The future of digital banking is inevitable and imminent

Two-thirds of South Africans expect the country’s banks to make a full transition to digital banking within five years, a report by Boston Consulting Group (BCG), in partnership with Discovery Bank, has found.

Differing from other reports of this nature,The Future of Retail Banking in SA looks at the future of digitalisation and retail banking from a customer’s point of view, and not a banking perspective. 

It analyses the views of 1,000 South Africans from all walks of life and 400 businesses and experts from across the globe to understand what customers expect, where banks need to potentially catch up, and how it can be done.

Key findings include:

• SA retail banking has the potential to become fully digital in just five years if banks provide easy-to-use, secure channels and make human assistance accessible when needed.
• South Africans are further ahead of the technology curve than their banks. The vast majority — more than 86% — of South Africans across income bands prefer conducting banking digitally.
• More than 50% of customers over the age of 60 are comfortable using a fully digital bank.
• Only 40% of customers believe there will be a need for bank branches in five years.
• Nearly a third (31%) of customers — particularly those older than 35 — still prefer some human interaction, especially when resolving complex account problems or completing high-value service transactions, and 51% of South Africans say their top reason for visiting a bank branch is that they “prefer talking to a person”.

Tijsbert Creemers, MD and partner at Boston Consulting Group Johannesburg and co-author of the report, says: “Consumers are ready for a fully digital experience. While Covid-19 initially forced many to change their banking behaviour, they have now adopted digital servicing as the norm.

“However, due to customer behaviours such as preferring in-person service and still placing reliance on cash, it may take time for people to interact more virtually or to use other transaction types over cash. Banks will need to deliver an ecosystem of trusted and secure services that add value and guide people to adopt certain behaviours over time.”

Banking is central to our daily lives and our economies. In the past, customers relied on banks to physically secure money. Discovery Bank CEO Hylton Kallner says that over time, banks have moved closer to customers. 

“The availability of automatic teller machines, where a customer has access to 10 banks through one ATM, is one example of how servicing has evolved. When you make the leap from a physical bank to one that is completely digital, you’re in the palm of the client’s hand.”

Compared with traditional banking services, Kallner says there are key differentiators in digital banking.

“Clients are no longer limited by business hours or geography, and joining a bank or opening an account is no longer dependent on where banks are situated. We have seen that nearly 50% of accounts are opened after business hours or over weekends. With 30 to 40 taps on a mobile device, technology enables the entire process within minutes and without the need to visit a branch.”

In the past, financial management required a lot of paperwork. In the digital environment, retail banks now provide tools that assist with managing finances. “Security is another aspect that has been significantly enhanced and is crucial in the evolution towards digital banking. We now have multiple layers of authentication and the ability to improve security throughout every process.”

In a digital banking environment, technology bolsters convenience and good service.

“With the increased level of sophistication embedded in modern banking apps, we find that clients access their accounts almost every day to monitor activity, to manage money and to make payments,” says Kallner. 

“Call centres, enabled with video conferencing and other live chat technology, are becoming the human interface of banks as we use technology to deliver strong banking capabilities on the front end and create complete servicing models in a virtual environment.”

Creemers says that to win in the future, banks should consider which — out of a number of viable business models — best suits them.

“The digital and traditional banking models will exist together and there is space for all of these. How banks act depends on their starting position. For example, incumbent banks need to digitalise existing processes and services their customers are used to and expect from them, in addition to delivering new digital interaction and service. On the other hand, a new entrant or challenger bank can create a completely new digital experience from the start,” he says.

The value banks can provide to customers in a digital environment, due to the inherent scalability and cost efficiencies, increases exponentially.

“The cost of real-time payments is reducing as we reduce the friction costs in the system. Importantly though, our shared value banking model isn’t just about reducing costs but shows that the better our customers do, the better we do and that the value we can offer is independent from income — but rather based on financial behaviour. The overall value is beneficial to all clients,” says Kallner.

“We are powering the future of retail banking and are at the starting point of building complete ecosystems for customers. This research is an exciting confirmation of where the future of banking is headed, and it has been a pleasure to work with BCG to not only understand consumers, but also to highlight ways the banking industry can adapt in a digital world.” 

This article was paid for by Discovery Bank.