Origin of the Digital Banks
The first burst of digital banks came with the advent of Internet, in the 2000s. There were some brands like Boursorama, Fortuneo, ING Direct or Axabank (formerly Bank-Direct). Then, a second wave started in the late 2000s, with BforBank or Hellobank. These brands belong to land based banking groups. That was also an advantage because they benefit from a large investment capacity. But also a disadvantage because they are subject to internal competition from land based agencies.
Digital Banks and Smartphones revolution
The year 2007 sees the arrival of the first iPhone. Then, in 2008, appears the financial crisis. This has the effect of encouraging the British regulator who had bailed out banks to grant licenses in 2009-2010 to new entrants. This is the birth of the British digital banks like Monzo, Revolut or Atom. The digital banks had already an technological advancement and an improved customer experience. They put forward another competitive advantage: the price! They change the customer relationship via the smartphone, but they also show the customer that he can save money.
At the same time, there are few continental counter-offers. The only notable is N26. Based in Berlin, it operates the mobile and offers free for its basic service. In France, the innovation of the time is the Nickel account. This second generation of Digital Banks benefits mainly from the recency of the technology on which it is based. This advance will not last forever, the technology gap with other players should quickly dwindle, because the features are easy to copy. Traditional banks, valuing their physical network, are used to charging all their services. Therefore, only the price advantage will remain.
The digital offers
Digital Banks have built their offers around payment. And on the payment, there is no profitability! They have the obligation to do what Orange Bank has done since its launch: offer products that offer a very comprehensive banking service, with the overdraft, savings book, insurance or consumer credit .
These digital banks are from fintech industry. They are funded by venture capitalists who are looking for size, so “mass market” products and a geographical location as wide as possible. They are willing to go very quickly, which will probably restrict the progress of other projects, particularly those on the depth of supply.
The digital banks get rid of decades of IT progress. And they were able to move to the cloud right away. They have found partners immediately, with all the tools necessary for effective and controlled growth. This gives a considerable advantage in terms of customer management and recruiting capacity.
What is the next major innovation in the banking sector?
The next chapter is Artificial Intelligence (AI), which improves customer service. As example, IBM’s Watson for virtual advisor Djingo, who is the first point of contact with Orange Bank. Thanks to Djingo the bank become accessible 24/7. It allows conversational transactions, and will soon provide advice for credit or savings. The client may, at any time, decide to speak to a physical counselor. Tomorrow, banks that will maintain human interactions in parts of the relationship that do not require it, may appear to be “backward”.
Most leaders have initiated initiatives in this area in the AI, that will be the next advanced step.