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The future of digital banking is the future of banking

While customers across generations have embraced the speed and convenience, they want easier ways to build a relationship and better support.

Nov 28, 2022 / Digital Banking
A woman sits at her dining room table with laptop and financial reports doing her monthly budget.

In many ways, the future of digital banking is really the future of banking. The dramatic upswing in the use of online and mobile channels during the worst of the pandemic is persisting as a trend.

Even so, preliminary findings in the latest BAI Banking Outlook survey indicate that, while customers across the generations have embraced digital banking, they want easier ways to develop a relationship digitally and more comprehensive customer support. These shortcoming are not lost on bankers, who tell us that the digital customer experience is one of their top concerns heading into 2023.

We examine the future of digital banking in the BAI Executive Report for November.

Our lead article from contributing writer Ed Lawler takes a wide-angle approach to the question that ventures as far out as the metaverse, the still largely speculative virtual world whose real-life denizens these days skew heavily toward those in the gaming community. Closer to our physical realm, he looks at what the growing embrace of digital currencies might mean for banks and bankers.

The big thinking going on with the metaverse and crypto is something of a departure from digital banking’s incremental approach to advancing and improving their offerings, according to one of the industry watchers that Lawler spoke with. Both technologies have the potential to be powerful digital disruptors over a longer time frame—if banking institutions can figure out how to efficiently develop personalized customer experiences.

Another personalization element also expected to advance is facial recognition in the branch – this technology is already being used effectively in Asia. “You can go to a vending machine there and use your face to transact the payment,” a design experts tells Lawler. “Your face is your wallet.”

Technology drives much of the conversation around digital banking, and part of that conversation is the future ambitions of technology giants like Apple, Amazon and the like – will they be content to continue make money partnering with institutions, or will they try to use their expertise with data to move into lead roles–particularly with younger Americans—to claim more of the revenue stream?

Contributing writer Lauri Giesen speaks with bankers and other industry watchers to try to gauge how concerned banks and credit unions should be about possibly being bigfooted by cash-rich Big Tech. Some say the tech companies won’t wait the regulatory headaches, while  others say the foothold they already have in payments and card issuance portends more of a land grab in the future.

For this month’s BAI Q&A, I speak with one of my colleagues, Isio Nelson, about a new BAI research program called Digital Funnel Pulse that offers insights on how banks and credit unions can improve their digital account opening process and, in doing so, increase the applicant pull-through rate.

He says the DFP research has identified two key leaks in the digital funnel, both of them related to friction: The first is an overly complicated online application, and the second is an overly arduous authentication process. Both contribute to an estimated 70% abandonment rate that pushes up acquisition costs.

Also in this month’s Executive Report, all from Bottomline Technologies:

Adjusting to the speed and scale of change: Jessica Cheney tells us that the slowing pace of new business formation will push banks and credit unions to find other ways to grow in the coming year. She says keeping up with the pace of digital transformation, particularly in payments technology, should be a strategic imperative, and that banks should assume open banking will come into its own in 2023 and plan accordingly.

Customer retention is banking’s moment of truth: Rodney Nilson writes that the coming months will present a challenging test of retention capabilities for the banking industry, with success defined by how well institutions engage customers and measure the results. In his view, the priorities come down to using data to inform strategies for identifying potential churn and optimize targeting to maximize success.

How digital banking can find a new competitive level: Dan Peacock interviews his colleague Paul Savage about how banks can better compete in the digital business payments space. The conversation centers on purpose-built solutions for small and midsize businesses, which Savage says tend to have different needs from larger business and consumer markets that attract the most attention from the payments innovators.

Terry Badger, CFA, is the managing editor at BAI.