Five game-changing trends in digital banking

The digital banking landscape has shifted dramatically in recent years. Propelled by evolving demographics, shifting customer behavioursbehaviors, and elevated expectations for greater convenience and control over banking activities, digital adoption has soared. 

In the US, for example, over 70% of all bank customers now prefer to go online to manage their bank accounts.¹ And in the European Union, two out of three people have embraced internet banking, with penetration in some countries (Norway, Denmark, and the Netherlands) running at over 95%.²

With that, the old status quo in banking is disappearing fast. Numerous digital challenger banks, as well as major non-banking finance companies, have grown in prominence, most notably in the payments realm. And that has required traditional market incumbents to up their game significantly. The result is a vibrant competitive landscape, where players of all sizes and market- focuses are looking to further enhance their customers’ experiences (CX) with advanced digital propositions.

As Managing Director for Digital Banking at Netcetera, G+D’s digital powerhouse, Dominik Wurzer draws on a wealth of knowledge in the creation of pioneering digital banking solutions. Here, he discusses five of the most important trends shaping the banking customer’s world.

Personalization has been the holy grail for banks and payment providers for many years – from the largest commercial banks serving up a summary of your monthly spending habits to private banks offering targeted advice to high-net- worth individuals. Now data-driven personalization, empowered with artificial intelligence, is allowing banks to bring scale and sophistication to such services. And, arguably, not before time.

“The digital interface between many financial institutions and their customers today is still relatively conventional,” says Wurzer. “It gets the job done – securely and reliably, and with relative ease -of -use. But it’s still largely transactional.”

The next step for banks is to transform that from a commodity experience to one that is individualized for the user. “We’ve reached a level where everybody’s user experience is ‘good enough.’. The challenge going forward is to make that engagement between bank and customer contextual, personalized, and intelligent. That’s when things will start to get really interesting,” he says.

There is the opportunity to make digital banking services much more proactive, so customers are offered genuinely helpful guidance at appropriate moments, while at the same time providing a holistic reflection of a customer’s broad financial needs.

“Currently, some financial services companies are good at reacting when there is a life event or a point where the customer is looking to make a major purchase. But there’s not much interaction between them other than at the core transaction level,” says Wurzer. That landscape is going to change dramatically in the next three to four years, he predicts, with many banks and payment providers making much more active use of data to “get in front of the customer to create hyper-personalized experiences that make the bank relevant, not just occasionally but on a daily basis for customers.

“If two people are customers of the same bank, their mobile banking experience today probably looks the same. But their financial management needs, their life stages, and goals might be completely different. This is where we will see a lot of change in the next years,” he argues, with hyper-personalization becoming a route to differentiation.

Enhancing the direct banking customer interface through personalization offerings may help to foster deeper and more frequent engagement, but it is by no means the only channel for financial engagement.

In just a few years, super apps (where the finance function typically is integrated with a host of other mobile services such as messaging, payments, lifestyle, entertainment, communications, and delivery services) have become the dominant financial platform for the majority of banking customers in many Asian countries. China, where Alipay and WeChat Pay dominate, and South Korea, with Kakao Talk and Naver, are just two of many examples.

But the much-predicted global spread of super apps to the rest of the world is not inevitable, argues Wurzer. In Europe, in particular, the financial services environment – along with high levels of established banking arrangements – suggests that customers may not view a messaging or e-commerce-focused app as the natural or trusted platform for their personal finance. “The regulatory environment and the sensitivity of people to the privacy of their data – as seen with legislation such as GDPR to the new EU AI Act – will inform what is possible and desirable,” he says.

A more likely development is that European banks and fintechs will increasingly embrace embedded finance,³ where a financial service is offered as an integral part of a commercial offering – for example, travel insurance as a click-through from a flight booking app or a “buy now, pay later” service that offers deferred payments.

“Embedded finance is transforming the banking sector by integrating financial services into non-financial platforms. This development enables banks to expand their services via digital ecosystems, thereby entering new markets and efficiently acquiring new customers,” says Wurzer.

Indeed, 70% of banking executives already view embedded finance as either core (24%) or complementary (46%) to their business strategy.⁴ In many cases, though, those strategies are still taking shape. According to a study by the Boston Consulting Group, only 27% of leading banks are significantly involved in collaborative ecosystems so far.⁵ The majority (52%) are still in the experimental or pilot phase and, in many cases, will need to turn to third-party providers to flesh out their products with complementary offerings.

“Embedded finance promotes a dynamic, customer-centric financial landscape that benefits both consumers and businesses. Banks can act as general providers and embed white-labeled products in non-proprietary ecosystems or focus on dedicated market segments and tailor their services to specific platforms and customers,” says Wurzer.

But there are other scenarios in which digital banking services may be consolidated. Mobile wallets could become highly interoperable, allowing consumers to more freely choose between different wallet providers and still have access to their chosen set of services.⁶

The application of different AI technologies across digital banking will undoubtedly have a huge impact in coming years – on customer service, security, internal banking efficiencies, and many other areas. Banks are already making extensive use of AI in fields such as fraud detection, credit scoring, risk assessment, and customer engagement – and they intend to scale that up substantially in coming years.⁷

At a customer-facing level, AI will increasingly be used to automate engagement through virtual assistants,⁸ to the point where that is seamlessly integrated into the customer experience. “Today, if someone asks a chatbot a few simple questions and gets unhelpful answers, they lose faith with the technology,” says Wurzer. “We need to make that interaction intelligent and a natural and helpful part of the customer’s engagement with their bank. That way, people will readily accept it.”

That might be achieved by applying generative AI to the data sets used by conversational AI systems. The conversational AI technology would keep the chat on track, providing guardrails for generative AI, and offering context-specific responses, while generative AI algorithms could bring creativity, fluidity, and flexibility to the interaction.

The agenda is to subtly infuse the customer experience with helpful AI, says Wurzer. “For example, an AI bot – running in background –would be able to proactively provide relevant advice when the time was right for you.” He points to a simple scenario: if a mobile banking customer is carrying out the same transfer three or four times a week, a virtual assistant could reach out to you suggesting you set up a standing order.

“Such small steps will build trust and relevancy, and progressively shows the experience is becoming more intelligent and valuable. When people learn they can trust such an engagement, they will start asking the AI question like, ‘Can I afford this big purchase?’ or ‘Can I manage my savings in a better way?’ Internally within banks, an equally powerful application area is already taking shape in the form of what might be called ‘everyday AI.’

“It will be an employee co-pilot to help get work done more efficiently,” says Wurzer. For instance, it might involve an AI system that is trained on a bank’s own data set supporting an advisor to provide expert guidance on a complex finance decision. “We often automatically think of AI in the context of the customer interface, but the bigger opportunities are initially emerging within banks themselves.”
 

According to Juniper Research, most financial institutions today are using coordinated ESG (environmental, social, and governance) strategies to position themselves as an inclusive, green, and sustainable choice.⁹ And that profile is only going to grow in importance with new generations of customers – especially in some major economies. For example, the Digital Banking Experience Report found that 46% of Germans consider ESG criteria to be an important investment criterion, and 28% say they would use their bank’s service to track the carbon footprint of their purchases.¹⁰

That has led banks to integrate innovative solutions such as ToPay Green from Netcetera,¹¹ a bank plug-in that allows customers to measure and understand the environmental impact of their purchases, thereby promoting environmentally conscious decision-making. 
In a similar initiative, banks partnering with sustainability tech innovator Doconomy can provide customers with visibility into the carbon emissions associated with each card payment. Furthermore, by linking that to another sustainability-focused platform, Patch, customers can offset those emissions directly by purchasing trusted carbon credits.

“Not all customers are yet choosing their financial institution based on its ESG credentials, but they are asking about it. And they want to contribute, too. That all adds up to strong retention mechanism,” says Wurzer. Research shows environmental issues are much more important in the lifestyle of Gen Z and Gen Alpha.¹² Banks need to think of that in the context of their future customer bases, so that they show themselves as a conscious company that offers conscious banking,” he says.

In recent years, the function of the mobile wallet has grown in sophistication to resemble that of its analog counterpart.¹³ Capable of holding payment cards, key cards, boarding passes, tickets, a mobile driver’s license, and more, it is also in the future destined to be the store for the digital equivalent of cash – the central bank digital currency (CBDC) that many countries are planning to launch.

The Global Payments Report highlights the growing preference for digital wallets among consumers, attributing it to factors such as ease of use, accessibility, and enhanced security measures. Digital wallets were involved in $13.9 trillion of global transaction value in 2023, representing half of all online transactions and 30% of consumer spend at the point of sale.¹⁴ That trend is set to continue, with digital wallets projected to constitute 49% of all sales by 2027.
Historically, a customer’s chosen bank or payment card provider was the source of much of the content of a wallet. But as wallets have gone mobile, that control has been at least partly ceded to large technology companies such as Apple, Google, Alibaba, and PayPal. But banks have an opportunity to reclaim some of that ground and play a significant role in the digital wallet of the future.⁶

“Banks should certainly be interested in regaining at least their share of the wallet,” says Wurzer. “Because, in the end, this is about two things: data and a positive customer experience. If somebody else owns the wallet, then they also get control over the flow of data – and Big Tech definitely knows how to use that data.”

He suggests banks need to have a clear strategy as to whether they leave the wallet to the technology companies and embrace partnership models, or whether they try to own the wallet themselves. “After all, this is not just a battle for the wallet, but a battle for the customer interface,” he says.
 

Wurzer highlights two digital shifts that might work well in the banks’ favor. “Wallets could be relevant in the context of mobile IDs – holding digital identity cards, driver's licenses, and CBDCs.” With their historical role as trusted partners, that could possibly give them an edge over Big Tech/fintech in the battle for a proportion of the wallet market.

While tier-one banks may have the resources to build interfaces that hold the customer relationship, many mid-tier banks will be looking for partners to build new, differentiated customer interfaces that can rival those from tech companies. That will speed their time to market and provide unique customer experiences, tailored to the bank, says Wurzer.

“Tier-two and tier-three banks – which represent the bigger number of banks – can’t simply make use of white-label technology and paint it in their corporate colors. They need to create genuine differentiation,” he says.
Netcetera and G+D’s joint innovations in digital banking are positioned to plug that gap between custom development and commodity products, thus creating a unique customer experience tailored by their bank. Banks benefit from proven ready-to-use modules to which they can add customized, additional functionality. The modular white-label approach empowers banks to respond quickly and efficiently to changing customer needs and evolving competitive environments.