When a bank that is solely in the virtual world takes care of global payments, P2P fund transfers, contactless Mastercard with no transaction fees added, and a change to purchase and exchange cryptocurrencies like Bitcoin, Ethereum, and others, the financial society blazes in response to it.
The COVID-19 pandemic has had a sudden influence on the digitalization of business activities for all types of businesses. Banking is no exception. During the last few years, the number of consumers who visit the bank branch and do their banking transactions has dropped sharply. This article aims to illustrate the enhanced impact of digital banking on the finance world.
When one thinks about the digitalization of global banking systems, the first term that comes to mind is âInternet banking.” How is offline banking different from online banking? Sometimes people do not use the word strictly, as they often mean other things that are different from the definition of the word. This is why, for most people, the terms digital banking and online banking are often used interchangeably.
In reality, they are two separate concepts, each with its own legal and ethical issues. As for online banking, the core activity of a bank involves being online. These consist of deposits, withdrawals, money transfers, and bill payments. However, it is not possible for more advanced transactions to be performed without actually going to a branch. Consequently, online banking belongs to the category of tools that work hand-in-hand with its branch-based peers.
In the case of digital banking, the entire banking service is made available through the internet. You can access the digital bank through an app or its website. All operations that a consumer avails of through a traditional bank branch can be availed of through the app. It embraces automated processing of requests from consumers and removes the hassle of paperwork completely. Digital banking involves a high degree of process automation that involves programming interfaces (APIs) for cross-institutional services. This financial data can be accessed via desktops, mobile phones, and ATMs.Â
âTechnology is having a huge impact in driving the banking sector forward to provide a better service to more users.â
- Schuyler WeissÂ
Digital banking has grown rapidly, but customer behavior hasn’t shifted much. Only a small fraction of customers rely on their main bank for various financial products. Additionally, a significant portion of British adults have opened accounts with online-only banks.
Financial institutions such as N26, Starling, Monzo, and Allica Bank have completely disrupted the norm of banking the traditional way. With no legacy systems to contend with, this space has been more nimble in responding to changing consumer behavior, shifting the focus to digital banking instead. Despite challenges in funding and valuation, fintech investment remains robust, with traditional financial institutions increasingly acknowledging the competitive threat posed by digital challengers.
To compete effectively, traditional banks are exploring innovative strategies. One approach involves leveraging low-code tools to rapidly develop new services, reducing reliance on legacy systems. Collaboration with external partners is also critical, enabling traditional banks to reach new demographics and reshape their brand image.
However, trust remains a cornerstone for traditional banks. While their long-standing reputation for financial stability offers a competitive advantage, they must also cultivate trust in digital channels, where modern consumers interact most frequently. Despite this, conventional banks remain strong with their diverse range of service offerings, although new contenders are progressively diversifying their offerings through collaboration deals.
The evolving banking landscape presents both challenges and opportunities for traditional institutions. While competition intensifies, it also drives innovation and forces traditional banks to modernize and adapt. Success in this dynamic environment hinges on embracing change and investing in strategies to remain relevant in an increasingly digital world.
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