Digital banking platforms are providing services where traditional banks can’t and allowing the underbanked to access seamless financial services. As digital financial services grow rapidly, banks and non-banks have the prospect of reaching customers that previously couldn’t access banking services. Digital financial channels are becoming seemingly endless by leveraging mobile phones, smartphone apps, and digital assets like cryptocurrency, with some products and services already becoming essential in the industry.
This digital revolution is benefiting millions of poorer customers that are now switching from a cash-based economy to standardized banking services, such as payments, transfers, and savings. This trend is to aim to increase technologies and innovation to keep becoming standard.
About 31 percent of all adults globally don’t have access to banking services according to reports by the World Bank. These 1.7 billion people don’t have access to any financial institution or smartphone-based money service. In the United States, around 172 million adults are unbanked and over 46 million are underbanked according to federal data. This has brought forth the need for alternative finance providers.
Innovative payment platforms and services are looking forward to serving the underbanked and unbanked part of the population by delivering safe and accessible digital services without having to visit a brick-and-mortar branch. This happens because of combining technologies with virtual payments cards, mobile phone payments, and digital assets. As a result, these services are reaching a wider range of audiences and enhancing financial inclusivity, and also creating seamless banking services.
Benefits of Digital Banking for Unbanked
The essential components for digital banking services that enhance financial inclusion for the unbanked are digital channels such as smartphone banking apps and POS payments services. Combined they allow customers to make seamless payments whenever, wherever.
The benefits of providing financial inclusion for the unbanked include financial services, cheaper transactions, personalized financial services, and better security from financial fraud. Financial inclusion can also enable people to begin saving and planning for their long-term financial growth. By allowing customers to become part of a sophisticated banking environment, customers can become a part of the global economy.
Some digital banking services have already included digital assets to their layer of existing services with more planning to add them to promote financial inclusivity and the benefits they bring. Simply put, customers that don’t have access to traditional financial services can provide customers with a digital asset wallet with transfer funds being lower than usual. As more and more customers will be able to access financial services, it is sure to fuel economic growth and reduce the rate of unemployment.
Driving Factors for Digital Transformation in Banking Sector
Open banking and digital banking are changing the way financial services work. Especially in sectors that don’t have access to traditional banking infrastructure. But apart from reaching out to the underbanked areas, there are more reasons that are driving growth for digital banking.
Here are some of the biggest driving factors for digital transformation in the banking sector:
1. KYC Process Acceleration
Know Your Customer (KYC procedures) are a crucial part of the customer onboarding process. These provide banks with all the necessary information they need about a customer. The KYC process also helps banks in weeding out the fraudsters from legit customers.
A proper KYC process is made up of different steps, which include Identity verification and proof of address verification. All because of proof of address verification APIs and ID verification APIs, banks can make the KYC verification process faster. It can also reduce cost, which is one of the biggest driving factors.
2. Customer ID Verification
Customer identity verification is connected to the KYC verification process. Verifying the identity of the customer banks are trying to identity is important. Recently stricter requirements were imposed on other financial institutions, with the introduction of Strong Customer Authentication (SCA). It was a part of the PSD2. It made the open banking process even more streamlined.
3. Personal and Business Financial Management
With open banking, banks have so much more to offer to the underbanked population. Especially when it comes to personal and business financial management. technologies allow for better customer engagement with data-driven insights and by offering an overview of the customer’s financial health.
Newer technologies are allowing banks to analyze huge amounts of financial data in real-time and offer customized experiences to the customers.