This article was originally published on the Finextra blog here, written by Steve Morgan – Senior Director, Financial Services @ Pegasystems

The trend in digital banking is one that continues to build momentum. A widely held belief was that there are a number who resist – generally of the older generation – preferring to stick with more traditional banking. Yet recently, McKinsey research has revealed that consumer preference for handling everyday transactions digitally is as high as around 60 to 85 percent across all Western European markets, even for customers 65 years of age or older. With COVID-19 having forced most people to use digital banking services, could this finally be the catalyst to take banking into the next phase technologically?

Undoubtedly, digital is the way forward even for more complex interactions, but how digital can and will banks really get? And how can we expect to see them accommodate changing consumer preferences?

Underlying factors to consider

Before we consider how services are going to change, we must first keep in mind the 15 to 40 percent of individuals who don’t consider digital as their banking method of choice. Banks must acknowledge that some customers will always want to bank in person, so they cannot afford to exclude this demographic any time soon or they could risk losing business unnecessarily.

Second, banks should accept that there will always be some transactions that require an element of human interaction. For example, even when it is possible to fully automate the mortgage application process with electronic verification and signatures, there will still be customers who will want to see someone from their bank. But why not remote, via video conference? Much of this comes down to building trust, which is achieved through people interacting, but also through predictable, repeatable processes. Some processes, such as a house purchase do not happen frequently, which is why it can be difficult to foster that relationship.

Part of trust links to the problem of fraud, an issue that is growing, particularly during the COVID pandemic, as criminals seek to take advantage of the chaotic market. Data from Barclays Bank on reported scams from January to July 2020, found that fraud went up 66 percent in the first six months of this year. As a result, consumers will be more aware of the risks of banking online and could put some people off from banking digitally altogether. This is where the government needs to step in with greater impact to ensure that banks are properly protecting their customers.

Of course, the speed at which change happens cannot be completely dictated by the banks themselves, it will largely be steered by customers. However, banks are in a position to put their systems and re-designed digital processes at the forefront to both lock in changes that have happened recently as well as further extend digital capability. With any new system or process, humans are sceptical that it might not work properly, and they will not have complete trust in the process until they have been through it personally a couple of times. Therefore, once people are more accustomed to digital banking, we will see the pace of change increase.

What changes are on the horizon?

Being able to dynamically change systems and your processes from the centre-out of any organisation is critical. To accelerate the success of digital, banks cannot continue to build logic and rigidity into the front-end channels or back end systems. They must start with customer journeys from the point of view of both the customer, the service teams helping them as well as the end outcome. Enabling re-use and easier deployment and testing control with an architecture that can adapt and flex to change will become a central tenet of bank strategy.

One digital question a subject of much debate is ‘When will we become cashless?’. While the pandemic has definitely pushed people and businesses to do away with their bank notes, in terms of the transition to a fully cashless society, we won’t become completely cashless any time soon because there are still a large number of individuals who value that type of transaction.

But, as we do move towards cashless the absence of physical money as a spending deterrent (i.e. I only spend what I have taken out of my account), and the ease of contactless payments will mean that consumers need more help with budgeting. There are some banks already making efforts to educate their customers, so they don’t fall victim to debt, but as we move ever deeper into recession institutions need to ramp up this activity to prevent further financial hardship.

So, what changes can we expect?

In the short term, the biggest change in terms of digital banking will be voice recognition and automation. For example, a customer being able to speak to their laptop or voice assistant and ask it to upload payslips or verification information to their bank when making a loan application.

We are already seeing facial recognition and video verification in some scenarios and this will only increase in use, as strides are made in improving authentication technologies.

That said, while digital banking and automation will be an ever-greater focus, human interaction will be used as a key differentiator. With a lot of banks having outsourced their contact centres internationally, we are already seeing some organisations highlighting that they use local call centres as a USP. Similarly, the trend for specialized branch functions with reduced or no focus on cash, and more on say home lending or investments, will continue as branch footprints get reshaped. These branches will use technology far more, for example for mobile financial health checks.

Learn by example

Before banks fully embrace these new technologies and embark on huge digital transformation plans, they should take a look at how other sectors are already making headway in these areas, particularly the ecommerce/retail sector. This industry has already tried and tested a lot of new technologies such as virtual changing rooms, in store Wi-fi and kiosks etc. Likewise, a number of banks in APAC are leading the way testing wearable and mobile based solutions. Learning from how others have applied technology has never been more relevant.

As digital banking grows in popularity, we can expect an even greater pace of change. But before banks get ahead of themselves, they have to ensure they have the right strategic mix of automation and people driven processes, as well as systems that can support this and help them build for rapid change.