for more efficient ways to access banking records and complete financial transactions outside of local branches. The digital banking transformation initiated with limited online banking services before advancing into a digital-only market.
Online banking can be offered by both traditional banking institutions as well as tech-savvy startups, and refers to the most basic banking operations — like bill payment and account transfers. These services usually take place on a bank’s website, where users enter specific login information to access their financial accounts.
Online banking subsequently inspired mobile banking, which offers essentially the same services but from the convenience of one’s mobile device such as a tablet or smartphone. Mobile banking refers to offering users the ability to execute routine banking tasks through mobile channels, and digital banking includes every banking feature digitally available through the internet.
While most legacy banks now offer online services, digital-only banks are developed entirely electronically. Digital-only banks don’t lean on the financial and customer support from an established physical location — instead they’re powered via digital platforms that appeal to the millennial and Gen Z populations.
Digital banking industry trends
In the Evolution of the US Neobank Market Report, Business Insider Intelligence highlights how digital-only banks – also known as neobanks – are positioned to transcend traditional US banking due to their ability to meet the demands of tech-savvy consumers.
According to the report, 89% of US respondents say they use mobile banking channels, and 70% of say mobile banking has become the primary way to access their accounts.
The rise of banking-as-a-service (BaaS) also accounts for an increase in digital services, as more legacy banks are opening up their application programming interfaces (APIs) for fintech and third-party app development. Business Insider Intelligence’s Rise of Banking-as-a-Service report outlines how traditional banks are increasingly allowing third-party providers and fintechs to leverage their infrastructure and consumer data to develop new digital services.
Though BaaS is still in its early days, the UK has already passed BaaS and open banking regulation, and countries around the world will soon follow suit. The most innovative banks are already taking advantage of this technology, and other incumbent players s are realizing they need to adopt more digital services and offerings to stay competitive in the industry — or risk getting left behind.
Want to learn more?
Business Insider Intelligence’s Evolution Of The US Neobank Market details how digital-only banks are rapidly gaining steam in the banking industry. Tech-savvy consumers are causing a massive transformation in demands for digital banking services. This report outlines the most recent digital banking trends, as well as how incumbents can enhance their own digital offerings to remain competitive.
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