Transforming the banking sector: digitalisation
Did the pandemic change digital banking services?
Studies show how following from the Covid-19 pandemic, the usage of digital banking services has risen. To be precise, we have seen a four per cent increase in the number of people that use digital banking, between 2018 and 2022. With around 8,500 branches temporarily closing in the UK, the pandemic forced the banking sector alongside their consumers to turn to online and mobile banking. Chatbots ‘replaced’ bankers, cash became unfit for purpose, Apple/Google pay substituted the physical wallet and banks without branches grew in popularity. Through digitalisation, the overall efficiency of the banking sector is still steadily improving.
Now widely accepted, contactless payments are now the preferred method for transactions. The pandemic avidly encouraging this. Especially mobile wallets that now make up 44% of all e-commerce transactions globally. Digital wallets like Apple and Google pay allow for fast and efficient transactions. Although established in 2014 and 2011 respectively, their capabilities go beyond what could’ve been imagined. A fingerprint, face ID or pin secures your virtual cards and as majority do not leave their homes without a phone, it is effectively the most handy place to store all cards. With regards to paying online, people no longer require their cards on them to pay.
“JPMorgan Chase has been pleased to collaborate on Apple pay to create a better, faster and safer payments system, which puts the customer first” — Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co in 2014
It would be thought that large banks see entities such as Apple and Google pay as a threat. However, they were designed to fit seamlessly into our digital society, whilst keeping the bank connected. Partnership had to occur for this. High demand for the digital wallet meant banks were forced to smooth the transition in order to retain customers.
Digital-only banks
The rise in popularity of digital-only banks has been astounding. With banks such as Monzo and Revolut holding a significant place in the UK banking industry. Companies that no longer rely on physical branches but mainly on artificial intelligence. Severely reducing fixed costs attached to running an in-person bank. Challenger banks have a similar, easily accessible approach and successfully grant users the ability to transact money solely using the interbank exchange rate; over 30 currencies and without transaction fees. Studies suggest that the emergence of digital finance, or ‘fintech’ has affected the current state of financial inclusion.
According to the United Nations, technology helped lessen the gap between the rich and the poor, with regards to accessibility to financial resources, for developed and developing nations. Anyone, anywhere with internet access is able to create an account to transfer money and utilise other financial services, for example credit and investment funds. The tedious, long process of opening a bank account is cut down to half an hour and it’s not necessary for a bank to be within close proximity. Further encouraging more people to open bank accounts. However, financial exclusion remains high in developing countries despite the efforts made by digital finance.
Unaffordable internet access in these nations inevitably makes digital banking harder to obtain. Also, the societal norms that hold in many of these countries, mean that women do not have the same rights as men. Therefore, the likelihood of women owning a mobile phone is around 12 per cent less than compared to a man and even less likely to access internet. The gaps in the progress for digital banking is evidenced here. Expansion in such areas is stagnant as the social divide continues.
Another important component of digital banking is chatbots. The 24 hours, 7 days a week availability is incredible. Numerous queries being addressed hastily without the physical bank. Showing how powerful AI tools can be. Despite being fairly easy to navigate for most of us, this is not always the case. As well as financial exclusion, digital exclusion is prominent for older generations.
As mentioned in “The Internet” topic barriers exist as older people lack the skills and knowledge to access more technologically advanced features. Digitalisation does not succeed in benefitting all and with 32% of over 65s unable use online banking due to minimal experience, it may be time to acknowledge the drawbacks of digitalisation.
Cybersecurity
When it comes to the digitalisation of the financial sector, the significance of cybersecurity is emphasised. All banks upholding the responsibility to protect themselves and their customers from any cyberattacks. Considering now many of us opt to carry out transactions solely online, it is essential that our money is secure. But as highlighted by Jinsol, it is inevitable that advancements in technology also gives way to increased threats for digital banking. The financial and insurance sector, according to data gathered by Statista in 2021, accounted for a staggering 22.4% of all cyberattacks. High valued data means greater risk. As banks are enhancing their security measures, we can only speculate as to when the risk will begin to reduce.
As well as this, financial fraud is on the rise. Evidenced by the massive 149% increase in digital fraud attempts, in the financial sector alone. Not only does this violate data privacy rules but also affects how customers feel about the privacy of their data.
Those who suffer from fraud are then encouraged to switch. Banks have taken the opportunity to mitigate these outcomes by adding three-factor authentication, encrypting data and lastly keeping customers informed. Necessary precautions to make sure the digitalisation journey does not drive customers away.
The banking sector utilises the opportunities digital technologies offer. Supporting digital wallets, allowing them to work together and grow simultaneously. Digitalisation has gone beyond what was expected, with the existence of digital-only banks. Undoubtedly providing both positive and negative outcomes.
The increased digitalisation opens the door to cybersecurity concerns and greater risks of financial fraud; however, these too can be solved through digitalisation.
Although we must be aware of the hazards the overall impact is impressive, and it is intriguing to think about what else may be in store.
