How Will the Banking Market Change as Financial Institutions Prepare to Transition to Phygital?

The integration of physical and digital elements in banking, also referred to as phygitization, is now clearly shifting how customers and banks manage their payment cards and finances. The migration toward digital platforms has changed the way customers transact, obtain new products, and engage with banking services. This movement is being championed by leading smart card vendors and technology developers such as Thales, IDEMIA, Entrust, and Giesecke+Devrient (G+D), which have established themselves as key players in helping banks blend physical and digital components and adopt best practices.

Contemporary traditional banking models, including the card issuance process, typically depend on in-house back end systems and Information Technology (IT) infrastructure; however, a critical underpinning of the phygitization process is a shift to cloud-based operations. With innovative and new scalable services that communicate through Application Programming Interfaces (APIs), banks are experiencing flexible reactivity that caters to the demand they see from customers.  Implementing new features in the cloud leads to lower overhead costs and alleviates concerns about feature interoperability. Cloud-native services are much more likely to serve a larger number of customers than traditional in-house IT setups.

For the bank of the future, creating a clear roadmap is essential to ensure a smooth transition from a physical-first setup to embracing phygital banking offerings. As an example, the card replacement process can be frustrating for customers of banks still using legacy back end systems.  Digital instant issuance is being proposed as a silver bullet to this issue by enabling customers to receive digital payment cards instantly, while still having the option to request a physical card. In the vast majority of cases, the customer will still opt to have a physical card shipped to them and is a solution that has proven popular with new customers, driving an increase in customer retention and expansion.

Furthermore, credit and debit cards now often include value propositions such as rewards, which serve to provide a personalized experience that enhances customer loyalty. Contemporary card issuance workflows enable customers to select lifestyle-catered rewards, including cash back, cryptocurrency, or statement credits. This level of service customization allows card issuers to better understand customers’ primary spending behaviors and ensures the rewards they receive are relevant to them. This enhances customer satisfaction and loyalty without requiring tedious manual input from customers regarding their preferences.

To establish a truly phygital setup, banks must begin by adopting a flexible approach to customer interactions, which can involve making internal changes and consciously learning from each interaction to develop an understanding of the customer, leveraging extensive data on customer behaviors and preferences.

Additionally, banks can benefit from APIs that support a shift away from traditional applications. API-based services and cloud-native solutions  allow for an overhaul of daily banking operations, but also  drive synergy across the banking workflow. A modern and scalable setup can be achieved through the adoption of cloud-native back end infrastructure, which, in turn, drives flexible operations that meet customer expectations.

The movement toward digital services and platforms does not necessarily have to mean a movement away from physical banking. Providing a seamless blend of physical and digital offerings will be the key to expanding the potential customer base and retaining the personalized aspects of service offering, ensuring customer retention. Banks that look to digital will have to ensure there is still a place for the physical that can be augmented with phygital offerings.

Digitizing the personal touch has become a standard for remote banking services through dedicated mobile app features, including queue management, pre-appointment reminders, and identity verification. These features increase customer satisfaction by merging physical and digital interactions, which, for the bank itself, drives not just customer retention but also provides a competitive edge. Similarly, banks that develop targeted strategies using internal and external data instead of a generic approach will find a greater ability to tailor their strategies to specific localities, such as high-traffic branches. These data then enable meaningful business decisions to be made through analysis of physical interactions, which empowers financial institutions to customize their approach in identifying optimal products for promotion and determining the best locations.

Clearly, the physical element will still have a critical role to play as banks look more toward digitized offerings. While mobile and digital are coming more into play, the physical card will not lose its relevance, with digital offerings providing an accompaniment and supporting the physical, rather than acting as a replacement. Financial institutions that deploy digital solutions to augment and support their physical offerings will find the greatest success, catering to a wide range of potential customers with a wide range of requirements from their bank.