The Future of Banking: Why Banks Are Going Digital
If banks want to remain competitive, then they have to go digital.
According to the World Retail Banking Reporting, ¾ banks have already incorporated cloud services and other technologies into their services, with the remaining quarter gearing up for the big digital shift.
But why are banks going digital? And what does this mean for consumers?
In this article, we are going to be discussing the future of banking and what you can expect in 2023.
Table of Contents
What is Digital Banking?
Digital banking is when things like managing an account, taking out a loan, paying a bill, and other services are moved online.
Services in the past that would have required you to visit a local bank, stand in a queue, or chat over the phone can now be done on the internet, either with a smartphone or a computer.
Today, users can check how much money they have in their account, make a payment, or request a bank statement with just a few simple clicks.
In the last few years, this digital banking sector surged to an overall value of around 9.4 trillion at the start of 2023, with an upward trend predicted for the future.
Unsurprisingly, more and more banks are making the move, and as we will discuss, it isn’t hard to see why.
Digital Banking Benefits
If you have ever had to take time off work and stand in a long line at the bank, then you probably already know why banks need to go digital, at least partially.
It might sound obvious, but being able to bank from the comfort of your own home or on the go is incredibly convenient and has other benefits.
Having fewer people in the physical bank frees up the tellers to handle the needs of those who really have to be there, which benefits everybody.
Most banks will have insurance in case of hacks, and with some good password protection and multi-factor authentication, you can ensure that digital banking is not only convenient but very secure.
Are all banks going digital?
This is an important question for many customers, especially older ones who have already seen a lot of banks change in their lifetime.
Banks have been going “digital” for the majority of people’s lives. The first ATM was only accessible in London in the late 1960s, and since then, the digitization of financial services has only gotten more pronounced.
In 1985, the first at-home electronic banking system was released by the Bank of Scotland, and just ten years later, in 1995, the Stanford Credit Union launched its first online banking website.
For a very long time, banking has been pretty similar, with brick-and-mortar buildings, physical currency, and paperwork.
But in the past 50 years, we’ve seen all that radically change, which has its pros and cons.
H2 – Digital Banking System vs Traditional Ones: Pros and Cons
One of the key reasons why banks are going digital is because so many customers benefit from this kind of service, but that doesn’t mean it suits everyone.
An important pro of online banking is kind of obvious, it’s online, which, as we’ve covered, can be very convenient. But this also means they don’t have to operate expensive physical locations that require additional staff and other costs. So digital banking can pass on savings as well as convince their customers.
But this is also a con for some customers. Physical brick-and-mortar locations can be extremely important for the elderly, people with certain kinds of disabilities, or people who require in-person service.
Many traditional physical banks serve a vital role for these people and their communities, who still need and have a right to these kinds of important financial services.
H2 – The Future of Banking Systems
Already 22% of Americans own Bitcoin, with around 1 billion people worldwide owning some form of cryptocurrency.
That is a radical number of people embracing a new kind of financial technology in a short amount of time, and it’s only the start.
Crypto, blockchain technology, and DeFi can offer highly specialized financial services that are less regulated than standard banking, and can generate high revenue streams. This has led to the growth of an entire sector of FinTech, with start-ups and neo-banks joining the sector to capitalize on this rich, fast-growing market.
It’s very likely that over the next ten or twenty years, we will see a huge shift in banking as more people move away from the traditional model.
According to a McKinsey report, this disruption represents a 10 trillion dollar opportunity over the coming years and the potential for a big shake-up of the sector.
But that same report, as well as many others, also points out that traditional banking will most likely not compete with these new models at all but will instead likely roll these kinds of services into its own over time.
Today, some people are already referring to this as “HyFi” or “Hybridized Finance.”
What to Expect in 2023
Around 82% of customers feel that a local bank branch is extremely important, so we can safely assume that the local bank isn’t going extinct in 2023, at least not yet.
It’s been predicted that many medium-sized banks will re-tool and re-orientate in the face of the ongoing cost-of-living crises faced by many customers.
Likely, this will mean the speeding up of the digitization process that many of these banks were undergoing anyway in a post covid world and the potential for more specialized and targeted services for consumers.
As we’ve discussed, you can see that banks going digital has been an ongoing process for the last 50 years, and it isn’t likely going to slow down, it’s probably going to speed up.
Banks are facing new challenges from technology and services that offer customers a greater degree of choice and autonomy, and one way or another, they are going to have to respond to that.
This will likely not be the massive industrial event that some people are predicting, but instead a shake-up of many mid-sized banks and a mixing of some new blood into older institutions.