Virtual Banks Forge Ahead in Defining Banking’s Digital Future

The banking landscape is undergoing a digital transformation, as traditional financial institutions (FIs) race to keep pace with evolving consumer preferences and technological advancements.

Santander’s recent announcement of plans to launch its digital bank, Openbank, in the United States and Mexico in the second half of 2024 underscores the accelerating pace of this shift.

Moreover, this move reflects broader trends shaping the financial sector, driven by changing customer expectations, technological innovations, and shifting market dynamics.

The proliferation of smartphones and other digital devices, for instance, has empowered users to manage their finances anytime, anywhere, leading to a growing demand for digital banking services that offer speed, enhanced security, and personalized experiences.

For banks, embracing digital technologies brings improvements in operational efficiency, cost reduction, and access to new customer segments, not to mention the opportunity to create new revenue streams.

Michael Haney, head of product strategy at Galileo Financial Technologies, discussed this digital shift in a recent interview with PYMNTS, highlighting three key trends: flexibility in customer-bank interactions, accessibility across multiple platforms, and the demand for personalized services tailored to individual needs.

“We are seeing an erosion of physical accounts into virtual ones that not only reduce the total cost of ownership for the bank, but also allow the unleashing of data and analytics that help personalize pricing, credit decision and marketing offers, and all kinds of recommendations,” Haney said.

Technologies Drive Transformation

Several key technologies, including artificial intelligence (AI) and machine learning (ML), are playing pivotal roles in driving the digital transformation of banks.

Findings detailed in the April “Digital-First Banking Tracker® Series Report” reveal that nearly three-quarters of finance leaders are leveraging AI technology across various functions, including fraud detection, risk management and automation.

Furthermore, more than 40% of banking executives see AI’s potential to streamline customer onboarding, including know-your-customer (KYC) procedures, while 25% aim to improve customer experiences with AI.

Read more: Gen AI Turns Bank Chatbots Into Financial Advisors

Beyond personalized customer experiences, improving risk management and detecting fraud, AI and ML are being used to customize rewards and benefits based on individual customer profiles.

“This remains a very hot space in terms of rewarding loyal customers and trying to increase customer satisfaction,” Haney said, with banks exploring innovative strategies, such as partnering with travel agencies to offer personalized services.

Meanwhile, blockchain-based assets are enabling marginalized populations to overcome the identity barriers that limit their financial opportunities. This helps to fill the gaps where traditional banking systems, which often demand prerequisites such as minimum deposit sizes, credit history, and proof of address that many individuals cannot fulfill, fall short.

Keytom, a newly launched neobank centered on digital assets, stands out as a prime example this trend. The Dubai-based company provides access to cryptocurrency transactions and investment strategies, all while actively pursuing its mission to break down financial barriers and unify both fiat and crypto domains within an accessible framework for everyone.

“At its core, the company champions financial empowerment, positioning itself as the ‘one bank for all digital assets.’ Keytom’s vision lies in dismantling financial barriers and uniting fiat and crypto domains within a cohesive framework accessible to everyone,” the virtual bank said in a Tuesday (April 9) press release.