Financial Services

Digital Banking – Here, Now, and for Good

Thanks to the power of digital banking in a pandemic hit world, many consumers have never actually visited a bank branch in the last 18 months.

• From being able to access everyday banking functions via a computer or a smart phone to cashless, cardless checkouts at groceries and supermarkets, is true digital banking finally a reality?
• But what exactly is “digital banking” and how does it differ from online banking?

Podcast Audio Transcript

Alisha: Hello listeners, this is Alisha; thank you for tuning in to yet another exciting and informative podcast from us at Infosys BPM. Today, the topic is “Digital Banking – Here, Now and for Good”. And to talk about this, we have here with us, Sourav Ghosh, Senior Industry Principal for Digital Banking. Welcome Sourav. How are you?

Sourav: Thank you, Alisha. It’s nice to be back here. I’m doing good.

Alisha: Sourav, “online banking” and “digital banking” are two terms that sound very similar. Could you clarify whether they are the same?

Sourav: Good question, Alisha. There are differences between the two. You know, we sometimes use words and concepts a bit loosely and interchangeably and even merge them, to the extent that they occasionally lose their intended meaning. Online and digital banking constitute one such example.

To start with, let me talk about “online banking.” Online banking focuses on digitizing the “core” aspects of a bank, such as deposits, withdrawals, fund transfers, and bill payments. It helps users conduct banking transactions through the internet. As such, it handles the essential aspects of a bank through the internet, and the use of a physical branch is still prevalent in this scenario.

On the other hand, “digital banking” is about digitizing every program and activity undertaken by the bank for its customers. To explain it in more detail, a digital bank is an organization that offers banking services entirely online, which were historically only available at a bank branch. It essentially automates new as well as traditional banking products and services, such as deposits, withdrawals, remittances, and bill payments, through electronic, interactive communication channels. Fundamentally, it removes the hassle of all kinds of paperwork, such as cheques, pay-in slips, and demand drafts, which are largely present in the online banking paradigm.

Digital banking provides a high level of process automation and web-based services; it may also include application programming interfaces (APIs) enabling cross-institutional services to deliver banking products and transactions. It enables users to access financial data through desktops, mobile phones, and ATMs.

Alisha: Sourav, thanks for clarifying that for our audience.

Digital banking may appear to be table stakes in the banking industry in this post-pandemic virtual world but was it always like this?

Sourav: That’s a very relevant question Alisha. First of all, while I am not a millennial, I wasn’t also actually present when the green shoots of digital banking emerged in the 1960s with ATM machines and cards that were often dubbed “e-banking” in a lot of countries.

Then, in 1994, online banking was built into Microsoft Money, and you saw thousands of households immediately accessing their bank accounts online. In 1997 and 1998 respectively, we saw the launch of the first “digital-only” banks in Canada and the US (Tangerine & First Internet Bank)

With the proliferation of faster internet connectivity, what we knew as online banking suddenly emerged as a viable option, and it further evolved to the modern digital banking. Over 76 percent of individuals use online banks on a regular basis, as of 2020.

Alisha: So, what in your mind are the distinct traits of a truly digital bank?

Sourav: Remember, every digital bank – both digital-only and traditional banks doing digital right – is different. Firstly, let me tell you what doesn’t make a digital bank – a great looking online banking site or an app. A digital bank needs a few fundamental things, which I will explain now.

• 24x7 Invisible Banking: As the name suggests, services offered by banks should be able to provide an anytime/anywhere experience, without needing physical presence. This means no filling up paper forms and no queues for anything. For instance, banks are now doing e-KYC using voice, video, and biometrics. As we say, for digital customers there should be no queue.

• Data Aggregation: Everyone knows data is oil, but the question is who is using it effectively. Successful digital banks provide highly personalized financial products and services, leveraging spending patterns, repayment obligation, income, age, and other data, thereby elevating customer experience. As an example, a bank in Slovakia, has launched a third-party application for mobile on-boarding, claiming it is up to 70% faster than standard bank operations. Using machine learning, neural networks and biometrics, the images on identification documents are matched with uploaded photos of the customers. Using customer device cameras, the biometrics technology scans customers’ eye movements, facial features, and light conditions to authenticate their identity.

• Open Banking: We spoke of data aggregation earlier. Open banking is the plumbing of data aggregation whereby banks obtain information of their own customers from different vendors, like a retailer or a utilities company.

• Security: Pushed by PSD2, which stands for Second Payment Services Directive, security is the next attribute to focus on. New-age security is characterized by multiple layers, two-factor authentication, identity verification, facial recognition, fingerprint scanning, and voice recognition.

Our own comprehensive, yet modular suite of services, called “Live Enterprise” equips organizations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity. Live Enterprise is building connected organizations that are innovating collaboratively for the future.

Alisha: Partnerships are a key for the large traditional banks to evolve into digital banks. What in your mind are some of the key capabilities to look out for in such alliances?

Sourav: Yes, there are a few aspects to consider in partnerships. Let me elaborate.

• Seamless onboarding: In 2020, a whopping 63% of customers in Europe abandoned their digital application process, because it was too cumbersome. In 2021, onboarding customers must be simple and straightforward.
• Mobile-first: Smartphones are going to be the fastest-growing platforms for banks. Today, a staggering 69% of European customers think mobile-first financial providers.
• Gen-Z focus: A partner who understands what Generation Z wants. Every Gen-Z alive today is younger than Amazon. For them, there was no time before the internet.
• One-stop shop: Customers want one-stop shop capabilities - savings, travel, insurance, electronic gadgets, and tax, not just their account balance.
• Regulatory compliance: Compliance to GDPR, PSD2, and MiFID II (Markets in Financial Instruments Directive) and any other regulation that may come along. Compliance is expensive and a solution/partner that makes it cheaper and more flexible is going to be worth billions.

Alisha: If we were to crystal-gaze, what are some of the digital financial innovations that could disrupt the market in the next couple of years?

Sourav: Honestly, I can’t say for sure. And that’s probably why they will be disruptive! It could be market decentralization caused by blockchain P2P combination or the big tech companies doing digitization or the global open banking platforms. Moreover, maybe all of this is just a background for a real disruption to come, that none of us know at this moment.

Let’s also not forget the challenger and neo banks – who are as small as Facebook and Google were years ago. One thing is for sure, banks are no longer incompatible as they were before the digital age. And that to me is the real world of opportunity for anyone in the industry. And that’s what keeps us all on our toes and awake.

Alisha: Sourav, it was a brilliant and very informative discussion we had. It’s clear that digital banking is here to stay and will evolve more so in the New Normal. Very exciting times ahead! Thank you so much for joining us today and speaking about such a diverse topic.

Sourav: It was indeed a pleasure. Thank you for having me.

Alisha: Dear listeners, if you enjoyed our podcast today, please don’t forget to share and like it on social media. Our social handles are mentioned in the podcast page. The podcast will be available on various platforms like Google Podcasts and Spotify, in addition to our website.

Also, if you have any queries, do reach out to us through the email address on the podcast description. Watch this space for more exciting podcasts coming up. Once again, thank you for tuning in, stay healthy and socially distanced. Have a nice day!