Most industries and businesses live online as customers begin to expect seamless experiences on computers and mobile devices. It’s no surprise that financial institutions are transitioning from brick-and-mortar banks to digital banks. The digital banking transformation within retail banking is not only reducing costs and improving customer experiences, but shifting company cultures and business models as well.
What is Digital Transformation in Banking?
|The terms “online banking” and “digital banking” are often used interchangeably, but there are significant differences between the two. Generally, a digital transformation within an industry refers to the integration of technology into all aspects of business. Although online banking has been around for some time, digital banking eliminates the need for physical branches entirely. Online banking indicates a more basic online experience—gated access to information like account balances and surface-level information. Digital banking goes beyond simply checking your account balance online. Digital banking brings by bringing all of a bank’s services online. Using through online portals and banking apps, so that customers can do everything from transferring funds to paying bills and applying for credit cards. However, going digital requires more than just a banking app and an improved website. For many institutions, implementing digital technology across their organization is a huge project that needs to be taken on in stages.|
The End of Traditional Banking
Banks have been dabbling in online banking since the 1980s. Microsoft’s personal finance software, Microsoft Money, integrated online banking and 100,000 households began accessing their bank accounts online. NetBank, one of the first successful internet-only banks, was founded in 1996. It took 10 years from the founding of NetBank for online banking to be offered by a majority of U.S. banking institutions, a sign of the real digital transformation in banking. During that time, Yodlee opened its doors and created the first account aggregation software, changing the game for consumers. The Envestnet | Yodlee platform has proudly fueled innovation in financial institutions and fintech for over 19 years ultimately helping consumers get better lending rates, lower fees, higher returns, and more. The recent evolution and expansion of online and digital banking was—in large part—a result of the 2007 launch of the iPhone, which put a personal computer in everyone’s pocket. Online banking has progressively become more interactive and expansive, transitioning from a shallow front-end banking experience to the digital banking experience that most people are familiar with today.
How Do Digital Banking Products & Services Benefit Customers?
Digital banking puts financial power at the customers’ fingertips. One digital banking app—either accessed through mobile or online—saves time on transactions that have historically taken 20-30 minutes at a traditional brick-and-mortar bank. Managing money has never been easier for customers with quick access to bill pay tools, person-to-person money transfers, and loan management. True digital banking gives the customer access to any and all banking services without driving to their local branch.
Why Your Bank Needs a Digital Transformation Strategy
|With the rise of technology and increase in organizations leveraging personalized experiences, customer banking expectations are changing. Digital banking goes beyond mobile banking. For banks to truly have a successful digital transformation, they’ll need to have a strategy in place to implement the technology, develop an employee and consumer adoption plan as well as develop a long term vision for the bank’s technological landscape in the future. As big data and artificial intelligence make personalized experiences more common, financial institutions need to be prepared so they doesn’t get left behind.|
Digital Banking is Rapidly Evolving
Artificial intelligence (AI) and machine learning is on the tip of everyone’s tongue. A Varo Money survey found that 79 percent of U.S. adults think AI could help them manage their money better and an even greater number said they would take advantage of AI tools if their bank offered them. Millennials in particular are interested in AI for mobile banking, including assistance with paying bills, analyzing cash flow, and connecting accounts. These new technologies represent the next digital transformation in banking and are leading to great personalization and stronger partnerships between customers and their banks. In the coming years, artificial intelligence will revolutionize the customer experience in digital banking while saving the banking industry $1 trillion dollars, according to analysts. There will be obvious cost reductions in front office spending—nearly $500 billion—due to the reductions in retail branch operations. AI will also reduce the cost of data processing, compliance and authentication, as well as back office operations associated with underwriting and collection systems.
Personalization Through Artificial Intelligence in Digital Banking
Have you met Erica? She is Bank of America’s personal assistant tool that lives within the bank’s mobile app. Erica uses artificial intelligence and advanced analytics to help customers understand their spending patterns and alert them to trends and areas where they can reduce spending to increase financial health. Erica tracks recurring expenses to make sure customers aren’t paying for subscriptions that they don’t currently use. The AI tool is available to all 25 million mobile banking customers and sets the bar for personalized financial advice in digital banking. AI and machine learning tools like Erica allow consumers to take real-time action to improve their financial health. While AI is changing the face of digital banking, there is a wariness of the tools in the banking industry. Consumers are more open to undergoing a surgery that is assisted by AI than they are to using AI for financial guidance. Some of this caution could come from a lack of understanding about artificial intelligence as well as security concerns around digital banking and personal information.
Improvements to the Mobile Banking Experience
In 2017, more than 80 percent of banking customers owned smartphones and 60 percent used mobile banking to manage their money—up more than 20 percent from 2012. One of the most popular tools are person-to-person, or P2P, payments. In 2017, there were $1 trillion worth of P2P payments in U.S. households alone, with eight billion total transactions. If banks don’t offer these services through their digital banking applications, customers will go to outside tools like Venmo or Apple Pay for the service. Bank of America offers P2P transfers through Zelle, which allows customers to send money securely and quickly through the bank’s mobile banking app. This immediate transfer of funds allows friends and family to easily exchange money for everything from a dinner bill to monthly rent. Part of the improvement in digital banking also means creating a cohesive experience across platforms. Consumers do not see the separation between a bank’s channels, whether it’s mobile, online, or in-person. To have the best customer experience during this digital transformation in banking, each channel should have a cohesive feel and experience so that customers can seamlessly move between channels without a disruption to their service experience.
How Envestnet | Yodlee Assists Digital Banking Transformations
|Yodlee | Envestnet helps banks and financial institutions empower their customers through advanced digital banking tools. Comprised of the leading Envestnet | Yodlee Financial Data Platform, AI-powered FinApps and APIs, the Envestnet | Yodlee Financial Wellness Solution enables Financial Service Providers (FSPs) to deliver a virtual financial wellness assistant that will work with consumers to measure their financial data, monitor their financial health, and provide actionable guidance. This tool helps to automate and improve daily financial management around spending, saving, borrowing, and long-term planning. Tools such as the Envestnet | Yodlee Expense and Income Analysis FinApp can be seamlessly integrated into the customer banking experience to give users a visual representation of their cash flow. With greater insights, customers are not only better informed about their financial health, but financial institutions can offer more impactful advice and product recommendations. The Envestnet | Yodlee Net Worth FinApp goes one step further, enabling customers and businesses to see the progress of their financial wellness with a comprehensive look at investments, property, liabilities, and more with a modern user experience and clear graphics to outline it all. It’s an easy way to get automatic insights, as well as avoid the inaccuracies of manually piecing together a complete financial picture.|
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