The Impact of Digital Banking Services on Financial Performance of Commercial Banks

November 26, 2021 by Stefanini

Digital platforms have changed the ways banks and their employees’ do business on a daily basis, increasing efficiency and altering how commercial banks connect to their customers.
However, customer expectations have also changed along with the advent of digital banking services. To discover how commercial banks can meet heightened customer expectation with digital services, read on!

Digital Banking Services

Commercial banks provide basic banking services and products to the general public, individual consumers and small to mid-sized businesses alike. Providing digital banking service simply means that the deployment of banking services and products (such as opening new bank accounts, creating checking and savings accounts, transfers, etc.) are provided directly to customers over electronic and internet driven communication networks.

The shift from traditional banking services toward the modern preference for mobile banking apps or digital formats has been gradual. Initially, both banks and customers were cautious about this transition. However, the demand to offer services on digital platforms grows strong as people realize the potential of digital banking platforms, how it can improve customer relationships, brand image and increase the efficiency of online banks becomes apparent.

The main draw of Digital transformation for banks is the significant reduction in operational costs. Automated applications and processes have eliminate redundant labor and effort while reducing the chance of error and enabling efficient results, all at lower cost. Further, technologies like AI are reinventing automation possibilities while maintaining the fidelity of back end processes.

Large-scale traditional banks are often perforated with outdated legacy systems on the back end of operations. This weakens service offerings, even if there is modern digital technology at the front end. Legacy systems make it costly to create an ideal customer experience, and many banks are working to implement modernization strategies. This can mean modernizing selective pieces of back-end systems to improve operations overall, or can mean an entire overhaul in how banking services are delivered.

Regardless, banks that fail to adopt digital service offerings are likely to see customers opt for competitors who are. There is great opportunity for banks to reimagine how they interact with customers in order to great an optimal experience.

Offering Personalized Financial Services through Digital Channels

The prevalence of digital baking has led to an overall shift in how customers interact with branch offices. For prior generations, brick and mortar branch offices were often the primary touchpoint for commercialized banks, but modern customers are likely to prefer that most banking services are offered through internet and mobile device touchpoints. This has led the financial services market to become more transactional with users who are less likely to interact with, let alone build relationships with bank tellers and financial representatives.

In this climate, the deciding factors for consumers are more focused on the particulars of who doesn’t charge maintenance fees, and who has the best rewards system for their credit card. In the effort to cut costs, personalized financial services have suffered.

But the business of banking has not changed on a fundamental level. Today’s customers are still looking for insights and advice from their banks in order to build better personal finance habits. 
However, providing good financial advice when you don’t know a customer’s goals or priorities is a challenge and many banks struggle to offer this through digital channels. Digital banking services have an opportunity extend beyond standard online services and connect users to professionals and begin the work of building modern relationships.

Smaller banks may need to depend on mass vendors since they simply lack the financial and technological tools needed to successfully compete with larger banks and their tech savvy IT teams. These small banks often require external partners that can provide technological support to prevent new clients from opting into top tier banks for cash management services. In addition to providing options for immediate digital banking solutions, the right partner can help banks build a framework that connects users to the network of services beyond standard transactions.

Critical Focus Areas for Commercial Banks

Regardless of your bank’s size, commercial banks must understand how the proliferation of digital banking services has altered the market. Whether for the sake of better understanding competitors or ensuring that your organization is providing digital banking essentials, these critical focus areas will help define your service strategy:

Open banking

This model enables third party developers to build applications and services around the existing of a financial institution. While the bank remains responsible for customer data, this allows an avenue for banks to innovate their digital platform. Open banking is driven by regulations, but the level of innovation these regulations provide has benefited commercial banking customers by enabling agile responses to demand.

Open banking is mandated in Europe, but currently this isn’t the case in the United States. U.S. banks have begun to create API channels for corporate clients. Services such as balance inquiries and loan drawdowns can be done through APIs, making bank systems and their clients more interactive with one another. This will eventually provide more end-to-end data that enables improved decision making while eliminating data siloes.

Fintechs

While Fintechs were once commonly viewed as a threat to financial institutions, banks now see that they provide opportunities for unique partnerships. Competitive fintechs can collaborate with banks and build innovative, real time, and agile customer-centric ecosystems and rapidly shift their service offerings based customer demand.  

Payments

As the market continues to prioritize digital transactions, payments serve as a major area of disruption. Blockchain is deployed to reduce transaction costs, real-time and cross-border payments expand, and other payments innovations are developed.

Traditionally, banks have relied on internal payment hubs for transaction processing, but many of these hubs are not equipped with the data management capabilities needed to provide a high level of transaction visibility at a low cost. Consequently, Payment as a Service (PaaS) will likely become more common, and banks will need to consider new strategies or look for partners who can make payment services competitive.

SMEs

Corporate banks have traditionally been able to offer small to medium enterprises (SMEs) watered down versions of products intended for large corporate customers. As the pace of digital banking increases, banks must be prepared to offer SMEs the same levels of automation, customer service and digital processes that they offer to larger clients. This can be a reality if financial institutions are equipped with the proper back end digitization, but SMEs will begin turning to larger banks if their unique needs aren’t met.

Advantages of Enacting Digital Transformation in Banking with Stefanini

For Financial institutions today, creating a comprehensive roadmap for digital transformation is necessary for survival. Stefanini stands at the forefront of digital technology and boasts 30 years of experience with banking clients. Our team of experts are uniquely positioned to assist financial institutions in implementing digital transformation.

We take a customer-first approach to everything we do, analyzing your pain points and business objectives to co-create a solution custom fit for you. Ready to bring your financial institution into the future? Give us a call today!

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Enhance Digital Banking Capabilities with Stefanini

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Ready to get started? Contact us today to speak with an expert!

Ready to bring your financial institution into the future? Give us a call today!

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