How digital banking is reshaping bank–customer relationships

Digital banking has fundamentally transformed how individuals interact with their banks. Whereas customers used to rely on bank branches and direct support staff to conduct even basic transactions, now they can transfer funds, apply for loans or track investments at the touch of a button, at any time of day or night, any day of the week. It has given customers a new power and autonomy, to which banks must adapt.

Europe’s digital banking market has grown rapidly, and is forecast to triple in size between 2025 and 2033, at an annual growth rate of almost 17%. The proportion of EU residents using online banking has risen from 42% to 67% in the past decade, and in some countries the adoption rate is even higher. In Spain, for example, digital banking penetration has reached around 75%.

While high Internet and smartphone penetration among the European population have boosted the growth of online banking, ultimately the main driver has been customer convenience. According to The Future of Finance Report from financial services research provider Maze, 88% of consumers say they prefer online banking, either through a mobile app (59%) or a desktop browser (29%). It has made easier the basics of transferring money, applying for loans and customer sign-ups, but also improved more complex transactions, such as home loans and business banking.

Online banking has made easier the basics of transferring money, applying for loans and customer sign-ups, as well as improving more complex transactions such as home loans and business banking.

Continuous improvement in digital tools

Customer satisfaction is likely to increase further as digital banking continues to improve. Customers have already seen a step-up in the usefulness of chatbots, for example, thanks to improved technology and better use of data. Previously a significant source of friction between banks and their customers, many institutions have worked hard to ensure that these virtual assistants function better.

Banks are also establishing digital partnerships with technology companies to help shape the next generation of digital tools, harnessing the knowledge and experience of specialist businesses to create efficient and user-friendly products.

Better data is also yielding improvements in banks’ offerings. Insights gleaned by artificial intelligence from customer data should provide better analysis of customers’ aspirations and requirements. Research suggests that customers are increasingly open to sharing personal data with banks – more than half are willing to do so if it improves their experience.

From gatekeepers to partners

This shift is reshaping the customer-bank relationship. Instead of being gatekeepers of financial transactions, banks are evolving into partners that provide tools, security and guidance, leaving control of financial decision-making in the hands of the individual. This transformation leads to a more flexible, personalised and self-directed banking experience.

While AI tools and insights are often seen as de-personalising, used properly, they enable banks to improve their service to clients.

While AI tools and insights are often seen as de-personalising, used properly, they enable banks to improve their service to clients. By harnessing insights from the way clients use their digital banking services, banks should be able to offer a better experience – tailoring communication and insights to individuals’ particular needs. Customers increasingly expect this high level of personalisation – 66% of consumers say they are ready to abandon a brand if it fails to provide a personalised experiences as the quid pro quo for sharing data.

There are plenty of potential ways in which these insights can be used. They can provide automated financial recommendations: would a client rather have a lower-interest loan than constantly dip into an overdraft, for example? Do they want their cash to earn more money in a savings account, rather than sitting in their current account? Or spending insights – highlighting if a customer has spent 60% more on groceries this month, or that they are paying for unused subscriptions.

Cash flow forecasting and financial wellness

It can also help in areas such as monitoring bills. Banks can provide alerts for large percentage increases in payments, which may be a prompt to shop around and find new providers. Cash flow forecasting can also be a useful tool, helping clients assess their future income and liabilities. Digital banking is facilitating the creation of a new range of products including carbon tracking and financial wellness tools.

Overall, it helps banks become more proactive in helping their clients, which should lead to more mutually beneficial relationships. Rather than standardised communications discussing interest rate movements or market volatility, banks can obtain a better insight into what their customers really want to know.

Technology also has important benefits for the institutions themselves. It should enable banks to streamline internal processes, make them more efficient and reduce error rates. Many are still in the process of deciding on the amount of in-person support they should offer. If customers have instant access to account information and automated real-time transaction capabilities, to what extent do they still need in-branch, paper-based, or staff-dependent processes?

The challenge for banks is to decide where their staff can add the greatest value. In theory, digital banking should enable employees to focus on areas that are most important for clients. That might be help for vulnerable customers, detailed financial planning at key life stages, or assistance with more complex financial issues such as investments, mortgages or pensions.

The challenge for banks is to decide where their staff can add the greatest value. Digital banking should enable employees to focus on areas that are most important for clients.

Protecting the customer

Digital banking comes with significant responsibilities for banks, and customer protection needs to be the first priority in this new environment. Clients need to be confident that banks are reliable stewards of their capital and their personal data. AI can facilitate faster detection of fraud, by monitoring out-of-character transactions or patterns, for example, and alerting clients to risks. Proactive communication has become an important way to build trust in the digital world.

Banks’ reputations are more vulnerable in the era of social media. It is far easier for unhappy customers to complain about bad service, and find a wider audience for their discontent. For banks, managing fraud is critical to their goal of building and retaining trust.

Regulators have been paying increasing attention. The shift to digital banking has prompted the Basel Committee on Banking Supervision to acknowledge that technological innovation is disrupting the banking system. The World Economic Forum has also highlighted the potential risks, emphasising the need for robust controls.

Digital banking is a remarkable innovation that brings real power to clients, giving them far greater insight into how they accumulate, manage and spend their money. It enables banks to offer new services for clients and focus their human capital on areas where it can add genuine value for their customers. However, it also brings responsibilities for banks; trust is hard won and easily lost.