Beyond tomorrow: Key trends shaping digital banking in 2023

Is a cashless society the inevitable path forward? The convenience and functionality offered by digital banking suggest that it has firmly entrenched itself in the modern financial landscape.?

According to a 2023 Forbes Advisor U.S. Consumer Banking Statistics study, approximately 78% of users now favors banking through mobile apps or websites over traditional in-person banking. This remarkable shift in consumer preference highlights the increasing adoption of digital banking, especially in the aftermath of the pandemic.

In essence, digital banking involves the transformation of traditional banking services, operations, and processes into online platforms, enabling customers to access these services through their mobile phones, desktops, or other compatible smart devices 24/7. It encompasses both Internet and mobile banking functionalities.?

Contemporary banking systems now deliver a fully digital customer experience by providing real-time data streams and expediting essential analyses. This empowers customers to conduct banking activities and transactions remotely, eliminating the need to visit physical branches.?

With rapid technology change, growth in the use and development of AI, web-based services, high-level process automation, and APIs, there is a swift change in the trends that dominate digital banking.??

Here we look at vital trends that are shaping the digital banking industry in 2023:?

AI-driven hyper-personalization and chatbots?

Artificial Intelligence (AI) will play an integral role in shaping customer experience in the future by offering hyper-personalized customer experience. This means that banks can use real-time data to gather invaluable insights from vast amounts of data that will offer tailored loan offerings, personalized recommendations unique to each customer, and customized financial products and services. In fact, according to Gartner predictions, 20% of all the test data that is used for cases that concern consumer-facing will be generated synthetically.??

In addition, the use of AI-powered chatbots will offer 24/7 customer service alongside a more personalized experience through multilingual support and streamlining conversation according to customer preferences.?

Open banking expansion?

Open banking relies on APIs (application programming interfaces) to share financial data and services with third-party providers. Practicing open banking is beneficial for not only customers but also for banks and businesses.??

Customers will benefit from a more exhaustive portfolio of financial services by enabling banks to exchange client data with authorized third-party providers securely. Thus resulting in better customer experience and more innovative solutions.??

Banks also are at an advantage by adopting open banking as it enables banks to use their existing customer base to develop innovative products and services. Thus increasing compliance and customer satisfaction.??

Growth of contactless payments?

There is no doubt that the ‘tap and go’ method has continued to rise in popularity over the years. This is supported by Mckinsey and Company statistics, according to which digital payments are expected to rise with projected CAGRs of 15% between 2021 and 2026.??

Several factors contributed to this including the dramatic shift due to the pandemic, the rise in eCommerce, and lastly a nudge from governments to cashless payments. Contactless payment methods such as NFC-enabled cards and mobile wallets, are expected to experience a boom.?

The following diagram shows how popular platforms are viable to step into digital payment ecosystems.??

Rise of Central Bank Digital Currencies

Central Bank Digital Currencies (CBDCs) are issued by central banks to support a country’s commercial banking system. They can advance financial inclusion and revolutionize cross-border payments.???

In 2023, several countries are exploring the idea of having their digital currencies. Examples of central banks which have already initiated this idea include the People’s Bank of China (PBOC), the Bank of Japan, the US Federal Reserve System, and Germany's Deutsche Bundesbank.?

There is no denying that CBDCs bring their own set of challenges, however, it is imperative to note that they have several benefits including the potential to increase the speed of electronic payment systems, reduce direct costs, and improve payment security.??

Cryptocurrency and blockchain adoption?

Blockchain technology and cryptocurrency are introducing a novel approach to traditional banking services, leading to significant disruptions in the industry. Unlike conventional currencies, decentralized digital currencies like Bitcoin, Ethereum, and Litecoin function independently of central banks. This autonomy has the potential to transform the way banks operate, as transactions become quicker, cheaper, and more secure.?

As we look ahead to 2023, more banks are expected to embrace blockchain for various purposes. These include facilitating seamless cross-border transactions, ensuring secure identity verification processes, and utilizing smart contracts. By adopting these blockchain-based solutions, banks aim to lower operational expenses and foster greater trust among their customers.

Robotic process automation (RPA)?

In 2023, Robotic Process Automation (RPA) will persist in transforming the landscape of banking operations. Its implementation in banks will streamline routine tasks like customer onboarding, data entry, and compliance checks, enabling human resources to dedicate their efforts to more intricate and strategic endeavors. Consequently, this adoption of RPA will lead to decreased operational expenses and enhanced overall efficiency within the banking industry.?

Low-code platforms and hyper-automation:??

Did you know that according to Gartner forecasts in 2023, the spending on hyper automation-enabling software technologies will be $720 billion and it is expected that there will be a 20% growth in Low-Code Development Technologies Market in 2023 worldwide??

These statistics reflect the increasing interest in shifting towards low-code technology and hyper-automation for providing digital banking products and services. It is due to the desire to integrate businesses with IT to provide more efficient and quick services. This also enables banks to reduce their dependence on primary service providers and optimize their technological resources.??

RegTech in banking?

For those who do not know, RegTech is short for regulatory technology. As the name suggests, it involves using technology to improve regulatory and compliance procedures while reducing associated risks, costs, and complexities. It offers a suite of tech-driven tools and applications that enable businesses to handle regulatory requirements efficiently, automate processes, and ultimately enhance productivity and profitability.?

Integrating RegTech offers several benefits. Firstly, they can enhance risk management by analyzing data to identify and alert potential risks in real-time, aiding in fraud prevention and money laundering detection. In addition, RegTech automates compliance processes like customer due diligence, transaction monitoring, and reporting, leading to more efficient and error-free adherence to regulations. Lastly, it streamlines onboarding and KYC procedures, simplifying customer interactions and boosting satisfaction and loyalty.?

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