Friday, October 28, 2016

How Digital Wallets can help Banks

In my previous article, I had mentioned how Digital wallets are disrupting banks. Profitable retail banking operations such as credit cards are at risk from being disrupted by digital wallets.

From a strategy perspective, the best way to counter this disruption is to offer a digital wallet service as part of basic banking services to both retail and commercial customers.

Customer Behavior Shifts

The millennials are changing the rules of engagement for banks.. This generation was born with Internet and are tech-savy. They are more socially active online and need tools that reflect their digital lifestyle. Millenials prefer using technical interactions on mobiles over face-2-face banking interactions.

Millennials are willing to source multiple financial services from different banks - based on the banks digital capability. This implies that banks will now have to built newer digital platforms to cater to the needs of this new generation.

Digital wallets are being embraced by this new generation faster than any other demographic group. Financial crisis of 2007 has eroded the trust in traditional banking and assets. Younger generation are more willing to rent rather than own. This implies more dynamic & frequent transactions - where digital wallets have an advantage over traditional methods. Going forward, this trend is likely to continue and older customers will drop off.

While this generational shift represents a big challenge, it also offers the biggest growth opportunity for banks.

Strategic Implications of Digital Wallet

Millennials are technology savvy. Millennials generate huge amounts of data using smart devices. Banks need to make sense of this data. Post 2007 crisis millennials are trading down, deleveraging and seek long term financial planning.

To win the loyalty of this millennials, banks need to compete to offer customized services on time. A delayed offer is a wasted offer.

Use real time analytic tools on data gathered from mobile devices, digital wallets, social networks etc. can generate crucial insights on products and services that can be created & targeted to this generation. Banks can use this for instant feedback and look for spontaneous opportunities to offer personalized products or services in credit or investment services.

For example, if a customer receives a cash gift, bank can instantly offer investment products.

Tracking financial transactions - based on time, geographical location and social networks, and then running realtime data analytics on this data can also feed into marketing communications.
Instead of using traditional print advertisements or Internet adwords, Banks can create a multi-channel customized banking communication experiences. This will improve customer experience and provide marketing information to customers at a much lower costs.

For example, banks can offer foreign exchange services via the mobile digital wallets, when they know the customer is traveling abroad, offer travel insurance etc. (vs now waiting for the customer to call the bank for foreign exchange of currencies)

Realtime analytics of all financial transactions - based on time, geographical location and social networks also aids in fraud detection. Banks get know what is happening in real time.

Knowing the network of transactions occurring in real time, and the nature of transactions can prevent fraud from taking place. Fraud detection must go beyond historical data, and must combine with realtime data to analyze possible fraudant transactions and predict scenarios that can help decision making.

Digital data trails from different transactions, different digital systems - such as locational information, purchase history, and network of transactions will help improve risk analytics across risk types and business units; implement predictive risk management systems.

Understanding risks in real time helps banks comply with new regulations and offer risk weighted services.


Digital Wallets presents the greatest threat to traditional banks - but it also provides a great opportunity for new growth, lower costs and increase profitability by offering personalized services to customers.

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