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Retail Banking Series, Part 2: The Industry Landscape and The Rise of Digital Banks

Industry landscape 

Advanced technologies such as blockchain and artificial intelligence (AI), the emphasis on the platformification in banking, and the increasing demand for hyper-personalization from digital-savvy millennials have changed the industry landscape. According to Deloitte, banks must react quickly and transform boldly to be successful in this evolving landscape. The accelerated speed of technological innovation has given birth to new businesses. In this rapidly changing landscape, the competitive advantage will come from being fast and nimble, and banks must embrace digital forces to innovate in smaller, bolder cycles. Becoming digital is still the key focus of the digital banking initiative. It will always be the driver of business growth and will remain key to delivering a wide range of services through excellent customer experience. 

A 2019 Bain & Company survey found that consumers are increasingly willing to use tech firms for simpler banking products if a traditional provider makes it hard to find out about or purchase products on a mobile device or online. This is especially true for younger, digital-savvy populations as 75% of consumers between 18 and 24 said they would use a banking product offered by an established tech company1 

Results from a 2019 Digital Banking Report research echo that as only a very modest 12% of financial institutions said they considered themselves digital transformation leaders. We expect there is a rapid shift from traditional banks to digital offerings. 

Rise of the Digital Banks 

Changes in the regulations, the advancement of the technologies, the rise of AI are few examples that give the rise of digital banks. Nowadays, digital banking is the digitization of every level, from front to backend, of banking by definition. Traditional online banking subsequently inspired mobile banking, which offers essentially the same services but from the convenience of one’s mobile device such as a tablet or smartphone. The proven success stories from the neobanks and digital banks provide a model for most of the traditional banks and tech-savvy startups to follow. Open banking API revolutionizes the role of conventional banks. More legacy banks are opening up their application programming interfaces (APIs) for fintech and third-party app development. They go for the road of digitalization and put more focus to provide the digital banks only services. The most innovative digital banks are already taking advantage of this technology, and other incumbent players are realizing they need to adopt more digital services and offerings to stay competitive in the industry — or risk getting left behind. 

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