The adoption of digital payment methods – transactions which are made electronically with zero involvement of physical cash or cards has soared worldwide in the recent years. The emergence of digital wallets has prompted innovation across the spectrum of financial services industry to keep up with the pace of progress of tech giants and fintechs who have been the key players in this arena. This growth presents a great potential of opportunities and risks for banks. Banks who fail to leverage the opportunities for growth by redesigning their payment methods will risk a huge loss in revenue because of substantial decrease in consumer engagement. Banks need to stay competitive with digital wallets by redesigning and personalizing the payment systems, collaborating with other banks, and leverage the insights offered by their accumulated data.
What are Digital Wallets?
Digital wallets are any software or electronic device or service that facilitates electronic transactions involving the exchange of goods or services and digital units of currency. Digital wallets can also store user’s driving license or social security information or government identification for authenticating the user’s credentials. Examples of digital wallets are Google Pay, Amazon Pay, Apple Pay etc. A digital wallet is often linked to the user’s bank account for successful payment.
How can Banks respond
Banks can respond to this by focusing on their core strengths. Banks can create a frictionless payment experience by personalizing the process, include reward payments, collaborate effectively and leverage the insight offered by customer data.
Create a smooth and seamlessly integrated payment experience
To bring back customers from digital wallets, banks need to reimagine and redesign the complete payment journey from scratch to create a hassle-free experience. Banks have always focused on conversion rates rather than customer experience. Banks need to address the CX aspects of their offerings and products. Using technologies such as Artificial Intelligence and robotics for addressable issues can result in cost savings of around 25% to 35%. These savings can be invested in the front-end design of their products and services.
Personalized rewards for payments
Most banks fail to exploit the data available to them. Using cutting edge technology such as Artificial Intelligence, banks can encourage customers to use their payment channels by rewarding customers with loyalty points, personalized notifications etc. for more frequent and large transactions. This implies that banks tailor their products and services to the customer on a one-to-one basis. Statistics indicate that this approach works as revenue increased by 15% and churn was limited to 10%.
Exploit and leverage the insights offered by data
Recent advances in AI offer banks the opportunity to gain valuable insights into the spending patterns and financial health of the customer. Banks already have the data available to them and new data is being gathered at lightning-fast speed. Banks can use this data to generate new type of products and services.
Banks can counter the problem by creating a smooth and frictionless payment experience, be customer centric by personalizing the experience, and exploit and monetize the data to create data-driven financial products. With a strategic and swift approach, banks can bring customers to their side.
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