Digitalization brings with it a whole range of challenges and opportunities for banking. It is important to keep an eye on current trends and to deal with new technologies, regulatory frameworks and changing customer needs. Kurt Schmid, Managing Director Digital Banking at Netcetera, provides an overview of the most important developments.
The topics related to digitalization in banking range from Open Banking and Realtime Payment to super apps and central bank digital currencies, sustainable banking and the use of artificial intelligence.
PSD3 provides framework for digital banking
An important framework for digital banking is the European Payment Services Directive (PSD), which is currently being revised and will result in PSD3. Among other things, this involves greater standardization of the interfaces for account access (Access to Account). To this end, the European Payments Council (EPC) has developed the SEPA Payment Account Access (SPAA) Scheme Rulebook. Asset holders can provide transaction data to asset brokers for a fee - subject to the consent of the customer concerned. This will enable a step from Open Banking to Open Finance, as data will be considered as assets.
In addition, further regulatory changes in the areas of contactless payment limits and delegation to digital wallets are also expected in PSD3. The topic of strong customer authentication (SCA) is also sure to be tightened up.
Digital euro still faces many challenges
The digital euro can currently be expected between 2026 to 2028. In a first step, it is to be launched as a digital supplement to cash for private customers. At the moment, it is difficult to estimate how much this will affect banks' business, because there are still so many detailed questions to be clarified. Among other things, this concerns what responsibilities commercial banks and merchants will have in the process, but above all what customer benefits will be generated to convince them. It will also be relevant whether Apple will open the NFC interface for a digital euro to enable convenient tap payments.
In parallel to the classic Central Bank Digital Currency (CBDC) approach of a digital euro, a programmable token is also being considered: A Commercial Bank Money Token (CBMT) would allow the business to link payments to deliveries and support more complex payment processing.
Customer request: sustainability
The general discussion about environmental protection and sustainability has also reached the financial sector. According to a recent survey, 46 percent of Germans consider companies' commitment to ESG (environmental, social, governance) to be an important investment criterion. Additionally, 28 percent of Germans would use their bank's service to track the carbon footprint of their purchases. Providers such as Doconomy from Sweden determine the consumption of CO2 or water on the basis of transaction data. This is just one example of the opportunities that digitization offers to address specific customer needs.
Another opportunity lies in aligning offers and services to better suit the needs of different target groups. After all, the "one product for all customers" strategy no longer promises success. This becomes clear when differentiating between age groups - from children to generations Z, Y and X, and even "silver agers”.
Artificial intelligence: opportunities and obstacles
Artificial intelligence (AI) is also becoming increasingly important in banking. It can be used, for example, to improve credit scoring and risk management as well as abuse prevention. Unfortunately, artificial intelligence is also being used more by the perpetrator side: In cybercrime, increasingly sophisticated AI-powered phishing attacks or generation of fake images and documents are raising the level of fraud.
Newer is the use of generative AI, such as large-language models (LLMs). Since the advent of ChatGPT, it is evident how good it can be at understanding and generating text. Therefore it could be used for personalized customer services and virtual assistants for advice, there are also some obstacles: Answers that are presented convincingly may still be flawed or not in line with the bank's compliance policy. Data protection must also be taken into account, since personal information about a bank customer should not end up with public providers such as OpenAI.
Digital Identities and super apps: Different Models
Digital banking starts with identifying customers digitally. There are different legal requirements for this in each European country. Four different models for digital identities have developed: In Scandinavian countries, banks play a leading role. The same is true in Austria, where banks are in the process of launching the "ich.app" on the market. In Germany and Belgium, cooperative models have emerged with Verimi and itsme, in which companies from different industries work together. In addition, the EU Commission wants to introduce a Europe-wide digital identity (EU Digital Identity). Finally, a decentralized model is also being worked on: In the concept of Self Sovereign Identity (SSI), the focus is on each holder of a digital identity being able to decide for themselves to whom and to what extent they allow access to it.
Apps play a central role in digitization. Here, the question always arises as to how many different functionalities an app should offer. In Germany, most banks rely on several apps, for example, one app for mobile banking and another app for mobile payment. In Asia, on the other hand, so-called super apps are dominant, combining a very large number of functions - from messaging and social networking to shopping, loyalty, banking, and payment. WeChat and Alipay in China and Grab in Southeast Asia are examples of this.
Banks become smart advisors
Digitization will change banking in a lasting way. Bill Gates once said: "We always overestimate the changes we expect to see in the next two years, and we underestimate the changes we expect to see in the next ten years. We should not be seduced into inaction by this."
With the help of digitalization and the increased use of artificial intelligence, banks can respond to customer needs in an increasingly targeted and individualized manner and position themselves as smart advisors in all financial questions and life situations with innovative products and services. The future is not just simple transaction provisioning but contextualizing for the customer to achieve the banking experience they want.