If you are in the banking industry and asking yourself this question, you have some work to do. But you are not alone.

A recent KPMG report says that 57% of legacy banking institutions are only in the planning phases of upgrading their systems to provide more mobile digital banking services. And fintech competitors are “nipping at their heels”, happy to take advantage of what is clearly a “disconnect” between today’s financial services consumer and the banks that serve him.

And here are some additional statistics that should give you pause. A Price Waterhouse survey of global banking in 2017, as reported by seismic.com, shows that consumer behavior, relative to how they bank, is shifting rapidly and significantly.

  • 81% of consumers have a smartphone and 60% of those report that they use mobile banking. Compare this with only 36% in 2012.
  • Those using omnichannel banking (brick & mortar and digital) constitute only 47% of consumers today. Exclusively physical banking continues to shrink and is primarily a behavior of those 65+ in age (only 29% of this demographic uses mobile banking).

Still, physical bank branches are not yet dead. 62% of respondents state that a physical branch is important, especially for opening accounts of applying for loans. However, and this is very important, 82% of the 18-24 age demographic prefers digital-only banking.

The way in which younger generations will prefer to bank is clear. And banks will need to adjust their operational models, as well as the products they offer, based upon both these younger demographics and a new wave of banking consumers in developing countries who have mobile-only banking opportunities. To not adapt means to lose out to the huge number of fintech, digital-only, banking choices that consumers will continue to have. Indeed, the future of mobile banking will require that legacy institutions change both their services and their products, to align with new consumer demands.

The Digital Banking Technology in 2017

During 2017, a number of all-digital banks continued to increase their presence. These included Ally and Radius banks in North America, Monzo, Atom, and N26 in Europe, and Liv and Standard Chartered in Africa and Asia. The biggest draws of these “neo-banks” have been three-fold:

  • Younger generations that are digitally-focused for all their needs have a strong comfort level with digitized banking. It is convenient and “on-the-go” banking which fits their lifestyles.
  • Interest rates on savings (e.g. Ally Bank offers 1.25%) are significantly higher than traditional banks. And neo-banks, like Radius, offer hybrid checking/savings accounts with better interest rates as well. Add no-fee banking services to this mix, and you have a definite “winner.”
  • Citizens in developing countries who have mobile phones but no access to physical banks have been drawn to the ease and convenience of all-digital banking.

While brick and mortar banks have tried to be competitive by expanding their digital services, they have still been unable to compete relative to interest rates and no-fee banking that all-digital banks offer. They have more work to do if they are to become competitive.

In looking toward 2018, a white paper published by Info Systems lays out the latest trends in digital banking technology pretty clearly.

  • Digitization in the banking sector will move to cloud-based infrastructures rather than the cumbersome in-house technology systems still in use by legacy institutions.
  • Personalization will be a key factor for the best custom solutions. Consumers will up their demands for things such as alerts, warnings that they are exceeding their budgets with certain expenditures, recommendations for savings habits, etc. And all of this should be delivered through mobile banking.
  • Big data and AI will grow in importance, as the finance industry looks to market new products and services that consumer behaviors indicate they want and need.
  • New methods of security will be one of the key trends impacting mobile banking, with such things as fingerprint and photo technological innovations that streamline previous cumbersome and less secure passwords and security questions.
  • Mobile banking trends will incorporate wearables as devices to perform online banking transactions.
  • Mobile digital bank development will mean lower transaction fees for the consumer, along with the streamlined processes that he now demands.
  • Fintech app developers are an increasing segment of professionals who are innovating digital finance solutions for the banking industry. And they are in high demand.

Are There Issues? Of Course

When we look at what are some of the trends in mobile banking and the transformation to fully digital finance through a banking app only, there are some challenges, to be sure. While the future functionalities in mobile banking have great promise; and while there are generations of millennials on down who will embrace digital-only financial products and services, there are still issues:

  1. Relationships with consumers. When major financial moves are going to be made, such as buying a house or investing, an all-digital bank must find ways to “connect” with that consumer on a personal level. There is still something to be said for a human relationship during these processes so that the consumer believes that there is expertise behind recommendations and advice that is given. This is where banking branches and strong customer support departments will still come into play.
  2. Security. As digital-only banking moves into the cloud, there continue to be security issues, and these will need to be addressed, monitored, and fears allayed. Banking, whether with traditional in-house infrastructure or cloud-based, are still vulnerable to hacking, and staying on top of these threats will continue to be a challenge.
  3. Geolocation issues. Operating across country boundaries has its own set of challenges. Products and services that can and should be offered are subject to laws and regulations of each country in which the digital banking experience is offered.
  4. The need to continually test and improve customer experience. This will be a function of big data and AI, and no digital banking function can be successful without it. Consumer preferences and demands continually evolve, and the successful digital banking platform will evolve with those demands.

Preparing For the Future of Mobile Digital Banking

Traditional banks are not known for flexibility, creativity, and speed. And yet, these are the elements that will provide success for mobile digital banking. Paradigm shifts in thinking and technological innovations will be critical.

  • Putting together a design team will mean the inclusion of traditional personnel with new, possibly part-time development talent, to produce the new technology while still preserving the mission and values of the institution.
  • There must be compliance and regulatory experts if a digital banking function is to cross geographic boundaries.
  • Big data will be critical if the customer mobile digital banking experience is to attract a first-time and loyal customer base. Always, the value of products and services to consumers must be foremost.
  • Comfort. While speed and efficiency are important to consumers, so is their comfort level in engaging with a digital-only mobile banking experience. They must believe that their needs and preferences are met and that there is a level of personalization, even if it is technologically driven. They must also have reasonable assurance that they are operating in a secure environment when they complete their transactions.

The continued evolution of mobile digital banking is a given. No legacy banking institution can ignore it. Those who get on board now, who embrace the innovation, the technology, and the flexibility that this transformation will demand, will be able to retain their market share within the financial services industry. Those that do not will find themselves among the “dinosaur” institutions that will be left in the dust and face extinction.