Demand for digital banking services, already rising steeply before the COVID-19 pandemic set in last year, was given even greater impetus during 2020 and is likely to have gained years of ground in what has been an extraordinary year.
Stay-at-home orders and social distancing requirements meant customers who were not already familiar with operating online had to become more comfortable with virtual alternatives and a reluctance to use cash also saw cashless solutions become more in demand.
The vast majority of mobile payment users are in Asia-Pacific (mainly China) but proximity mobile payments are also popular among smartphone users in India, Denmark, Sweden and South Korea.
According to ResearchAndMarkets.com, the global digital banking platform Market is expected to reach $9 billion by 2026, growing at a compound annual growth rate of 16% until then. Their estimate is based on the rising level of investment by public and private capital holders in the development of advanced and sophisticated mobile-friendly banking platforms, enterprise and web-based banking applications. It says the global digital banking industry promises tremendous opportunities for expansion in the near future.
With the industry further ahead than anyone could have anticipated at the start of 2020, the big-ticket trends during 2021 have been given a head start and are likely to profoundly alter the shape of digital banking in the years ahead. Our research pinpointed the following five trends to watch out for in digital banking because these could see virtual payment and banking solutions take the lead in the financial services industry in 2021.
1 | 5G to Take Digital Banking to a New Level
With mobile phones front and centre in determining the uptake of digital banking, the roll-out of 5G in 2021 will trigger a step-change in what digital banking solutions are capable of during the years ahead.
5G will foster accelerated innovation and digital transformation in mobile digital banking products and services because, says Computerweek journalist, Evgenia Loginov: “The network allows a higher density of mobile broadband and lower battery consumption and can process high volumes of data with minimal delay.”
As a result of the speed of 5G networks, complex processes will be performed much more quickly, which will reduce turnaround times in KYC verification and other regulatory and administrative components of onboarding clients.
5G will also improve the functionality of mobile banking and payment apps, with less downtime or technological glitches and faster and simpler payment options that increase their appeal to a broader audience.
Loginov also highlights another major advantage of 5G, which will enable proactive fraud prevention. “Processing data, verifying the nature of transactions, confirming transaction amounts and funds availability, consulting multiple data instances in real-time, coupled with customer geolocation and merchant ID, will reduce fraud detection errors and false positives, thereby protecting consumers and the bank’s bottom line.”
2 | Cryptocurrency Wallets Proliferate
The growing number of digital banking apps that support cryptocurrencies positions cryptocurrency wallets at the centre of the transformation of the payment industry. Not only do they offer the robust security of blockchain-based technology but lower costs as a result of removing the middle-man in payment processes.
Furthermore, blockchain enables a layer of security known as tokenization. User’s personal data is stored in a digital account, with the provider sending payment information to vendors as a token that holds only enough information to associate the transaction with the cryptocurrencies stored in the wallet.
The number of people using cryptocurrency wallets has grown steeply over the last few years and is expected to continue doing so.
There were more than 60m users of unique cryptocurrency wallets on Blockchain.com as of the end of November 2020. With digital currencies likely to move mainstream during the years ahead, as central banks also consider launching their own digital currencies, the world of payments could well be forever altered if cryptocurrencies overtake fiat currencies as the dominant form of digital financial exchange in the world.
3 | Smart Speakers Enable Smart Voice Payments
For many individuals around the world, smart speakers and the home assistants that drive them have become part of daily life, helping them find restaurants, write up shopping lists and find out what the weather is like to be that day. From Amazon’s Alexa through to Google’s Smart Assistant and Siri, the number of internet users who made at least one purchase via smart speaker amounted to 18.3 million in 2019. Some 23.5m US consumers are expected to buy smart speakers in 2021. Meanwhile, Juniper predicts that Internet of Things payments, which includes voice payments, will experience exponential growth from $24.5 billion in 2018 to $410 billion in 2023. The graph below shows that some 28% of the respondents had made a payment or sent a payment over smart speakers – a number that is sure to climb during 2021.
So it doesn’t take a huge stretch of the imagination to see smart speaker payments becoming a driving factor in the processing of digital payments, and financial services more broadly. Even now, routine payment processing is possible, with customer approval. To date security concerns have slowed down this verbal form of digital banking but as Artificial Intelligence bolsters security measures and improves the ability to identify and thwart cybersecurity breaches and fraudulent transactions, using smart speakers as a banking solution is likely to become commonplace.
4 | COVID-19 Propels the Preference for Contactless Payments
While out and about, the predominant form of payment is fast becoming contactless, near field communication (NFC)-based wallet payments, like Google Pay, Samsung Pay and Apple Pay. COVID-19 has accentuated the benefits of this mode of payment, highlighting the convenience, speed and personal safety of making proximity mobile payments.
NFC payments are made over radio frequencies, effectively sound waves, and allow the customer to hold their mobile phone with a few centimetres of the reader to make payment. They are faster and more secure than the technology that requires a PIN because it transfers encrypted data and the customer doesn’t have to reveal their card information.
It is predicted that proximity mobile payment transaction users would exceed 1 billion by 2023, growing from 950 million users in 2019 to 1.3 billion.
5 | Social and Seamless Online Payments Become Standard
2021 is the year when social and seamless shopping is likely to become ubiquitous – and digital banking will be the engine behind a shop-until-you-drop online experience. The foundations are already there. Facebook and Instagram viewers who are scrolling through their accounts now find themselves easily diverted into shopping online without even knowing whether it was Facebook or Instagram that took them onto the retailer’s online store. As the graph below shows, the plans to add and increase support to direct purchases through social media are bigger than those currently supported.
Getting there easily is one thing, but next-level seamless shopping is when customers make payments without having to go through a time-consuming login and payment process where they choose a method of payment before finalising the deal. The way of the future for online shopping, using digital wallets, will be through embedded and invisible payments that make the entire c
customer experience frictionless.
Artificial Intelligence to Underpin These 5 Step Changes
All of these trends would not be possible without the power of Artificial Intelligence behind them. The infinite intelligence and learning potential offered by Artificial Intelligence (AI) and machine learning put AI-powered wallets at the epicentre of a digital banking-centred future for financial services.
AI has been put to best use in developing chatbots that interact with customers during e-commerce shopping and digital interactions with financial services providers, including banks. But to date, AI has only enabled and automated the most basic of digital and mobile payment transactions and this is likely to change during the years ahead as security and the sophistication of AI-enabled functionalities takes digital banking to new levels.
With the continuous learning and identification of fraudulent transactions, AI will provide the assurance to customers that the digital payment methods they use will also be protected by the highest and always evolving security measures against cyber fraud.
There is no doubt that 2020 and the COVID-19 behavioural changes have paved the way for a cashless society in the foreseeable; one in which virtual cards, mobile wallets and digital banking become the new-generation version of money that makes the world go round.