By Jeff Parker, Managing Director International at Marqeta.

For the new breed of challenger banks, and those existing banks looking to get ahead, digital banking is a key strategy in the race to increase customer engagement and extend lifetime value.

After a surge in adoption post-COVID, mobile wallets and contactless payments have held firm as the go-to consumer payment option, and are increasingly becoming available everywhere. In Marqeta’s 2022 State of Consumer Money Movement report from May 2022, 75% of people surveyed globally cited that they have used a mobile wallet – a virtual wallet that stores payments information on a mobile device – in the last 12 months.

Digital options for banking have changed how consumers want to view and manage their money. Customers have moved away from wanting a physical in-branch experience, instead demanding online digital user-friendly tools that allow them to control finances quickly in real time and with few human interactions. This is especially true for millennial and Gen Z digitally native generations, who have grown up online and generally expect to handle things online, from deposits, to mobile transfers, to payments, to applying for loans and even personalised money management services.

This has made it even more important for organisations to fully embrace digital channels. As a result, fintech and big banks have continued to evolve digital banking throughout 2022, improving everything from overall online experiences, to the increased use of customer service chatbots, mobile wallets and other new features on mobile banking apps.

As we look to the future of digital banking in 2023, we are likely to see an increase in more cost-effective, faster and better digital services and as a result, more reliance on real time data to provide deeper customer insights and personalised banking options.

Big banks wave goodbye to legacy platforms

In the current environment there is an increasing consumer desire for fast, flexible, and tailored support from banks. As a result, consumers are seeking newer digital options.  Marqeta’s 2022 State of Consumer Money Movement Report found that less than half (46%) of consumers surveyed globally said they used cash on a weekly basis. The use of cash is expected to decline significantly across the globe with cash as a POS payment method expected to reduce from 26% to 17% in Europe between 2021 & 2025.

Leading fintech firms have learnt from this, and are aiming to eradicate friction from customer experiences by using an increasingly digital self service approach that ensures a more positive experience for card holders.

Now, the pressure is on traditional banks to do the same and over the last few years, we have seen digital options becoming increasingly available from these institutions. For example, the amount of online and mobile transactions NatWest processed grew by over 200% between 2010-2015. The bank has also been developing its own chatbot, Cora, and, as of 2021, it announced that Cora’s usage grew 58% year on year, with over 40% of interactions completed without human intervention.

This trend is likely to continue into 2023 as consumers become accustomed to cheaper, faster, and better services online. So, the question is now going to be: how do the bigger banks, which have historically struggled to build these capabilities due to the size and variety of services they need to offer and their reliance on existing legacy platforms, keep up with the pace of smaller, more nimble, tech savvy fintech’s?

Overcoming this requires a move away from large, cross channel tech transformation projects, and towards banks relying on the capabilities provided by external tech providers that can provision better services via multiple channels, specifically digital.

It’s likely that the traditional banks will increasingly look to new digital services, such as modern card issuing platforms, where customers and banks can get access to resources, such as transaction activities in real time. This enables them to access deep customer insights to inform new digital products and services and launch new features quicker, meaning more innovation for their customers.

It IS personal

As financial services are conducted in a face-to-face environment less and less, digital offerings need to find new ways to improve user experience (UX). In 2022, this has often been through increased personalisation, which can be something as simple as customising apps by being able to hide things from the home screen.

The next step for digital challengers who are displaying customers data effectively is beginning to use this data to tailor experiences and meet the individual needs of customers by improving knowledge of what customers want. It’s all well and good using customer data for things like spending pots, but organisations need to go beyond this by setting things like customer’s personalised spending goals and tailoring offers, loyalty, and credit. Following up with how customers have leveraged this personalised offering to their benefits would create a closed loop and demonstrate enhanced value to customers.

Banks using this knowledge to improve customer experiences is already happening in some places, but it will become much more common beyond 2022. As the UK faces a challenging macro environment and a cost of living crisis, digital technologies will need to also provide individuals with personalised notifications and allow for practises such as customised daily spending limits.

Customers understandably, are demanding more from their digital offerings, and once they are provided with personalised goals by some companies, they may expect the same everywhere. So, as the services offered are increasingly streamlined and clear, financial institutions need to extend their offering to provide advice and goals to customers.

Will Digital Banking Be The New Netflix?

I believe the goal-based, hyper-personalised digital banking we are likely to see in the future will be similar to other digital, consumer platforms, such as something like Netflix.

For example, if you’re scanning for shows to watch on Netflix, the algorithm is designed to show a variety of options that are recommended to that particular viewer. If the banking industry puts the Netflix paradigm into a banking app with the right UX, customers could then receive useful updates, such as ‘58 people in a similar circumstance to you did this’, or provide you with tailored offerings based on your spending behaviour and geo location. The opportunities are endless.

Receiving banking data around what other people in a similar position have done is useful to consumers and highlights the benefits of open banking, which allows third-party providers of financial services to access relevant financial information from consumers, with their express permission. Recent research by The Economist revealed that in retail banks, open banking and digital banking are becoming the key strategic priorities globally.

Open banking has given organisations a way to gain customer consent to securely access and then interpret the right financial data. This is likely to increase in the future as data continues to be democratised and financial institutions are likely to use this rich, real-time data to understand customers like never before. For example, to offer the right support at the right time through personalised products and services including money management tools.

Digital technologies and open banking are the means, but it’s important to remember that the end goal is seamless digital services that add value to the daily lives of customers keeping them engaged and happy. We have seen digital banking offerings improve in both traditional and challenger banks, and as we move further into 2023, we can expect to see the growth of fast, flexible, and tailored support for customers through digital banking.