This is an excerpt from Finextra’s report, 'The Future of Digital Banking North America 2023'.

Customers are demanding new digital banking experiences. The coming years will be a golden age for innovators, who will be able to create new revenue streams, introduce bold propositions and drive the industry forward. Conversely, institutions that are unable - or unwilling - to adapt to the pace of change will find themselves left behind as their agile competitors speed ahead.

Two years ago, the pandemic upended banking and forced older generations to make the leap into digital, meaning banks had to transform at unprecedented speed. Yet the changes it caused were inevitable. Millennials and Generation Z are digital natives and grew up with smartphones, meaning that demand for digital services was always going to grow to suit the needs of these new generations. If banks had already made the leap into digital before the pandemic hit, they were at a clear advantage.

The size of the digital banking market surged to more than $8 trillion in 2020 and will grow by 5% from 2021 to 2027, according to Global Market Insight. Incumbents will face rising competition in this growing market from fintechs and other new entrants. Big tech has already entered the arena and will play an increasingly larger role in the future. Apple, Amazon, and Facebook are all now offering credit products and are busily creating an alternative lending market that is estimated to be worth $1 trillion by 2023.

The market is changing quickly, and new competitors are waiting in the wings. Which means the time to prepare is now. Here are three trends banks cannot afford to ignore if they want to win, serve and retain digital customers:

Next-generation digital onboarding

We know that onboarding customers can be expensive and difficult. Onboarding commercial banking clients is even more tricky. Today, onboarding processes must be automated, or customers will not get the instant journey they require.

As competition increases in the coming years, institutions that get onboarding wrong will lose customers to agile neobanks or other competitors. Both consumers and the employees of commercial clients are now used to experiences offered by Amazon, Netflix, or Spotify, which are personalised and frictionless. They are coming to expect the process of opening an account to be as easy as setting up a social media profile. This expectation will grow in the future.

Automation is the first step toward building next-generation onboarding. Humanising is next. As well as automation, banks should ensure that new clients going through digital onboarding are able to contact a human at any stage of the process.

Rise of the chatbots

Chatbots are AI-powered pieces of software that simulate human conversation, enabling banks to serve customer queries quickly around the clock. Without chatbots, customer experience would be slowed down significantly.

There are many roles chatbots can play in digital banking beyond dealing with routine work. They can enable onboarding and the opening of new accounts, for instance. Chatbots relieve the call centre or branch channels and can also be used to upsell, drive engagement and gather customers’ data.

According to Juniper Research, consumers will spend $142 billion via chatbots by 2024. In 2019, they spent just $2.8 billion. A separate survey found that 40% of internet users actually prefer interacting with chatbots more than customer service agents. It is easy to imagine this percentage growing in the future as chatbots become more efficient and intelligent enough to deal with even advanced banking functions. They are well-suited to our mobile age, in which customers expect to be able to speak with banks from anywhere and at any time via their smartphones.

Data and AI will be the differentiator for chatbots. Banks should ensure their chatbots are capable of recognising and adapting to the past behaviour of their customers in order to offer an experience that is fast, personalised, and humanised. Artificial intelligence and machine learning can also deploy this information to predict future behaviour. Training chatbots with large data sets gathered from all customers will unlock more powerful predictive capabilities so that banks are prepared for peaks in demand or other future events.

The metaverse

Soon, digital banking customers will live and work in a new reality: the metaverse. Banks and financial institutions are taking this virtual world very seriously because of the potential value it offers them. Goldman Sachs and Morgan Stanley have estimated that the metaverse economy could be worth up to $8 trillion.

This emerging reality will create new opportunities for banks, which are already positioning themselves to take advantage of a market that has the potential to grow exponentially. The 2022 Accenture Technology Vision survey found that 67% of global banking executives think the metaverse will have a positive impact on their organisations, with a further 38% describing it as “transformational.”

Major banks and financial institutions are now moving into the metaverse. HSBC has bought virtual real estate in The Sandbox metaverse, which it will use to ‘engage and connect’ with sports, esports, and gaming enthusiasts. J.P. Morgan has also opened an Onyx lounge in Decentraland, a 3D metaverse platform. Onyx is the “world’s first bank-led blockchain platform for the exchange of value, information, and digital assets”. Visitors to its digital Onyx lounge can carry out cross-border payments or trade virtual assets from inside virtual reality.

The metaverse gives banks the opportunity to perform many of the tasks they already carry out - but in a new context. Payments, savings, loans, and other financial services will all be required in a world in which people buy virtual assets and digital real estate. It will also offer new abilities to interact with customers, removing the need for staff to be based at physical branches in order to meet clients face-to-face.

The metaverse can replace the human touch which has been lost in some digital banking experiences. Accenture has described digital banking as being “functionally correct but emotionally devoid” and warned that “the empathetic and meaningful conversations we had in the past have been lost, along with much of the customer’s trust in banks.” The metaverse is a chance to create those meaningful, humanised experiences - regardless of a customer’s location.

Becoming a future-centric digital bank

During the past five years, the pandemic and technological disruption have turned digital banking on its head. The pace of change is not about to slow down, which means that everyone working in the sector must keep up or be left behind.

To understand more about the future of digital banking, be sure to check out ebankIT’s full report on the trends shaping the sector.