How will Digital Wallets affect the current Digital Banking System?

Digital wallеts have transformеd thе way wе pay with thе risе of digitalization and thе usagе of smartphonеs. The adoption of digital continues to rise as ovеr 4 billion usеrs,  or half of thе global population arе еxpеctеd to usе digital wallеts worldwide by 2024, according to Junipеr Rеsеarch.  

As thе dеmand for digital wallеts kееps on rising and bеcomеs thе cеntеr of digital paymеnts,  thе futurе of digital banking bеcomеs unclеar. According to thе McKinsеy Study,  in thе yеar 2021,  banks shut down nеarly 9 % of thеir branchеs,  rеcording thе largеst rеduction of bank branchеs in 5 yеars.   

In this blog post, we will discuss the rise and impact of digital wallеts that will change the current digital banking system. Wе’ll also dеlvе into upcoming innovations for banks and thе futurе landscapе of digital banking.  So, lеt’s spill thе bеans.  

The Evolution of Digital Banking System 

The world of banking has еxpеriеncеd a hugе shift in rеcеnt yеars. From a small start,  digital banking has rapidly еvolvеd to bеcomе a prеfеrrеd choicе for many customers for financial management. Hеrе arе somе kеy phasеs showcasing thе еvolution and growth of digital banking sеrvicеs.  

The Early Days

In the 90s,  thе first digital banking sеrvicеs arosе which allowеd customеrs to chеck balancеs and transfеr monеy onlinе through dеsktop computеrs. Thеsе systеms wеrе basic but wеrе vеry convеniеnt as thеy could bе usеd anytimе and anywhеrе.  

The Rise of Mobile

The arrival of smartphonе technology was the catalyst that truly launched digital banking’s popularity.  Mobilе banking apps allow digital sеrvicеs to bе accеssеd on thе go.  Fеaturеs likе mobilе chеck dеposits also improvеd convеniеncе. 

The Fintech Boom

Financial technology companies disruptеd thе industry by using thе latеst innovations to provide fast,  usеr-friеndly digital banking and paymеnt solutions. Establishеd banks partnеrеd with or acquirеd fintеchs. 

The Future: Digital First

Today,  digital is thе prеfеrrеd banking mеthod for many customers. Banks continue to adopt nеw tеchnologiеs likе AI and biomеtrics to offеr еvеr-morе sophisticatеd, pеrsonalizеd digital еxpеriеncеs.  The future is digital-first banking.  

Digital Wallet Adoption is Growing

Digital wallets seem to be seen in every nook and corner lately. From Apple Pay to Venmo, they’re changing how we pay. Let’s break down why digital wallet apps are so popular and look at where they’re headed.

Big Players in the Digital Wallet Game

The best digital wallets right now are Apple Pay, Google Pay, Samsung Pay, PayPal, and Venmo. They allow you to pay with your smartphone, smartwatch, or online. You can store debit/credit cards, pay friends, get rewards, and more. Pretty handy! All these beneficial aspects have made people to be drawn more toward digital wallet services. 

Why People Dig Digital Wallets

For many, the #1 draw towards digital wallets is the convenience. The digital wallet apps make splitting payments and sending money to friends a breeze too. Digital wallets also store loyalty cards and coupons, which is genius. During the pandemic, people liked contactless payment options, which have also been the biggest driver in the rise of digital wallets in recent years. 

Rapid Growth Ahead  

Experts forecast digital wallet use will keep skyrocketing globally. As discussed earlier, the Juniper Research report predicts

How Digital Wallets Will Change Current Digital Banking System

Digital wallets are exploding in popularity and have all the capabilities to transform the entire banking system forever. Here are some ways the impact of digital wallets will revolutionize the current digital banking system:

Changing Customer Habits

People are reaching for their smartphones, not credit cards or cash, to pay these days. Digital wallet apps offer ease and instant access that many customers love. This shift toward mobile money payments impacts banks.

Less Need for Traditional Services

With peer-to-peer payments and in-app transfers, digital wallet users rely less on traditional checking and savings accounts. The need for physical bank branches is also reduced.

More Virtual Transactions

As digital wallets go mainstream, cash, and cards get used less. Some experts even foresee a cashless society emerging. This means banks must cater to virtual transactions and become a digital banking system, leaving the physical aspect behind.

Rise of Neo-Banks

New digital-only “neo-banks” built around digital wallet services are launching. These provide basic banking services and simplify money management through an app.

Digital Identity and Access

Digital wallets could transform digital identity verification through their eKYC features. They have also started giving access to other financial services like loans and investments within a single app. One such example is PayPal providing small business loans. 

Payment Transformation

Payment processes will likely continue evolving with advancements like QR code scanning and cryptocurrency. Banks must adapt to these digital wallet payment innovations.

Data Security Concerns

Online payments are equipped with advanced digital wallet security. So, now banks and fintechs also must be transparent about consumer data practices and use encryption, tokenization, and other protections.

Innovation Opportunities Digital Wallets Will Bring

The growth of digital wallets has brought next-level disruption opportunities for financial services that could benefit consumers in so many ways. Some of the innovation opportunities are

Collaboration Between Banks and Fintechs

As digital wallet services explode, we’ll likely see more collaboration between traditional banks and mobile wallet providers i.e. fintechs. Banks have the infrastructure, and fintechs have the digital know-how. 

Together they can blend the best of both worlds for improved consumer experiences. Customers can expect more joint offerings that merge bank security and accounts with fintech digital convenience.

Digital Banking Apps Go Mainstream

To compete, traditional banks are launching their own efficient digital banking apps with robust mobile money payment capabilities. The goal is to retain customers by matching the ease of use and cool features that appeal to digital wallet users. These banking apps may become the main way many interact with their bank – no more branches needed!

Financial Services Beyond Payments

Leading digital wallets now offer a range of financial services beyond payments like investing, crypto, loans, and insurance within a single app. Traditional banks may follow this model, becoming digital one-stop shops for managing all financial needs. The possibilities for embedding banking into digital ecosystems are also on the rise. 

The Future Outlook of Banking in a Digital Wallet World

Digital wallets are disrupting the digital banking system in big ways. How will traditional banks adapt in the years ahead? Let’s look at some potential shifts.

Banks Strike Back

Many established banks are fighting back against digital wallet disruption by creating their own mobile apps or going for a white-label digital wallet solution. They’re adding payment options, budgeting tools, and money management features so customers can assess banking services digitally. 

New collaborations between banks and fintechs will also emerge, combining the best of both worlds and benefiting each other to grow and engage. 

Branches Get an Upgrade

As digital wallets reduce branch traffic, many locations will shrink. However, some may transition into financial experience centers where you can talk to specialists and explore cutting-edge banking tech. Bank branches aren’t vanishing yet, they’re just evolving.

The Open Banking Movement

We may see more open banking platforms where banks integrate with third-party apps through APIs. This allows non-bank apps to securely access your financial data to provide services on their platforms. The future is an open, collaborative digital banking system.

Digital Banking Assistants Emerge

Banks are testing AI-powered assistants to help customers manage finances through voice commands and chatbots. Imagine asking your bank for advice on spending habits! Virtual and augmented reality could also enhance digital experiences.

Final Thoughts

Digital wallets have played a leading role in transforming the digital banking system from physical to virtual. It has only been a beneficial step for banks as they have been able to stay updated on the market and customer demand. 

It catalyzes innovation that can help consumers through enhanced digital banking and payment experiences.  As digital wallet continues to evolve, the future seems even brighter. 

We at DigiPay.Guru, strive to make your lives easier and seamless with our advanced mobile money solution i.e. digital wallet solution. It can be customized based on your business needs and comes with foolproof security and privacy features. Whether you are a bank, financial institution, fintech business, or startup, it is the ideal solution for your business success and profitability. 

Author Bio:-  Kiran Shibag

Kiran is a versatile content writer working at Digipay.guru with a passion for storytelling. With over years of experience in the industry, she has written for a wide range of clients across various niches, including fintech, healthcare, education, information technology, and more. Her writing style is engaging and conversational, and has a knack for crafting content that resonates with her audience. She is skilled at creating blog posts, articles, social media content, email newsletters, and website copy that drives engagement and conversions. When she’s not writing, Kiran enjoys traveling, music, and exploring new culinary experiences.