Stock - Digital banking
Many digital banks also use advanced technology such as AI to analyze behavioral data and spot patterns that can inspire a related recommendation or new service. Image Credit: Shutterstock

Traditional, well-established banks have long relied on strong brand reputations and financial products to attract and retain customers. But over the last decade or so, we’ve witnessed an evolution in consumer behavior. Being reputable is no longer enough to remain competitive, bringing closer the end of traditional, product-centric business models.

Taking over the driver’s seat is the customer-centric digital bank, focused on flexibility and accessibility. Unlike its traditional counterparts, digital banks place the customer at the centre of their strategy, first identifying their needs, challenges and pain-points, and then developing a solution. This new approach stems from the fact that, now more than ever, consumers are seeking personalised experiences. In fact, 66 per cent of customers expect companies to understand their needs and provide added-value services that enrich their lives.

By operating exclusively online without any physical branches and with limited overheads, digital banks can afford to offer lower fees and higher-than-average interest rates - an attractive incentive for many consumers. Fast approval times and almost zero paperwork allow users to start banking almost instantly by simply signing up for an account within the digital banking app itself.

In an effort to satisfy the demand for customised services, many digital banks also use advanced technology such as AI to analyze behavioral data and spot patterns that can inspire a related recommendation or new service. These suggestions range from reminding customers to pay bills, to analyzing where the user is spending most of their money in order to offer a personalised budget.

This new focus on customer satisfaction is the main catalyst in the rapid growth of the digital bank market share - expected to grow at a CAGR of 53.4 per cent from 2022 to 2030. The new wave of younger, more digitally-savvy consumers is also contributing to the mass adoption of digital banks. In Qatar, where the average population age is 32 years, over 94 per cent of bank customers are already using at least one form of digital banking channel. All over the Gulf we are seeing a shift towards online banking, with most customers only visiting branches or calling service hotlines to meet specific and more complex needs.

The changing financial landscape has raised the stakes for incumbent banks. While digital banks in other regions often only offer basic services, those in the Middle East tend to provide a more comprehensive range of financial products, with the potential to almost entirely replace traditional banking. As a result, incumbent banks are facing increasing pressure to transform their own offerings to reinvent customer experience and streamline processes.

There are many ways in which incumbent banks can refine their approach and better meet customers’ rising expectations. In order to avoid costly and complex technological and organisational reforms, incumbent banks have the option to either acquire and repackage an existing digital bank, develop their own, or build on an external banking-as-a-platform (BaaP).

Given that time is of the essence for these traditional players, BaaP offers the most viable solution with a quick time to market. Through this solution, banks integrate white-labeled services from solution providers into their existing services and offer these to their own customers.

Partnering with solution providers offers new opportunities for incumbent banks to regain their market share by expanding their offerings to encompass BaaS and embedded finance solutions. It enables them to enhance their existing value proposition without putting additional strain on their in-house IT resources. Not only do these banks have a unique opportunity to capitalise on the inherent trust consumers have in their services, but simplified APIs also enable them to expand their client base to include fintechs and companies looking to embed financial services into their own offerings.

This is where FOO comes in. As a leading provider of B2B fintech solutions, we develop financial micro-services to provide personalised products that empower digital transformation. We do this through a modular ‘plug and play’ model that allows companies to easily integrate our bespoke financial products into their existing platforms and networks, branded as their own.

If incumbent banks are to keep up with changing customer expectations and compete with newer, digital-only equivalents, they must mimic the same shift from product-centric thinking to experience-centric action.