Digital Banking is a term that refers to the digitisation of all traditional activities and services of analogue banking, which in the past were only accessible to customers when they moved to a branch. A process of change that has been going on for years, but which has accelerated enormously in recent years, mainly due to the generational change that the market is undergoing.
Every year the millennial generation is achieving higher levels of consumption of financial products, and today they are already the generation that consumes the most. Therefore, the market has had to adapt progressively to the differentiated needs and preferences of millennials, who demand agility, speed and accessibility. The achievement of this digitalization process is creating new opportunities for financial institutions and, above all, for society, allowing to directly reach people living in all kinds of different realities and situations.
- Digital banking and online banking: are they the same?
As a starting point, there is a fundamental difference between the terms digital banking and online banking that should be distinguished. Online banking refers to the evolution that many traditional financial institutions have made towards the online world: it is a digitisation process that focuses on offering online certain basic services and products from their catalogue, such as money transfers or the basic management of current accounts. For other matters, however, it is still necessary to go to the branch.
Digital banking, on the other hand, refers to the intention of offering all the activities and services of traditional banking, but transferring them to the digital environment in order to reach the consumer directly, reducing intermediaries to a minimum and streamlining the entire process. Thus, apart from being able to make transfers or control the movements of our account, we can also apply for a loan or apply for a mortgage without having to go to the bank offices.
- The transition from analogue to digital banking
In the beginning, banking was entirely analogue. It offered such basic services as transfers, management of current accounts, checks and promissory notes, credit or debit cards, cash withdrawals and deposits, loans and mortgages. It was, however, necessary to go to the branch to carry out most of the transactions.
Later, especially from the 2000s onwards, new ways of managing financial transactions without having to go to a bank branch in person began to appear: online banking was born. This gradually allowed greater use of online commerce, although at that time it was still somewhat rudimentary, and had not yet become fully popular among the general population. It was at this time that payment methods such as PayPal were born, in response to a new consumer need that had not existed until then: being able to securely pay an unknown trader for an online product.
In 2010, however, the unexpected success of the first iPhone and smartphone models pushed society towards a new innovation: mobile banking. The currently well-known applications or apps began to be designed by traditional banks, with the aim of being able to have access to the banking services of our lifelong bank from the palm of the hand. This new technological revolution also allowed the appearance of contactless payments, making life easier for millions of people.
Finally, the massive use and popularization in broad segments of society, not only in millennials and young people but in the vast majority of adults and older people, has recently led to the creation and popularization of digital banking, with the most visible face being neobanks. Thus, with these new Fintech and applications that have nothing to do with those of the past, you can navigate and request any of the traditional financial services quickly and intuitively, reducing information barriers for consumers.
- The rise of neobanks
In recent years, neobanks have led the digitization of financial services, taking full advantage of their digital capabilities: leveraging online platforms and data analytics to generate social interaction, providing cards instantly, offering personalized information and assistance to customers, etc.
At the beginning, they were aimed primarily at a digital native audience, such as generation Z and millennials, but little by little they have been attracting many other more diverse segments of the population and from different fields. This has been thanks to two main factors. Firstly, the cost reduction they have been able to offer in their services thanks to the lack of offices, as opposed to traditional banking, which has to pay very high rents and usually suffers from many cost overruns.
On the other hand, it is also due to the effect that the Covid-19 pandemic has had on many older consumers, as they have wanted to find a way to be able to continue carrying out their usual financial activities without having to leave home, and it is precisely in this area where neobanks have a comparative advantage over other financial institutions, since they move like fish in water in the digital area and have much more experience.
- Direct banking: reaching the whole society
The popularization of these digital services has led to the emergence of the concept of direct banking: the possibility and the will to reach all customers, wherever they are and whatever their segment. New products and services can be offered to specific customer segments without suffering from geographical limitations. It is possible to reach consumers of different educational levels, of different economic incomes, personalized attention can be given to millions of people who otherwise would have no one to turn to, or to whom the traditional entities might not serve in the desired way due to physical limitations.
It is, in short, in an increasingly fast and interconnected world where the combination of current technology with new preferences for agility and accessibility allows neobanks and digital banking to put customers at the center.