In 2018, the worldwide digital banking market size was valued at US$803.8 billion. That figure is expected to grow to US$1,610 billion by 2027, with a CAGR of 8.9% during the forecast period. In 2019, the North America digital banking market reached US$376.2 billion in 2019 and it is expected to reach US$721.3 billion by 2027.
Private and commercial customers have gravitated towards digital banking over the past 10 years, as services improve and security is upgraded. While traditional services still have a place, most customers access digital banking services. Digital banking services allow customers to do all of their daily banking transactions, as well as more complex transactions without having to enter a physical location. This convenience means that customers have adapted to using and trusting online banking services, allowing small operators that are not banks to offer online services, and often at far lower rates than traditional banks. It is these newcomers offering wallets and basic transactional services that are helping to not only grow the market but also improve online services and access to such services.
Market Drivers & Restraints
The cost-efficiency and ease of use provided by fintech has boosted the growth of the digital banking market, while data breaches and security concerns tend to threaten market growth.
Digital banking is primarily driven by cost efficiency and ease of use when compared with traditional banking. The increasing penetration of powerful mobile devices and high-speed internet access are part of the foundation of what drives the market.
However, the digital market forecast is threatened by data breaches and security threats. While developments in blockchain technology application are securing aspects of banking and financial markets, for each advance in securing online services, there will always be actors looking to exploit or break down security.
Future Trends & Market Opportunities
The rollout of 5G networks in much of the world, as well as improved computing power of mobile devices, will see people turn to use mobile devices to complete eCommerce transactions, as well as other banking online. Combined with the reduction in the cost of mobile devices and expanding access globally, penetration rates are higher and more of the world’s unbanked are finding ways to become part of the world’s banked.
Digital banking channels are proliferating. Not only are traditional banks offering improved services, so are fintechs and other third-party operators. These products are customer-centric, smart and often, globally accessible. This means that in many countries, the push to go ‘cashless’ during the pandemic has been made easier.
Fintech has created opportunities for more of the world’s unbanked to secure their finances, apply for loans and create a financially secure future. It is these opportunities that help to advance communities and generate greater wealth and security, which allows people to elevate themselves from poverty and create stable communities.
Threats to security from hackers or malfunction are still present in the banking industry. Private and corporate customers are aware of the threats to their data security posed not only by banking online but by accessing anything online. Social media hacks, data sales site users have unwittingly agreed to, lack of knowledge of how security works, and lax protection of passwords and updates means that the market faces expansion challenges.
However, what many consumers fail to understand is that a brick-and-mortar bank is no more secure than an online bank. All banks are now online and data is stored in servers. While servers can be difficult to hack, they are still a clear target for hackers.
Digital Banking Market by Type
Consumer banking is predicted to be the most profitable sector through 2027.
Consumer banks have proven to be the biggest winner in the digital banking market, attributed mainly to increasing top-line revenue, cost reductions, and risk moderation. The digital banking market size in 2019 was valued at US$574.4 billion and is predicted to reach US$1,661.1 billion by 2027.
Credit unions, a subsection of financial services which is aimed at serving its customers over making a profit, was in 2019 valued at US$73.8 billion and is projected to reach US$146.1 billion by 2027. Many established credit unions are now moving away from physical branches and focusing resources on serving their customers wholly online.
Digital Banking Market by Services
Digital payments attract high investment.
Investors are attracted to proposals that promise high yielding, fast returns in investments, which is exactly what many fintechs have offered in recent years. ECommerce has been in a boom for many years, and the pandemic has also bolstered the segments. The digital payments segment was valued at US$194.5 billion in 2019 and is projected to reach US$402.5 billion by 2027. The number of platforms offering digital payments services has proliferated in the past few years as consumer confidence in such services has strengthened and technology has improved. The digital sales segment was valued at US$609.4 billion in 2019 and is projected to reach US$1,207.5 billion by 2027.
Digital Banking Market by Region
North America is offering the greatest room for growth.
North America is expected to dominate the digital banking market throughout the forecast period. The major banks in the region are adopting and swallowing many fintech and other sandbox projects to transform their business models and retain customers. North America was valued at US$376.2 billion in 2019 and is projected to reach US$721.3 billion by 2027.
The Asia Pacific region sees a digital banking market that is largely driven by China, India and Japan. The digital banking segment in the region is driven by massive smartphone adoption, government adoption and the launch of digital banking apps, as well as innovative online shopping experiences. The Asia-Pacific regional market was valued at US$69.9 billion in 2019 and is projected to reach US$153.0 billion by 2027.
Digital banking is the future of banking for corporate, commercial and private customers. As the market grows, opportunities for investment will decrease, as the larger and more established financial institutions take the reins and control the market. The growth rate in the coming 5 years is expected to steady, as innovation levels off. The introduction of more technology is expected to continue, but without any major leaps, as seen in the past 5 years.
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