The Rise of The Digital Bank

As one of the oldest industries—and one of the most resistant to technological change—banking and finance is overdue for a digital disruption. In this article, we’ll explore the rise of so-called “digital banking.”

What is digital banking?

Digital banking is the use of digital technologies to provide end-to-end banking services. According to a PwC survey, 46 percent of customers use only digital channels to interact with their bank.

The term “online banking” refers to conducting financial transactions through a website portal or mobile application. However, some services may still require the customer to be physically present at a branch office.

Digital banking extends the notion of online banking to the entire spectrum of products and services, allowing a bank’s customers to conduct their business fully online.

Neobanks and challenger banks

“Neobanks” and “challenger banks” are two common terms for digital banking companies. Some of the most popular neobanks are N26, Revolut, and Monzo.

These businesses, usually fintech (financial technology) startups, operate completely in the virtual realm, without any physical branch locations.

Despite constraining their operations to websites and mobile apps, neobanks offer a full suite of services, including:

• Checking and savings accounts

• Payments and money transfers

• Debit and credit cards

• Personal and business loans

Because they don’t need to maintain physical branches and staff, neobanks can afford to focus on the customer experience. They may have slick-looking mobile apps and typically offer more favorable rates to their customers than traditional banks.

However, note that due to their status outside the mainstream banking industry, neobanks may not be fully covered by consumer protection laws.

AI and digital banking

Another thing that sets apart neobanks and challenger banks is the use of cutting-edge artificial intelligence and machine learning techniques in order to better service their customers.

Use cases such as detecting financial fraud, providing investment advice, and customer support chatbots demonstrate the tremendous value that AI can have for digital banks, allowing them to compete against their more established rivals. According to MarketforceLive, three out of five banks already use chatbots for customer service, allowing many simple queries to be resolved without having to speak with a human agent.

By automating much of their workflow with AI and machine learning, neobanks can offer a better customer experience that will be key to winning over their audience.