Digital Banking: Embracing the Digital Revolution
In today’s digital age, the automation of traditional banking services, known as Digital Banking, became the key to customer engagement, better profitability, and control. With digital banking, customers can transact through a wide range of secured digital channels while the bank maintains data security, mitigates risks, and complies with regulatory requirements. But what is digital banking exactly? What is the history of this fast growing digital revolution? And what are the available digital banking technologies and associated banking regulations?
A Brief History of Digital Banking
Among the first technologies in the banking sector that were very popular was the ATM. It was the Barclays Institute that built the first ATM in 1967. Initially, the machine could only withdraw cash, however, between 1980 and 1990 more advanced ATM functions were implemented, such as the worldwide introduction and use of a PIN as well as the online banking tracing. Looking at the history of digital banking, it is evident that it all started after 1981 when the first online banking test took place. By 1983, the Bank of Scotland launched the first internet banking service available on the market. Known as Homelink, this service connected a television to a telephone, allowing money transfers and bill payments. A couple of years later, in 1996, Atlanta Internet Bank, the first online bank was founded. Today, the bank is known as NetBank1.
Founded in 1998, PayPal became the first independent electronic money transfer company, charging a small transaction fee. When the open industry association, the FIDO alliance, was established, PayPal was among the first companies to embrace the FIDO Alliance Digital Security Framework2. PayPal was one of the earliest players. With the widespread adoption of internet banking, Google was the first to develop digital wallets with limited access, available only through specific cell phones and merchants. Since then, digital wallets have become increasingly popular as more individuals turn to banks or third parties that offer the financial transaction application. In recent years, more and more banks are implementing their own version of digital wallets to enable their customers to carry out almost any type of transaction at the touch of their fingertips3.
What is Digital Banking?
Although most of the banks have embraced digitization, not all banks that operate online are digital banks. A digital bank is a financial institution that effectively manages the customer lifecycle online ranging from enrollment to withdrawal, while offering similar levels of security compared to traditional banks, allowing users to access their financial data through a desktop, a mobile phone and an ATM4.
Digital banking, although it may be used in numerous ways, essentially refers to a combination of online and mobile banking. Online banking involves accessing banking features and services via your bank’s website from your computer. Using your online banking portal, you can apply for a loan or a credit card, as well as check your balance or pay your electricity bill. It is easier than ever to manage your personal finances via online banking without leaving your home, which is quite convenient, especially during the pandemic. Mobile banking allows you to access most of the banking features online banking is offering, through an application on your mobile devices, such as a smartphone or tablet. Your bank issues these proprietary apps, which typically require the same login credentials as your online banking site5.
Designed for people on the go, mobile banking apps tend to include the most commonly used banking features, such as mobile check deposit, funds transfers and bill payment. Additionally, banks may also use their mobile apps to notify their customers about fraud attempts and low balances.
It is easy to understand how digital banking works, but technically it is a bit complex. Digital banking is based on various secure technologies, ranging from biometrics and multifactor authentication to Open APIs and cloud computing. Besides helping digital banks offer customized financial products and services, these technologies have also accelerated financial inclusion.
Digital Banking Regulations
When it comes to digital banking, every country has its own regulations regarding digital banking based on different capital requirements and operational plans. Hence, setting up a digital bank is not an easy process and will require the same level of regulations that physical banks have to follow. However, as virtual banking is today the most convenient type of banking, it is growing at a rapid rate, especially in Asia. On 30 May 2018, the Hong Kong Monetary Authority (HKMA) published its guidelines on the authorization of virtual banks and, to date, HKMA has issued up to eight digital banking licenses while the South Korea Financial Services Committee (FSC) has issued up to two digital banking licenses. In Taiwan, the Financial Supervisory Committee (FSC) has issued the virtual banking license requirements in April 2018. As of July 2019, the Taiwanese FSC has issued up to three digital banking licenses until now. In May 2018, the Australian Prudential Regulatory Authority (APRA) introduced the new “restricted” accreditation for new retail banks and granted its first license to Volt Bank Ltd6.
Insights into Digital Banking Technologies
In order to develop products internally and meet the customers’ needs, digital banking uses various specific technologies. In the SEA market, as an example, API plays an essential role in open banking. This allows banks to be more flexible in reaching their target markets thanks to the available banking schemes. Numerous collaborations with cross-industry teams have been conducted to acquire new users and to improve financial inclusion. In the following, select digital banking technologies will be explained further.
- API for Digital Banking
An API service allows banks and financial institutions to share financial data and information with their customers based on reciprocity or equality. Two parties will be involved in the implementation of a connected API, namely the customer and the bank as the data owner. Digital banks have used the open API to collaborate with many other institutions such as marketplaces, fintech companies, ride-hailing, universities, non-digital companies, to government agencies. Open APIs have been used by digital banks to collaborate with marketplaces, fintech companies, ride-hailing companies, universities, non-digital companies, and government agencies. Several Indonesian banks have embraced the development of open banking through APIs. APIs were introduced to the Indonesian banking ecosystem for the first time in 2016, marking a turning point in the industry. In addition, the open API facilitates the integration of banks with financial technology companies like payment fintech, peer-to-peer lending fintech, and other types of fintech companies.
This is a method of verifying a person’s identity using physical characteristics such as voice, fingerprint, face, retina, iris, or a combination of the mentioned verification tools. Due to its security and simplicity, biometric technology is considered an excellent solution for the banking industry. For example, a face-selfie-match to an ID document can be used when opening a bank account. Customers who apply at a physical branch are usually photographed, or their fingerprint is being scanned. When it comes to opening an account without visiting the branch office, a more advanced version of biometrics is being used. As part of the requirement, a video call will be recorded rather than having to attend a branch visit.
- Cloud Computing
Cloud computing technology is the process of computerizing an internet-based technology. Data can be stored and processed virtually with cloud computing systems. Users can access the data anytime and as long as it is connected to the internet network. Cloud services also play a major role in creating a fully digital bank. Currently, the right solution to overcome this problem is to use a private cloud. The goal is to anticipate digital transactions that have increased sharply, given that most transactions turned digital during the pandemic. Cloud computing technology is the process of computerizing an internet-based technology. Given that most transactions have turned digital during the pandemic, it is important to anticipate an increase in digital transactions.
eKYC (electronic know-your-customer) includes a variety of integrated components that assist businesses in onboarding new customers digitally. It targets sectors including banking, financial/money services (mobile wallets, remittances, loans, and telecommunications) where customer identification plays a key role in the registration process. Through e-KYC, financial institutions can carry out KYC checks and due diligence processes without the need for physical verification. eKYC is becoming increasingly important today considering the Covid-19 virus, as it allows customers to access financial services without risking their health. As a result of digital processes, human error is also significantly reduced, and resources can be better allocated to other customer experience improvement activities. (To know more about eKYC, click here)
Digital Banking Now and Then
In response to the pandemic, consumers have increased their interest in digital banking. It is therefore the perfect time to embrace the future of banking with digital banking. As we could see the big demand of online payment and transaction, digital banking operator and regulators need to think about enhancement of user experience at all time and interactions between platforms, any actions will improve inclusive financing will be core tasks. In light of the growing demand for online payments and transactions, digital banking operators and regulators need to continually enhance their user experience and improve interactions between platforms. Any actions that will improve inclusive financing are essential.
TOPPAN IDGATE eKYC Solution
TOPPAN IDGATE’s combined years of experience developing data security for the finance industry and proven track-record raising successful businesses, we understand the fine balance between what banks need and what their customers want.
With its selfie match-on-card feature, TOPPAN IDGATE’s iDenCard solution verifies the legitimacy of provided government IDs; iDenFace uses AI face recognition technology for liveness detection and anti-proofing features.
The ID anti-counterfeiting technology from TOPPAN IDGATE significantly improves the eKYC procedure. The users are instructed to take a photo of their ID card as a proof, and TOPPAN IDGATE’s solution will automatically compare important ID features, carry out careful color detection, and find anomalies using an AI model, like employing printed photos and concealed information from images. While the eKYC authentication process is carried out through mobile devices, this is done to confirm that users have used the original ID for their registration process.
TOPPAN IDGATE’s advanced solutions prevent identity fraud, phishing, and automated processes, providing the highest level of security with a smooth and intuitive user experience.
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3 DS Innovate & Telkomsel Whitepaper 2021
4 Sharma, Gaurav. “What is Digital Banking?”. VentureSkies. Retrieved 1 May 2017.
About TOPPAN Gravity
As a global solutions provider primarily focused on the Payment and Identity industries, Toppan Gravity aims at developing the next generation of virtual and physical security documents.
With the vision of becoming the forerunner in the secure ID and payment industry, the company focuses on driving synergies within the Toppan Group, through strategic acquisitions. Toppan Gravity empowers promising companies’ having state-of-the-art technology or businesses in emerging markets, including Asia, Africa, and Latin America, to enhance their overall performance. Furthermore, the company enables its acquisitions to take advantage of the opportunities presented by its large, diversified group having numerous resources and extensive know-how.
About TOPPAN IDGATE
TOPPAN IDGATE, acquired by Toppan in 2020, was co-founded by a group of tech entrepreneurs with a vision for improving what they saw as a sore spot in the market for identity verification solutions. In a world where we tend to oppose security to user-friendliness, TOPPAN IDGATE is striving to offer highly secure but also highly convenient authentication solutions, for digital transformation and online banking services. With our combined years of experience developing data security for the finance industry and proven track-record raising successful businesses, the company understands the fine balance between what banks need and what their customers want.