This post is part of G2's 2022 digital trends series. Read more about G2’s perspective on digital transformation trends in an introduction from Tom Pringle, VP, market research, and additional coverage on trends identified by G2’s analysts.

Digital-first is the new reality for financial services    

Digital-first and digital-only banking will continue to proliferate in 2022. Digital-centric banking exploded in popularity over the past year and a half because of the forced shift to a remote-first world, but digital banking is no fad. Digital-first banking refers to a bank with a digital-channel-centric strategy (focus on digital and mobile banking) that maintains physical locations, while digital-only banking refers to a bank without brick and mortar locations. On G2, we’ve seen consistent growth in the number of products in the digital banking platforms category. Products in the category help banks digitize both front-end, customer-facing products, and back-end processes. 

Consumers want mobile-enabled digital banking, and they’ll get it via either traditional banks nimble enough to modernize or neobanks (digital-only banks) that have agility baked into their strategy. According to the Evolution of the US Neobank Market Report, which asked U.S. consumers about their banking habits, 89% of respondents reported using mobile banking, and 70% identified mobile banking as their preferred banking method. 

In order to satisfy these consumer preferences, banks have shifted to digital-centric strategies. Neobanks have exploded in popularity and are expected to continue to do so, with 6.8 times the expected growth rate of traditional banks over the next few years. The threat that neobanks present puts pressure on traditional financial institutions to adapt. Whichever route consumers choose, they are pushing financial services into the AI-fueled, digitally rendered light. The financial institutions that serve those consumers must offer them the digital products and services they’re looking for. To do that, they’ll turn to fintech vendors to help them create those digital offerings. 

Automating to meet customer expectations

While it is arguable which forces have contributed most to the push toward digital banking, (consumer desire, disruptive fintechs, pandemic-induced shutdowns, agile cloud infrastructure) the fact remains that it’s here, and there are an ever-increasing number of solutions helping banks adapt to the new reality. 

We added the Digital Customer Onboarding category to G2 in April 2020 to house solutions that are designed to fully onboard new financial services customers virtually. Loan origination software vendors are building tight integrations with credit decisioning tools or including automated decisioning functionality in their products. Loan origination tools are vital to modernizing how banks interact with potential customers as well as how they deal with loan applications on the backend. 

Financial services customers want automated, personalized experiences. That may sound like an oxymoron, but it’s not. Automated solutions can offer a degree of convenience and personalization unmatched by traditional customer-service channels. A robo-advisory software, armed with all of a customer’s personal information, can make informed investment suggestions and decisions on behalf of that customer. Fueled by troves of customer financial data, financial services institutions are looking to automate as much as they can. Software vendors that hawk products that can help catalyze that automation should look to target at-risk financial services institutions. 

The effect on software vendors

Financial services companies are fighting to retain customers, who are armed with a glut of options and low switching costs. In their attempts to do so, financial services institutions are looking for fintech solutions. Fintech vendors must respond to shifting consumer needs as their own customers are willing and able to jump ship for better solutions. For example, 29% of G2 reviewers for products in the Loan Origination category reported switching from a competing software product. Switching costs are low in a cloud-based world, and vendors must adapt to a changing environment by providing solutions that will help their customers retain their own. 

In order to stay competitive, software vendors must be security-conscious. G2’s recent 2021 Buyer Behavior Survey found that security was a top-three priority for all business size segments (SMB, mid-market, and enterprise). Security was the number one concern for enterprise buyers. In financial services, which features year after year as one of the industries suffering the most cyberattacks, security is a particular concern. What concerns software customers (financial institutions in this case) concerns software vendors. To alleviate potential concerns, software vendors must build security into their products. The group of categories known as DevSecOps software can help. If a vendor’s product is built with security in mind, their marketing strategy should highlight that. 

The future of digital banking

Digital banking will become paramount to banks’ customer strategy in 2022. To retain and acquire customers, financial services institutions will look to AI-powered solutions that will help them offer digital products across a variety of channels (mobile being the most important). I also expect to see an uptick in the number of financial services-focused cloud platform as a service (PaaS) solutions, with security and compliance baked in, as infrastructure vendors recognize the unique needs of the industry. 2022 will be digital banking’s year.