Cryptocurrencies study part 3: The potential and demand for digital banking

The general demand for digital banking

Due to the global spread of the internet since the early 2000’s as well as the wide adoption of smartphones and other mobile devices customers are increasingly expecting a digital service in regards to banking and fund management. The rise of banking apps such as Revolut or N26 is underlining this trend. A study published by Accenture is describing a shift in customer behaviour and expectations. New characteristics are i.e.

• Younger consumers would increasingly prefer banking solutions from tech concerns such as Facebook or Amazon instead of traditional banking providers
• Automated support such as chat-bots are welcome
• A demand for personalization of the banking experience
• Strong protection of personal data builds trust.

Demanded tools defined by the fastest rising banking user, the so-called nomad, are

• Peer-to-peer transactions
• Contactless payment solutions
• Cheap cross-border wire transfer tools
• Direct access tools for virtual currencies
• Budget management tools.

Already today, 46% of customers are using only digital channels in regards to banking which is an increase of 19% in just a 4-year period whereas 82% of millennials who are owning a smartphone are using mobile banking solutions. That aligns with trends in APAC markets which are mobile first markets and where the majority of the population is using FinTech solutions to bank with their mobile phones.

The general demand for virtual currency banking

The rising adoption of cryptocurrencies as well as the ongoing technical development of blockchain-based asset management is leading to a demand for banking applications capable of handling the new requirements. Current solutions are split up and are specializing in certain processes i.e. exchanging assets (marketplaces) or storage (wallets). Spending often only works while staying in the same currency. Besides, the majority of current solutions are poorly implemented in regards to their interfaces. From a UX/UI point of view, there is room to improve customer experience which is also necessary for broad adoption and frequent usage.

According to the mentioned study of Accenture, 50% of banking nomads are demanding access to virtual currencies already today. That is another indicator of a rising adoption since nomads are a growing user group.

Demand in emerging markets — banking the unbanked

Researches of the world bank in 160 countries have uncovered a $380 billion opportunity in regards to banking demand in certain regions around the globe. Whereas in western countries like Norway, UK or Germany more than 98% of the population at an age older than 15 years have a bank account, regions in central Asia and Africa are far behind. The bottom here builds Turkmenistan where only 1.8% have an account. It is accompanied by Nigeria (3.5%), Madagascar (5.7%) and Guinea (6.3%).

Summing up the numbers is leading to approximately 2 billion people who are financially excluded.

People in emerging markets usually do not participate in the formal banking system. Most transactions are settled in cash. Access to institutional credit is very limited and there are no ways to securely save and invest money. In total, only 17.9% of adults in low-income economies have a debit card. But there will be a shift. As studies of major market researchers, such as PwC, show, emerging markets are about to grow significantly faster than the established ones. PwC predicts Vietnam, Indonesia and Nigeria to be the fastest growing economies within the next 30 years. China and India are expected to surpass the USA and becoming the two largest economies on the planet. Emerging markets are already leading the growth in global banking revenue which is likely to be continued.

The largest demand is being generated by small- and medium-sized businesses who need credit to grow. In total, there are approximately 200 Mio financially unserved enterprises causing a 2.2 trillion credit gap according to a McKinsey analysis. Here, as well as in regards to consumer banking, digital and in particular mobile banking plays an important role. Reasons are the easy access to mobile devices (most of those countries are mobile-first markets), efficient on-boarding and fast handling in regards to payments and microloans. In addition, such remote structures mobile banking provides, leads to lower risks and efforts on the banks’ side. Penetration can be reached at much lower costs, which causes benefits on the customer side as well.

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Philipp Petzka is founder and CEO of Mintfort, a digital banking solution for crypto- and fiat currencies.

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