- “Digital banking” emerged with heightened consumer demands for more efficient ways to access banking records and complete financial transactions outside of local branches.
- Digital banking is the digitization of every level, from front- to back-end, of banking.
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The banking industry is undergoing massive digital disruption, with online deposits, mobile apps, and e-bill payments fundamentally becoming the norm.
Increased consumer demand for digital banking services has given rise to numerous technological advancements within financial institutions—with artificial intelligence (AI) at the core of these digital 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 services?
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 customers 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.
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Digital banking industry trends
In the Evolution of the US Neobank Market Report, 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. 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 are realizing they need to adopt more digital services and offerings to stay competitive in the industry—or risk getting left behind.
Digital banking providers
Here are just a few of the top digital banking companies in the financial services industry.
U.S. Bank jumped from fourth to first place in Insider Intelligence’s 2021 Mobile Banking Competitive Edge Survey as it rounded out its customer service features. Its mobile app offers some of the most sought-after features: the ability to converse with a human agent in-app and authenticate via the app when calling customer service.
Citi outstrips competitors in the digital money management category by providing five key in-app features: the abilities to view recurring charges, see a financial wellness score, get a prediction of future funds after upcoming spending and bills, view accounts at other banks, and receive personalized financial insights.
Since Zelle’s general release in mid-2017, the digital payments network has been adopted by hundreds of US financial institutions to facilitate real-time peer-to-peer (P2P) payments among their customers—a key feature among digital banking providers.