With smartphones in hand, customers the world over are changing how they bank. Especially millennials, who now prefer using digital channels for their end-to-end financial needs.
As every aspect of life is being taken over by the digital revolution, millennials expect banks to take out the monotony from financial decisions by offering more personalized products that cater to every person’s unique needs.
Studies show that there has been a growing openness to digital banking globally in recent times. In the US, 14.2 million customers now consider a digital bank as their primary bank, which is a 67% upsurge when compared to January 2020. The UK has also seen a rise in the number of people who have a digital-only bank account, which signals a 165 percent increase in the past 12 months. In fact, about 23 percent of adults in the UK have a digital bank account. In India, digital transactions rose by 23% in June 2020 after the gradual re-opening of our economy. The development is significant as India is the only country apart from China to have a fintech adoption rate of 87% (as of March 2020).
But what are the factors continuing to drive more customers for making this change? Will digital banks eventually take the top spot? To answer these questions, one must look at the benefits that digital banking provides.
An Omnichannel Approach
Today’s tech-savvy customers want tailored banking interactions over the channels of their choice. They want their banking experience to be easy, quick, and automatic. This makes an omnichannel strategy absolutely vital, as it enables customers to engage with the banking institution digitally. Some of these digital features include mobile banking, internet banking, and contactless payments via voice assistants, wearables, and even chatbots.
However, the success of an omnichannel strategy depends largely on the ability of a digital bank to deliver a uniform and integrated experience across said channels, while being backed by real-time data synchronization.
Digitizing All Financial Elements
Customers today aren’t satisfied with just the digitization of basic banking facilities like withdrawals and deposits. They are constantly looking for options such as quick loan approval, digital transactions, trip-based insurance, digital onboarding, and interest on savings bank accounts.
Although ensuring security and cost-efficiency are two of the key motivators for financial institutions, the real value of a digital bank can only be ascertained by what it can provide its customer.
Personalizing Customer Experience
While personalization in banking is targeted majorly at marketing initiatives, its true potential lies in transforming all of the institutions’ customer interactions by using granular data and analytics. It can help them to foresee individual customer needs and offer solutions accordingly. Two key areas where digital banks can truly make a difference are as follows:
Segment-based personalization: This is where different experiences including catalogs, themes, and promotions are offered to customers based on the segment they belong to. For example, college students must be targeted differently from globally affluent customers. The same holds for a full-KYC consumer and a partial-KYC consumer based on their preferences (in terms of menu options, app design, etc.) instead of placing them together in the same bucket.
Geolocation-based personalization: This type of personalization is largely based on the real-time location of the customer rather than the city, area, or state that the customer is from. It’s essentially a bank that they can carry around with them regardless of geographical location.
Offering Safe, Frictionless Payment Options
Two of the most crucial elements for a digital bank’s success include a high degree of flexibility offered in payment solutions and customer-centric services.
There is a growing number of affluent customers who are adopting a global outlook in terms of education, work, travel, and network. These customers expect their financial services to be made available to them seamlessly as they trot the globe.
Digital technology turns out to be the way for reducing payment friction and enhancing the overall customer experience for global customers. This is specifically applicable for swift, secure, and frictionless services as well as contactless payments. In order to make these transactions secure, digital banks generally use tokenization.
This process converts a customer’s card information into a specific digital token. Each digital token is shared while executing a transaction while masking the customer’s real card information and securing the transaction. This kind of convenient and safe payment experience is only going to gain popularity in the future, pushing banks to up their game in this area.
Today, certain neo banks are making it more convenient for such customers by allowing them to open an account in 5 minutes via a mobile device, which is not the case with traditional banks. Also, while banks levy heavy charges for international payments, some cutting-edge neo banks ensure complete functionality with much-needed features.
Some of them include free international transfers and a complete departure from annual fees, account maintenance charges, mobile banking fees, ATM and debit card fees, overdraft fees, transfers (ACH) fees, and so on. These value-added features give customers access to financial growth opportunities globally, unlike traditional banks.
Financial institutions today need to ensure that they have the right mix of automation, experimentation, analytics, and personalization tools in place that can drive the much-needed change on the ground. Considering the wide-ranging benefits such operations provide, it’s safe to say that digital banks could very well become a customer’s primary bank, provided they follow a customer-centric approach.
—Sukeert Shanker is Founder & CEO of Aeldra. Views are personal.
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