Banking’s future could in the near future be quite unlike the conventional banking system we encounter currently. By 2026, nearly 50% of the population in the world will use digital wallets, which will change the way customers save and spend and transfer money across boundaries. Digital wallets are undoubtedly changing the banking industry for retail customers which is forcing traditional banks to reconsider their strategies. As the fintech revolution continues to grow retailers must adapt to this new paradigm in order to stay current and competitive. This article examines the consequences of disruptions caused by fintech and how retail banks can best position themselves to succeed through adopting strategies for digital transformation.
Digital wallets are disrupting the retail banking industry
The rise of electronic wallets have brought challenges as well as opportunities for banks in the retail sector. A few of the areas that are most susceptible to disruption are:
The reduction in cash and card use
The usage of cash has dropped substantially in developed countries and even card transactions lose ground to electronic wallets. This is a trend that has banks compelled to expand their digital offerings, and rethink the business model of card-issue, ATM networks, and physical branches.
Compression of exchange fees
Digital wallet providers are increasingly in control of the flow of transactions, which reduces dependence on bank-issued credit cards. Because transactions can be made without traditional networks for credit cards banks are facing a decline in revenue from interchange fees which is a major revenue source.
The threat of fintech and large tech companies
The entry of technology giants into financial services has only increased the competition. With their innovative financial services These big players are challenging the traditional role played by banks as intermediaries for payment transactions forcing banks to invent or risk losing their role.
Retail banking’s response to digital wallet boom
Although digital wallets can cause significant threat to retail banks, they aren’t passive observers. A lot of financial institutions are adopting digital transformation strategies in order to remain in the game. Some of the key responses include:
The development of mobile banking capabilities
To stay relevant in the mobile payment time, banks are spending money on their digital wallets as well as banks that operate on mobile platforms. Solutions such which were developed by top U.S. banks, serve as direct competition to digital wallets from third-party providers which ensure banks have the control of payment flows and relationships with customers.
Enhancing trust and security
Retail banks are increasing security and confidence in digital wallets by utilizing the use of advanced technology. Passkeys are a secure authenticated, password-free system that wards off fraud and phishing. Artificial Intelligence powered biometrics analyze unique interactions between users -such as tapping and swipes to spot suspicious activities. Step-up authentication offers additional protection for transactions that are large by requiring approval for taps on cards through banking apps. These new technologies improve security while making the experience seamless and easy strategic partnerships and building
Collaboration with fintech to develop market infrastructure as well as innovative AI, ESG, and capital markets technology is crucial to improving banks their digital capabilities. When companies look to fintech for new solutions, banks rely on these partnerships to accelerate digital transformation. Fintech’s are agile, whereas banks offer the ability to reach across the globe, provide stability, as well as a huge customer base, forming the foundation needed for enduring alliances.
Investigating blockchains and CBDCs
Central Bank Digital Currencies can help those who do not have access to traditional banking digital payments. They can also serve as the first step to join the financial system as a formal entity. Based on blockchain technology or similar technologies CBDCs have unique advantages in financial inclusion, including being a safe, transparent and widely accepted type of digital currency. They also allow offline transactions, which makes them cheaper and more accessible.
The digital wallet is flourishing in the time The future of retail Banking
In 2027 Digital wallets are expected to comprise 61% of online payments along with 46% retail purchases across the globe. While digital wallets are continuing to transform the banking industry at retail banks must adopt the agility, innovation and customer-centricity. Future retail banking is likely to be defined by:
AI-driven personalization using AI as well as big data analysis, it will be possible for banks to provide highly-personalized financial services, predicting insights, and personalized recommendations.
Improved financial literacy Digital wallets can help increase financial knowledge by offering users real-time analysis of their spending and personalized advice, which will help consumers reach the financial objectives they have set for themselves.
Embedded Finance and Open Banking The rising popularity of banking open frameworks will blur the distinction that separate traditional banks, fintech as well as digital transactions, forcing banks to adapt different business model.
Improved biometric security: Security and privacy are the top concerns for digital wallets, they are expected to implement biometric authentication such as fingerprints or facial recognition. These types of technology provide greater security, while increasing user comfort.
IoT and connectivity to smart devices As smart devices get more connected digital wallets could be integrated with IoT and enable seamless payment on home appliances, wearables and much more.
VR and AR digital wallets: These types of transactions can include augmented and virtual reality, allowing customers to shop and make transactions in virtual environments that are immersive.
What do you think Infosys BPM assist retail banks to navigate the disruptive fintech landscape?
In terms of improving operational efficiency and security of data, or enhancing customer service, Infosys BPM retail banking provides cutting-edge solutions that assist you in navigating the ever-changing problems of retail banking. Utilizing advanced technologies such as Gen AI, RPA and sophisticated analytics to help you reduce costs and decrease risks.
