Fitting solutions to traditional banking woes
Legacy banks faced a longstanding dilemma many years ago trying to modernize their service systems, to no avail. But thanks to innovative technologies that have recently started to come out of the market, the same banks can now create new possibilities to better serve clients who are expecting more. Does this mean that the infusion of technological advances to traditional banking will result in financial inclusion? Will it now reach the unbanked and the underserved?
Digital banking is making it possible for the majority of the world to finally be included in the world of finance, especially those outside of banking’s periscope. Exclusion is mainly due to middle or low-income-generating populations who are mostly from the outer limits of urbanized areas.
To be able to reach out to them, essential features of digital banking need to be in place to be considered inclusive: First, digital banks must be keen on the most critical needs of their clients, designing essential credit products and solutions.
Second, digital banks should customize their products by understanding the need of their clients based on data collection and analytics. Product design should cater to the excluded sector who are lacking in documented credit histories. Credit products may include e-commerce platforms and payment gateways to support the participation of small businesses in the expanding e-commerce space. Data collection will also grow parallel to it.
Third, digital banks should employ innovative distribution models to combine in-person with digital customers in their engagement. They can open digital-only branches to overcome hindrances encountered in reaching rural customers, aside from acquiring rural and savings banks. Serving customers through digital channels can cost digital banks 20% lower than serving through legacy channels.
Fourth, digital banks should offer remote and rapid onboarding solutions such as a fully automated eKYC solution for remote opening of accounts. It is a lot faster on-boarding a customer and would cater to more clients than a physical branch would. Operating a bank using alternative distribution channels can cost digital banks only 1–5% of the cost of operating a branch.
Fifth, with the technology employed as leverage coupled with alternative distribution channels, digital banks can greatly lower their operational costs. They can pass on their savings to their customers by lowering the fees for their products and services. Lower prices mean more customers can participate. The cost of customer acquisition can drop 5–15% than legacy retail banks.
Expanding the coverage of digital banks down to the unbanked and the underserved for financial inclusion can increase their gains by greater chances of lending and borrowing. It can come in different forms from individual clients to businesses of different sizes. Though no profit can spring from retail deposits, it can serve as their strong leverage against unforeseen crises. It will also serve its purposes by creating revenue streams, access funding, and extending customer value propositions.
Digital banking brings banking closer to the people, especially its integration into the lifestyle of the digitally native customers who expect a 24/7 service, a one-stop-shop for a variety of financial needs, customer-centric service based on data that leads to personalized products, and the transparency that increases customer trust.
Financial inclusion may not be far off as advancements in financial technology (fintech) makes default digital transactions. The accelerated use of the internet, mobile phones, and gadgets due to the pandemic make digital banks an essential feature of financial inclusion in the new normal way of living.
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