Digital banking 101

Digital banking is a new service model for financial institutions whose basic principle is that the entity has no physical contact of any kind with its users. All interactions are held remotely using technological devices, such as an application on a mobile phone.

This new banking and customer relations model emerged from the need to address the new reality of financial services. The main users in this model are individuals, and it is critical that they are offered an improved and optimal user experience through services that will allow them to transfer funds, apply for new products such as cards or loans, and even use their app as a wallet, among other features. This need led to a migration from traditional banking to digital banking, creating new banking models also known as “neobanks” or “superbanks”. It has also prompted many traditional banks to apply for revised operating licenses to address this trend.

The transition towards digital banking has been gradually taking place in the region. Each country progresses as per its own regulations, but the most critical process is onboarding, which is when a user’s identity must be verified. Even though these processes are not completely digital, procedures have been implemented to move in that direction. One such example is the collection of documents at home, which may be considered “semi-digital banking”, used in cases where the user’s home is in a distant location, however, a financial institution officer must be present. In any case, once the onboarding is completed, the customer will enjoy a 100%-digital experience.

Digital banking not only entails being able to perform transactions completely online but also it makes it possible to conduct these transactions at any time. Users no longer want to have time constraints to make purchases or apply for financial products. The ease and ability to acquire these products or perform these transactions, along with the accompanying general financial information and analysis that accompany them, has become a key factor in the adoption of this trend.

Achilles’ Heel turned Crucial Ally

Security takes on a significant role in the entire digital ecosystem since the use of these new channels can bring new risks or open new spaces for fraud. Therefore, entities seek to adopt best practices for their customers. For example, in terms of card usage, a new mechanism has been implemented known as Dynamic CVV, where the user must enter a dynamic 3- to 4-digit verification code, providing each transaction with a unique secure card verification value. This is not the only mechanism used to perform a secure transaction. The industry has also promoted the development of 3DS (3 Domain Secure). This protocol allows for multiple channels over which information is transmitted to authenticate the user’s identity through one of the user’s devices. In fact, the most recent version of this protocol. 3DS 2.0, includes the ability to identify or authenticate a cardholder based on their habits or behaviors.

Another trend is to allow users to define their own transaction authorization rules. This is where they can choose what is allowed and what is not, thereby eliminating the ability to withdraw money or restricting expenses for items such as restaurants.

On the Matter of Onboarding…

In order to be successful in the customer acquisition process, we must conduct a series of tests to get to know our customers. Our audience includes various generational groups, such as millennials, baby boomers, Generation X, among others. The onboarding process must adapt to each of their respective behaviors since these processes may be friendly for some but create mistrust, among others.

In cases like these, the entity should take a very user-friendly approach to not scare off customers with complicated procedures. The entity should start by offering services that will help build a relationship of familiarity and trust with the user. Then, as the user becomes more familiar and comfortable with digital processes, they offer more complex products or services.

What’s Next?

Digital banking must dedicate its efforts to making users’ lives easier. This transition is not only about virtualizing existing services, but it also goes beyond that. It needs to include making it possible for the customer to register their payment methods, perform transactions, and acquire services.

One such case is the Uber platform, which stores payment data and allows the application to generate a charge every time the service is used without the need to reenter information. As for recurring payments, the option to register a card number should be enabled, and the payment should be set as a recurring charge. Meanwhile, issuers must obtain a certification that will let them run an automatic update in case a payment is withheld or stopped due to the expiration of the previously registered card or insufficient funds. This will allow the merchant to be protected.

Suggestions to make the most out of a fully digital world and provide a good customer experience:

Offer users the ability to register multiple cards based on the purchase method; that is to say, one card for card-present transactions and another for card-not-present transactions.

Implement the Dynamic CVV mechanism, which allows customers to have a unique card number with a changing security verification code. This simplifies users’ lives by providing convenience while prioritizing security whenever they make purchases.

Provide numberless cards. These physical cards will contain less information, thus protecting the user’s information. There is no need to have the card number printed because the data is contained in the virtual card.

Execute onboarding processes based on the type of client. This way, regardless of the generation they belong to, they will feel welcome, and the strategies adopted will be much more effective.

Offer users the option to control how their products work. This includes enabling, blocking, placing limits to the amount of funds that may be transferred in a day, and even being able to activate notifications for the transactions made with the cards.

Provide customers with digital channels using state-of-the-art technologies that will allow them to validate users. This will help prevent identity theft, which is one of the most common types of fraud used by cybercriminals.

We believe the user experience is of the utmost importance, but we must always prioritize security. This is non-negotiable. A balance must be achieved between what the customer wants and what we, as an entity, can provide. It is essential to understand that an unsatisfied user may end up going to your competitor. Right now, the best you can do is implement the necessary measures to transform traditional banking to include digital banking.

– Por Sebastián Franco
Regional Presales Manager

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