A sure-fire way to win over customers in the banking industry is to offer them personalization, speed and transparency, all bundled together in a seamless service that hardly requires work.
By today’s standards, we check off all these boxes with technology. But go back a decade earlier, and it’s a different story. Before mobile phones and smart devices permeated everyday life, banking was between you and a teller at a physical branch, which by all accounts made interactions slower and inconvenient.
Now, customers rely on digital-first banking solutions that are just as mobile as them, their lifestyles, and daily routines. Paying bills in a snap, moving money seamlessly from one place to another and earning more easily from every dollar spent or saved is what separates the old guard from a new breed of banking solutions.
Thanks to the rise of mobile technology, digital banks have introduced innovative ways to reward their customers, better allowing them to offer more relevant products that benefit more people. Similarly, these mobile-first banks are better positioned to create mutually-beneficial marketplaces, between its members and merchant partners, including neighbourhood and online stores, as well as national brands.
These marketplaces earn both consumers and businesses more money in their pockets, and help build a stronger sense of community as they bring more people together. These synergies can only be realized through digital innovation and by creating a platform that distributes value equally to both sides of the cash register.
What is a digitized bank?
Digitized banks are traditional banks that have integrated new technologies to replace their manual or paper-based processes to reflect digital expectations. These are your location-bound branches that have been around for generations, who have added online banking features or mobile chat support to their existing financial products to meet customers halfway.
What is a digital bank?
Digital banks on the other hand are born out of technology. They’re built from the ground up, with tech innovation informing every aspect of the banking process. It’s more than just managing your money online. It’s an entirely new way of thinking that eliminates friction and simplifies the customer experience based on modern needs.
Fintech adoption in Canada has blown up from 18 per cent to 50 per cent since 2017, inviting the emergence of digital banks (or challenger banks) to reimagine how banking should be from the inside out. A world where there’s no longer physical branches or barriers in the way of doing the everyday things you need to do with your money, as well as better options to get rewarded for making smarter shopping and saving decisions.
Why digital banking is the future
While both these types of banks accelerate Canada in a race to innovate, there is ever-growing importance placed on digital banks or fintechs because they prioritize the customer experience through technology from beginning to end.
Here’s a look at the benefits of digital banking over digitized banking.
1. Simplicity in sign-ups
Digital banks are known for removing the friction between what you want and how you get it, so naturally, their application and onboarding processes are simplified for users. Opening a high-interest savings account or applying for a rewards-filled credit card is possible within a few minutes of browsing online or through an app.
Customers can easily search and compare banking products, get advice remotely and purchase them on the spot. Digital banks don’t require paper applications, in-person signatures or appointments like many digitized banks, who still rely on a component of face-to-face interactions.
Documents such as ID, proof of address, employment and the like are all accepted virtually through the click of a button from a smartphone, tablet or computer. This data is automatically processed into the bank’s systems, saving time for both the bank and customers.
Many digital banks are also beginning to leverage AI to determine whether customers are approved for certain products, which speeds up the application experience even more.
2. Better cost savings
Saving time is just as valuable as saving money, and it’s possible to have both. Since all of their processes are built online, digital banks eliminate the need for physical branches and streamline operational processes better than digitized banks.
With remote service, digital banks cut down on exuberant overhead costs typically incurred by traditional banks, who maintain expensive legacy technology, physical infrastructure, hiring costs and administrative fees.
Digital banks have no use for these expenses on their infrastructure. Instead, they help pass on the savings to their customers by not charging unnecessary account fees and not dinging their customers for higher-than-usual transactions.
3. Higher productivity with automation
Pay your bills on time, every time. Set up direct deposit, track your spending and get full visibility on your statements whenever you want. Digital banks reduce the amount of human error through automation and minimize the time for processing.
While some digitized banks can automate as much as one-third of their processes with smart technology implementation, digital banks can fully automate their services. What normally takes traditional banks one to three days to set up direct deposit, digital banks can do in just a matter of minutes.
Digitized banks still rely on outdated methods such as notices by mail, which can get delayed or lost in transit, which ultimately end up harming the customer if their required actions are late. Instant notifications to your phone and proactive alerts solve these issues and are cornerstones of digital banks.
4. Designed for modern lifestyles
Expectations are influenced by how we live, and digital banks not only understand what customers need, but they have full control to build and deliver the tools seamlessly as we evolve over time.
As technology companies, digital banks always add innovative features that their customers want, which can further simplify their financial lives and play into their everyday lifestyle. For instance, a night out for dinner with a big group of friends no longer needs to end with one person footing the entire bill, or passing the pay terminal down the table, with the help of bill-splitting technology.
5. More options for underserved customers
Not everyone gets approved for a credit card, mortgage, or loan. In fact, it’s tough to build credit when you have a low credit score or nothing to show for it. Digital banks appeal to different customer segments and their unique needs, rather than selling them on a one-size-fits-all solution, like how many traditional banks do.
Digital banks can help automate actions such as making payments on-time and ensuring adequate account balances are met to help build credit rather than merely turning those away who don’t have a strong credit score.
Secured credit cards are a common way digital banks engage underserved customers, who are looking for options to build credit when they’ve either never used credit before, or have a poor track record. All that’s required is simply putting down a deposit to fund your account, which acts as your credit limit, and your everyday purchases like gas and groceries count towards building credit. With digital banks, this process is seamless and there are far less barriers to accessing funds than with traditional banks.
6. Increased personalization
The last thing customers want is to feel like a number. Digital banks achieve speed and efficiency in their service, without sacrificing the human touch. They optimize customer data to personalize customers’ experiences so that they feel valued.
Predictive intelligence can be used to identify customers’ future behaviour and offer solutions that directly speak to them. Chatbots, remarkable design and tying in rewards programs or incentives with banking products are common ways that make customer experiences more interactive.
Knowing what your customers want even before they realize it ramps up the level of personalization. Rewards offers, for instance, can be tailored to customers based on their location, past purchase behaviour and needs at any given moment. Digital banks can leverage customer data to make personal recommendations on where and how customers would benefit the most.
7. Creation of online marketplaces
Customers want hassle-free banking, including finding the best ways to save money and earn more out of their daily spending. A digitally open marketplace brings together the most valuable rewards to customers and builds incremental profit for businesses (whether online or brick-and-mortar), so that they benefit mutually.
The data insights and technology that underpin digital banks give them the hometown advantage of integrating cashback cards and rewards programs to provide customers with the one-stop-shopping experience they’re after.
Rewards are personalized to their unique needs at any given moment, their long-term purchase patterns and lifestyles. When customers have a place to quickly search, compare and choose the products or services they want, businesses on the network can see higher traffic and sales ramp up as they reward their customers and build a strong sense of community.
Digital banking and Neo
Neo is a digital-first solution that creates smarter ways for Canadians to grow and manage their money. We use tech as our founding principle to empower members to reach their financial goals seamlessly.
From 24/7 access, to zero fees, rewards on dollars spent and saved, and high-interest savings, our digital experience rewards Canadians in ways they didn’t know were possible.
Cultivating a permanent digital culture
We can’t deny the benefits of digital banking. It’s no surprise that people like doing things the easy way and that won’t be going away anytime soon. The less there is to think about when it comes to your banking needs, the more intuitive your actions become in reaching your financial goals.
The key difference between digital banks and digitized banks is when technology is introduced. With digitized banks, technology comes second. It’s layered onto existing banking systems from an outside-in approach as an afterthought to improve customer experience.
Digital banks are born digital. Customer relationships are online from start to finish, which puts digital banks in a better position to understand customers through real-time data, faster service, smarter automation, fee-less products and accounts, and rewards that people want and can quickly redeem.
To meet modern needs, more tech companies must challenge the status quo by innovating now and continuously. Fintechs, in particular, have rapidly taken on this endeavour by creating digital banks that fully embrace modern technologies to make everyday banking and personal finance more personalized, secure and cost-effective.