Bridging the Gap Between Traditional Banking and Digital Finance

Technology is changing the way individuals import, save, and spend money. While some forms of digital banking have existed for decades, most individuals required traditional bank branches until recently. The convenience of digital finance tools is undeniable, and the pandemic spurred much of the migration away from conventional banking. Experts estimate that the transition of digital banking services sped by five years during the pandemic. 

Still, fully digital solutions provide different conveniences than traditional banks. But at the same time, traditional banks present some barriers for potential account holders. The future of an innovative banking system depends on financial firms' ability to meet all their customers' needs. To understand if that's possible, one must consider the rapid growth of digital finance and how it intersects with traditional banking. 

The Rise of Digital Finance

Digital finance describes how new technologies work in the financial services industry. It includes a variety of products, applications, and processes. Some of the most widely used digital finance options include:

• Online banking

• Peer-to-peer lending

• Personal investment services

While some digital services have been available for years from well-known banks, the popularity of completely online options is growing. 

The pandemic has spurred the rapid growth of various digital finance tools. While these new interactions include actions like the increased use of digital payments, they also improve access to bank account ownership. As of 2021, 76% of adults globally have a bank account, up from 68% in 2017 and 51% in 2011. Additionally, two-thirds of adults globally make or receive digital payments. Digital bank options increase the access and use of financial services worldwide, providing many access to services they haven't previously had. 

Due to easy accessibility, convenience, and lower costs, digital banking is on the rise. Digital banks provide many of the same features as traditional banks without a physical branch. As a result, they can cut costs and pass those savings on to clients through lower fees and high-yield accounts. 

Digital banks generally appeal to digital natives like Millennial and Gen Z account holders and individuals who travel frequently. However, there is a growing interest among the population at large. About 60% of consumers say they're interested in using a digital bank, and 27% of Americans already use an online-only bank. 

A Gap Still Exists Between Traditional Banking and Digital Finance

Many consumers want digital banking, but account holders still hold onto traditional banks' security. Sixty-five percent of consumers use a conventional bank for their primary bank account. There's little doubt that resistance to change in such an essential aspect of daily living contributes to remaining with traditional banks. But they do provide some advantages that digital banks haven't been able to match, such as:

• Better customer service: Traditional banks typically offer phone and web-based support alongside in-person support at the local branch. Digital banks usually pale compared to customer service helplines or chatbots that could be more responsive and helpful.

• A greater range of financial services: Traditional banks usually provide a wide range of services like investment or wealth programs and routine services like depositing or withdrawing cash. Currently, consumers use digital banks for checking and savings accounts. 

• A well-developed ATM network: Digital banks are usually part of an ATM network, but it may be harder to find a free ATM than one associated with a physical bank. Traditional banks have thousands of ATMs nationwide for customers with an account with the bank or one of its partners.

• Specialty services: Many traditional banks offer specialty services like safe deposit boxes, wire transfers, and identity protection. These options aren't available at digital banks.

• Relationship banking: Traditional bank branches are designed to be widely available to customers. As a result, they are often small enough to build long-term relationships with regular customers. The familiarity may come in handy when you need help.

But There Is Some Integration Between Digital and Conventional Services

It's also worth noting that most traditional banks have digital services. Most major conventional banks offer online banking options, and some provide clients with mobile apps. Online accounts can usually be accessed easily with a username and password. They are used for completing basic banking transactions like checking account balances, transferring funds between accounts, and making mobile check deposits. However, traditional banks usually require customers to visit the branch to open an account. 

Digital Finance and Decentralized Currency

Digital finance is more than online access to your bank accounts. It incorporates various payment options and conveniences that weren't available in the past. Account holders can use digital finance tools to make payments, transfer money, and even invest in new opportunities. The evolving payment landscape is a clear example of the way digital finance is becoming integrated with everyday purchases. For example, digital wallets have seen adoption worldwide. Digital pay options are becoming as common as debit and credit cards. 

As digital transactions become more common, digital wallets are just the tip of the iceberg. What's classified as an alternative payment will likely become mainstream within a decade. A quarter of the Gen Z population currently invests in crypto. It's estimated that 60% of global consumers will have made a transaction using an asset class other than fiat currency by 2030. Financial institutions must keep up with demand as consumers turn to digital currencies. Many banks may start providing services that align with these options. 

Integrating Traditional and Fintech Services

Today's market may need more time to be ready for alternative currencies as a standard option. Account holders love the convenience of digital finance tools. However, many still prefer to interact with humans for some banking services. Currently, neither option offers the best of both services. So financial institutions of all types are under pressure to deliver a streamlined experience with all the necessary features. 

Financial institutions that combine features to deliver an omnichannel experience will provide the bank experience consumers need in a rapidly changing economic landscape. Ideally, this framework will enable organizations to create digitally connected journeys that begin remotely and end in a branch or vice-versa. In either case, customers won't have to repeat information across multiple platforms.

Banks can deploy platforms that combine traditional banking methods with new options. However, they need more flexibility to provide everything fintech offers. In reality, one service will not replace the other entirely. Both banks and fintech directly fill gaps that the other needs help to take care of. However, if they partner to join forces, consumers will reap the benefits of a financial ecosystem that checks all the boxes. 

The world of finance is changing, and modern banking customers have high expectations. The future of banking will likely depend on financial institutions willing to adopt all ways of working. Already, customers are seeking the opportunity to work seamlessly with banks in virtual and physical environments. Financial institutions of the future may also be required to provide hybrid experiences and added financial services that expand beyond traditional banking.