As we bid our farewells to brick-and-mortar banks, what can we expect from the digital banks of the future?

Worldwide, digital banks have seen explosive growth in client acquisition and app downloads in the past few years. South Africa’s consumers are also embracing the digital banking trend – and the wave of innovation does not appear to be slowing down.

Consumers want to bank anywhere, at any time, with the ease of a few taps on a screen.

Digital banking grows and grows

Internet banking has grown significantly in recent years – with a compound annual average rate of growth of 13.6% since 2019. At the same time, financial technology (fintech) companies have grown 12.2% annually. Given this trend, the global market value for internet banking is set to reach $31.8 billion and mobile banking is expected to hit $1.8 billion in the next five years.

Incumbent banks will need to adapt their business models to keep up, especially as the majority of South Africa’s consumers are ready for digital banking and think the country will offer a fully digital banking environment by 2027.

This finding came out of recent research by Discovery Bank and the Boston Consulting Group (BCG) to understand expectations for the future of retail banking in South Africa. The research included 1 000 consumers and 400 businesses. 

The research found that the majority (86%) of South Africans are ready to do all of their banking digitally, especially via an app rather than internet banking – and this trend has been accelerated by the COVID-19 pandemic which pushed people towards digital solutions. Mass affluent and middle-income clients were the most likely to prefer using an app for their day-to-day banking activities. 

Don’t lose the human touch

But everyone wants to keep the human touch. Wealthier clients want advice from humans, while everyone wants to speak to a person when they have questions or complex transactions. We found that over half of consumers (51%) said their top reason for visiting a bank branch was they “prefer talking to a person”. A third of respondents said they prefer some human interaction, especially those over 35 years of age.

Does this mean we still need bricks and mortar banks to provide that human touch? Not necessarily. Personal does not always have to mean in-person. Banks and fintechs have been finding innovative and clever ways to ensure customers have access to personalised service where needed. 

South Africa’s consumers have indicated they would be fine with this, with 73% saying they would be comfortable using a digital channel if bank branches were no longer around.

Operating bionically

What we are seeing is that banking is transitioning to bionic models, where consumers get a technology solution augmented by human engagement. 

A bank can operate bionically without having a single physical branch. Instead, digital technologies can facilitate human-to-human engagement. We are starting to see this happen in a number of ways.

Banks have introduced AI-enabled chatbots and in-app virtual chat experts to supplement digital offerings. When consumers need assistance, they can use these tools to get real-time and responsive help.

Globally, we have seen ING, the Dutch multinational banking and financial services corporation, embed a customer feedback mechanism that uses AI to allow Marie, its virtual chatbot, to get smarter the more it interacts with customers. Using natural language processing, Marie has learned to understand and address a range of customer queries. 

HSBC, a British multinational bank, has gone for the human touch with Amy, a virtual assistant chatbot, that acts as a customer servicing agent.

Banks are also exploring other digital technologies, such as video conferencing, to provide a personal service.

Where does this leave cash?

South Africa’s consumers still rely to some degree on cash, with 95% saying they withdraw cash from ATMs at least once a month. There are many reasons for this, including the large informal economy where cash rules. Nevertheless, 71% of consumers said they would be comfortable in a cashless society. 

Kenya is an example of how a society can leapfrog into a digital financial world if you have a supportive regulatory environment and institutions work together. The Central Bank of Kenya and mobile money operators worked together to facilitate the substitution of cash with mobile money, which saw mobile money transfers almost double in value in 2020.

As South Africa’s regulatory environment gears up for a transition to a cashless society,  fully digital banking solutions could become the norm in the future. DM/BM