The evolution of digital banking: understanding numbers and people

Whenever a new concept, like fintech or digital banking, comes on the scene, a lot of companies ask themselves the same questions: Is this just a passing fad, or is it here to stay? In the long run, will the concept measure up to all the high expectation? Every idea has its supporters and detractors, but the reality is that only time, and more data, will tell.

And the reality is that the fintech sector is not only growing, but clearly gaining strength. According to a report by Observatorio Sectorial DBK, online transactions have increased six-fold in the past two years, rising from 35 million euros in 2015 to the current level of 206 million (figures as of August, 2017).

The forecast is for this figure to grow by 124% in 2017 over the previous year, and by another 94% in 2018.

But fintech is not the only industry experiencing growth. Online banking is also seeing better results than traditional banks: In 2015, Spanish banking grew by 5.6% over the previous year, compared to 50% for digital banking.

The numbers are striking, to say the least. But to understand the numbers, we first need to understand the people behind them.

The same users, just more digital

According to a study by BBVA Research, 40% of Spaniards use digital banking, twice as many as in 2008. The main reason is clear: people are increasingly reluctant to make a trip to the bank, and they value the convenience and immediacy offered by online banking.

In addition, new platforms have made access to consumer credit and personal loans much easier for individuals, with 100% online processes and less strict credit scoring systems, just to name a couple of examples.

SMEs and sole proprietors also turn to fintech in search of alternatives to financing through a traditional bank, alternatives that tend to be more flexible, accessible, and affordable.

The millennials burst onto the scene

While it may be true that a whole generation can’t be lumped together, the millennial generation exhibits some prevalent characteristics: They are a digital generation, one that prefers online banking to the face-to-face variety, because of its speed and ability to eliminate needless paperwork.

But they are also a generation that, in spite of having lived through an era in which many of them faced limited resources and low pay, is now gaining purchasing power, and with it a greater need for financial services.

This is why a lot of fintech and digital banking companies have turned to this segment, offering products and services especially designed to meet the new demand, such as loans that are processed 100% online.

And what about the “forgotten” segments?

The emergence of new business models and the democratization of technology seems to have put digital banking within everyone’s reach. But that’s really not the case.

We hear increasingly about the unbanked or underbanked segments, people with little or no access to financial services, that are beginning to access such services thanks to mobile banking; more and more people in underdeveloped countries now have a mobile phone with an Internet connection.

But we have segments much closer to home who, it would seem, are being left behind by progress in digital finance. The most obvious case is that of the elderly, who in Spain alone represent 18% of the population, with 8.3 million users. But in spite of their significant numbers, new processes don’t always take them into account.

The closing of branch offices set up the first barrier, forcing this segment to travel at least 250 m further to access another office. But the main barrier has been the introduction of digital processes. For many older people, even the simplest websites can be daunting, and the lack of information and education from many financial institutions has done nothing to change this situation.

In this regard, technologies that simplify and facilitate processes, such as logging in with facial recognition, avoiding the need to remember and enter usernames and passwords, and automatic reading and capture of document data, eliminating the need to travel to an office or fill out complex forms, can help to make digital banking much easier for this segment of the population.

In any case, the key is trust. Whether it is convincing traditional users to switch over to digital banking, attracting millennials in a highly competitive environment, or making it easier for senior citizens to access financial services, financial institutions must generate confidence through processes that are transparent, easy, and fast.

Are you interested on knowing how digital identity verification affects the financial sector? We explain it here!

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