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    Digital Banking Trends Including Super Apps, AI, Banking-as-a-Service, and Open Banking: How Are They Developing and How Can Large Banks Respond?

    November 18, 2019

      |   Reading Time: 7 minutes

    Traditional banking is feeling the full force of digital disruption across the world. Powered through APIs and connected data, we’re seeing several domestic banking trends going global, as well as global banking trends being embraced more regionally. In this article we cover some of these key digital banking trends, and discuss how traditional banks can become adaptable in this ever-changing digital landscape.


    Overview of the Digital Banking Landscape

    Digital opportunities have made the future unpredictable, and we are in the middle of a wave of interesting banking and payment trends. There are hundreds of digital offerings that remix some combination of existing functionality with new technology, all aiming to make more of the customer’s experience frictionless and business relationship sticky. Considering large banks support up to 10,000 key processes, these offerings are going to increase rapidly. In search of inspiration and a shift from the traditional walled-garden approach of large banks, we’re seeing the following banking trends grow both domestically and globally.



    1. Domestic Banking Trends Going Global


    UK Open Banking Directives to Shake-Up the Financial Landscape

    Open Banking Model Diagram

    The Open Banking Model

    DOMESTIC TREND
    Building on foundations laid by the EU’s revised Payment Services Directive (PSD2) legislation in 2015, and in response to concerns of a stagnant banking ecosystem dominated by a handful of incumbents, the UK’s Open Banking directive came into effect in 2018. It forced the UK’s top 9 banks to open up their customers’ financial data for access by approved third party providers (TPPs) through public APIs. Emerging digitally native offerings have increased exponentially as a result, and the UK is now the world’s most disrupted traditional banking market, with 15% of its total revenue and over 1/3 of new revenue going to new entrants. 

    GLOBAL TREND

    Open Banking is now blowing up globally; we’re seeing more and more countries introducing legislation to support it. Hong Kong (who have recently granted 8 new virtual banking licenses), Singapore, Australia, and soon Canada, have all followed suit, and we can only expect to see this trend grow in the coming years.








    Chinese Mobile Banking Models Involving Super Apps

    Ant Financial Model

    Ant Financial Model for Super Apps (Source: CB Insights)

    DOMESTIC TREND
    There is no doubt that Asia, with China in particular, is leading the way when it comes to mobile banking and new business models associated with it. In 2019, monthly usage of mobile banking reached 326 million, and the country is of course home to the world’s largest mobile and payments platform (and highest valued fintech at $150bn) Ant Financial, amongst others including WeChat.

    The dominant business model here is super apps, with multiple product offerings across verticals servicing a customer’s every need. Users can make payments and apply for and manage other financial products, in the same place they hail rides and book doctor’s appointments.


    GLOBAL TREND
    On a global scale this has had a few influences. In the West, we’re seeing more of these super apps developing, and offering additional services, especially financial (think Facebook and Uber). We’re also seeing Chinese mobile-first companies invest in new global markets, like Ant’s hefty stake in India’s Paytm. Finally, we’re seeing other countries embrace Chinese trends, e.g. Finland and Singapore adopting QR code-based payments.


    Digitally Native Challenger Banks Going Global, and Moving From Mono- to Multi-Product Offerings

    DOMESTIC TREND
    The combination of advances in technology and innovation-friendly legislation have enabled a new breed of banks to thrive: challenger and neobanks. These digitally native, app-focused offerings have been rapidly growing impressive customer numbers and financial backing in the last few years (albeit that they are still struggling to convert customers to use them for their primary deposit account).

    Three of the four biggest insurgents are UK-based (Monzo, Revolut, and Starling), but there are now over 100 challengers and neobanks across the world; from N26 in Germany to Nubank in Brazil.


    Multi-product banking offerings

    Multi-Product Offerings are the next step for Challenger Banks

    GLOBAL TREND
    We’re seeing two key trends from these domestic insurgents. The first, is their move to rapid global expansion. Monzo launched in the US in Summer 2019 (partnering with Sutton Bank for a license while it tries to gain its own) along with N26, while Revolut has already launched in the rest of Europe and Australia, and is planning a further 24 country-expansion in 2020 thanks to a partnership with Visa. Even more recently, another UK challenger, Tandem, announced it will be expanding into Hong Kong by the end of the year. It will be interesting to see how these entries into new markets progress in the coming years.

    The second trend, and one that is bound to be in-line strategy-wise with these global expansions, is challengers moving from mono- to multi-product offerings. All these challenger banks we’ve discussed so far started out with one or two, un-bundled banking business functions as their offering(s), all with a slick UI and seamless customer experience. But to continue to chip away at incumbents’ market share and support growth, they’ve quickly needed to add further products. Revolut for example, launched in 2014 offering a free account and prepaid debit card, and has since added premium accounts, insurance products, stock and crypto trading and SME business accounts to its repertoire. Another successful challenger, this time US-based Chime, recently announced its SpotMe alternative to traditional overdrafts, as it ramps up its offerings to support its title as the fastest growing challenger bank in the world.






    2. Global Banking Trends going Domestic


    Big Tech Entering Finance

    GLOBAL TREND
    Recently, we’ve seen Big Tech leaders grow their financial services offerings, particularly in the payments sector, to further develop their ecosystem. With massive customer bases, these organizations have been able to pick and choose which domestic markets to launch into.


    DOMESTIC TREND
    This year alone, we’ve seen the following domestic launches:

    • Apple launched their Apple Card in the US, with the help of a partnership with Goldman Sachs
    • Uber announced their Uber Money branch (again a US-first launch) with a debit account and card for drivers, and a digital wallet and restructured (Barclays-backed) credit card for both earners and spenders within their apps
    • Amazon extended their Apple Pay functionality in India to use Alexa voice command to pay utility bills, and announce a similar model in the US through a partnership with Paymentus.
    • Facebook continued to pursue their global crypto-currency Libra (albeit it amongst some regulatory push-back) with a 2020 launch target
    • Google (Alphabet) announced that they will be launching checking accounts in 2020, through a partnership with Citigroup and Stanford Federal Credit Union

    There are two variables which will be interesting to track as this trend moves forward. The first, is how stringent financial regulatory pressure will affect these non-traditional entrants, and the effect this may have on customer loyalty if Big Tech chooses to skirt around legislation. The other, is how rapidly these offerings will be scaled globally and how much they will chip away at traditional bank and payment providers’ market share.


    Artificial Intelligence and Machine Learning

    AI Cost Savings and Use Cases Across Banking

    AI Cost Savings and Use Cases Across Banking (Source: Business Insider Intelligence)

    GLOBAL TREND
    ML (machine learning) and AI (artificial intelligence) present huge opportunities throughout the banking industry. In fact, the applications of these technologies are estimated to amount to a potential $450bn cost saving across front, middle, and back office, not to mention opportunities opened up for delivering better customer experiences. Key use cases include conversational banking, anti-fraud and risk, and credit underwriting.

    And with 75% of the largest banks currently implementing AI strategies (noted in a recent UBS Evidence Lab report), it seems banks are looking to capitalize on these opportunities.


    DOMESTIC TREND
    We’re also seeing AI/ML-based Fintechs springing up across the globe, such as New York-based conversational AI solution Kasisto, who has built partnerships with financial institutions in countries including UAE, UK, Singapore and the US.



    Banking-as-a-Service (BaaS)

    Banking as a Service Business Model

    The rise of BaaS as a Business Model (Source: Business Insider Intelligence)

    GLOBAL TREND
    Banking-as-a-Service is an ever-growing model, powered by the move to open banking we’ve already discussed. Summed up in a recent Business Insider report, BaaS is:

    “An end-to-end process that allows fintechs and other third parties to connect with banks’ systems directly via APIs so they can build banking offerings on top of the providers’ regulated infrastructure”.

    We’re seeing a trend of two types of global BaaS companies offering services to domestic players: pure BaaS providers such as solarisBank and ClearBank, and BaaS providers such as Green Dot, Fidor Bank, and BBVA.


    DOMESTIC TREND
    Some are targeting the US for partnerships, such as Green Dot’s relationship with Walmart and Uber Money, others are targeting EMEA, such as Fidor Bank’s partnership with O2 Telefonica in Germany a few years back, to provide the technology for its mobile banking service.

    We expect to see BaaS continue to grow as a global trend, and to be adopted domestically where open banking concepts have already been established.


    How can Traditional Banks Become Adaptable, to Embrace Whichever Digital Banking Trends Come Next?

    So, with these ever growing global and domestic banking trends, and the uncertainty that digital has brought about, the question on everyone’s mind tends to be “well how are traditional financial institutions responding?”.

    The answer is: they’re trying to become modern agile digital businesses. Achieving this enables traditionally slow and un-innovative large banks to not only become responsive to these current trends, but also future-proof and adaptable to whatever comes next.

    To be able to do this, large banks are moving to an API-first strategy. In fact, over 90% of them already have an API strategy in place. Large banks are in a unique position compared to a lot of the insurgents we’ve discussed today, in that they already have around 95% of the functionality needed to complete these digital transformations, and also already have established banking charters, access to capital, and loyal customer bases. A successful API-first strategy, together with this unique position, is a killer combo.



    Looking to learn more about how API-first can enable large banks to become modern digital business? Download our Digital Banking Success whitepaper.
    About the Author
    AvatarGemma Sindall
    Gemma is a Marketing Manager at digitalML. She has a keen interest in digital strategy and the best ways to merge people, process and technology. Her experience spans Marketing and Client Services in the Technology and Financial Services industries.