The digital banking revolution

The digitalisation of banking has been a quiet revolution. Finances are increasingly managed online; we can conduct day-to-day transactions, make investments, arrange insurance and select utility providers with a few swipes on a screen. Digital banking also has a role in keeping us safe, providing valuable insights for both banks and their customers, and identifying the products and services people need.

At its heart, the digitalisation of banking is simply giving customers the ability to access financial data online through desktop computers and mobile devices, but its implications run far wider. It enables the storage and analysis of vast amounts of financial data that was previously impossible or impractical to access. Harnessing this data provides insights that can help banks both operate more efficiently and provide a better service to their customers.

These insights fall into three main areas:

• • descriptive insights, which may use analysis of a customer’s spending patterns, or the assets they hold;
  • diagnostic insights, which help banks understand the behaviour of their clients and offer them better service options;
  • predictive insights, which enable banks to steer clients toward better financial decisions. This latter aspect can also help to prevent fraud.

Digital banking has gained new impetus since the advent of open banking in Europe, primarily driven by the European Union’s revised Payment Services Directive (PSD2). The 2015 legislation obliges banks to share customer data with and open certain payment services to third-party providers that have the customer’s consent. This has led to a surge in innovative financial products and services, and a range of new financial offerings, contributing to the creation of a more competitive and dynamic market. The eIDAS regulations (Reg. EU 910/2014) have also played an important role. Creating a framework to exchange customer information in a secured way, the eIDAS regulations ensure rules on how to safely treat personal customer data and use it for authentication, e-signature, validation and e-archiving.

Faster onboarding, easier access

Most people see the ‘front end’ of digitisation. They have access to real-time information on their bank accounts through apps with broad functionality that enable users to transfer money, make payments and apply for additional products or services such as savings accounts, insurance or credit cards. They may also use payment options such as PayPal, Apple Pay or Google Pay. If they have questions, the first channel for obtaining answers may be (and will be most of the time in the future) a chatbot, rather than a branch staff member or call centre employee.

Rather than having to keep track of multiple paper documents, people can now open accounts with digital copies of their passport.

It has also made onboarding new clients far smoother. Rather than having to keep track of multiple paper documents, people can now open accounts with digital copies of their passport. This means it can be done in minutes rather than days, and helps broaden access to banking. Digital documentation also addresses some of the problems that complicate cross-border banking transactions. The EU ID wallet imposed by the eIDAS 2 regulation will also facilitate the onboarding and more specifically the cross-border onboarding as it allows a customer to share personal documents in a secured way.

This aspect of digital banking continues to develop. There is a growing trend toward ‘hyper-personalisation’ rather than generic messaging and advertising. Banks are starting to exploit the data they hold to obtain a more nuanced understanding of customers’ needs and to deliver targeted insights, products and services. For example, banks may be able to offer analysis of spending patterns, tell customers when better savings rates are available, or offer advice on dealing with debt. Tailor-made financial education content can also be offered based on the customer’s situation and identified life plans.

The revolution in banking is mirrored at other financial services providers. Wealth management, for example, is increasingly digital; investors can now check their portfolio valuations online, carry out changes to their asset allocation and make new contributions instantly.

While investing is usually recommended to be seen as a long-term process, it is a great improvement on the days when portfolio valuations could take weeks or months to be processed, and making changes was difficult and time-consuming. Ultimately, the open banking revolution should enable investors to view their complete financial situation in a single place.

While investing is usually recommended to be seen as a long-term process, digital banking represents a great improvement on the days when portfolio valuations could take weeks or months to be processed.

Protection against fraud

Digital banking may also help keep customers safer. In 2024, the European Banking Authority and European Central Bank reported that fraud losses in the EU totalled €4.3 billion in 2022 and €2 billion in the first six months of 2023. Scams are becoming ever more sophisticated, and digital communication channels offer new opportunities to ensnare the unwary.

Digitalisation offers defences against fraud, with banks now possessing increasingly effective tools to verify and protect their customers’ identity, including biometric techniques such as facial recognition or fingerprints. Institutions are steadily improving their ability to detect anomalies in spending habits and other markers of rogue transactions, and may even be able to alert customers to problems in time to protect them from being defrauded.

Boosting efficiency

There are also behind-the-scenes advantages to digital banking. It can facilitate much greater efficiency in a bank’s operations, by using data to understand their customers better, and to provide more suitable products and services. It can also help improve efficiency and reduce costs, savings from which customers could also benefit. There is a strong consensus that AI will have a significant impact on the efficiency for both banks and customers. For example, it will enable customers to get answers to their questions 24 hours a day, 7 days a week.

At the most extreme end, this has led to fully digital banking offerings, which offer highly competitive interest rates and streamlined services. This will not work for all customers, many of whom need greater support, but all-digital institutions have thrown down a challenge to mainstream banks to improve their offerings and service. The latter are deploying significant resources to jump on the bandwagon and be able to offer the best of both digital and human approach. Their aim is to be able to provide the right level of service via the most appropriate channel according to the uses and needs of each customer.

The aim is to be able to provide the right level of service via the most appropriate channel according to the uses and needs of each customer.

There are downsides to digital banking, notably that it requires a certain level of technological literacy to use it effectively. It is fair to say that the level of technological culture in society is now sufficient to allow the deployment of a digital banking approach. Nonetheless, for an established bank, it is important not to forget the human differentiation factor. On the one hand, digital banking allows the bank to be more accessible when it matters for the customer, give advice, and spend less time on administrative tasks. On the other, those who have been used to face-to-face banking, especially the older generation, may prefer the reassurance of a human being at the end of a line when managing their financial affairs. There are also concerns over the use of data, and the new technology places an obligation on institutions to act responsibly.

Many banks are trying to strike a balance between the traditional and digital approaches, retaining some traditional infrastructure while harnessing the benefits of digital banking where possible and ensuring their clients’ data is properly protected and respected. A new world of banking is already taking shape that ultimately should make all customers safer and ensure they are better informed about their money and what it can do.