By: Doğuş Şahin
Published: February 04, 2022 | Updated: September 05, 2024
Read time: 12 minutes
- Table of contents
Introduction
Since the launch of digital-first cards, financial institutions have continuously evolved their digital-first strategies and products worldwide. Many have transitioned their existing card products into digital-first experiences, relaunching their plastic cards as dedicated digital cards.
At its core, digital first is the ethos in banking to design any financial product and service with the digital channel — the institution’s mobile app or website — as the primary interaction with its current and prospective customers.
This approach requires digitization of the full customer lifecycle, from how a customer is acquired and signs up for a new payment product to how they use that product, manage their spending, and how the bank engages with the customer. Digital first is primarily about the cardholder experience and can apply to a range of payment products — whether consumer or commercial, debit, credit or prepaid.
As consumer preferences for banking and payments evolve and competition increases, banks must view digital first as core to their innovation. Many consumers now expect it, and traditional banks and fintech innovators are responding in big, impactful ways.
Pulling together relevant resources and detailed plans is key for an impactful digital-first approach. Throughout Mastercard’s extensive work launching the Apple Card and initiatives with financial institutions, several key lessons have emerged for launching a digital-first strategy or progressing an existing plan.
In this report, we explore:
- the benefits of digital first for customer engagement
- common digital-first approaches
- lessons learned for financial institutions during their digital-first journeys
Why digital first: new ways to engage
One of the biggest drivers of digital-first solutions is the change in how consumers interact with their banks. Several key interaction points include:
- Digital channels rather than physical locations, including banking apps that offer onboarding and servicing.
- Self-service options without human-to-human interaction, including automation such as electronic Know Your Customer (eKYC) and customer-service chatbots.
- Synchronous (uninterrupted) and (near) real time where banking platforms use automation and big data for fast and accurate decisions along the process, including automated risk scoring, integration with external data sources and digital collection of documentation.
Digital first touches customer and enterprise KPIs under the larger umbrella of driving more and deeper customer engagement. Those benefits fall into four buckets: customer acquisition, spend, loyalty and cost efficiency.
Customer acquisition
Digital banking continues to grow, with 71% of consumers preferring to manage their bank accounts through a mobile app or a computer according to American Bankers Association.
Additionally, Bankrate found that the use of mobile banking as the primary method of account access increased from 15.1% in 2017 to 48% percent in 2023. Continuing to innovate new digital-first card offerings, accompanied by attractive customer value propositions, such as card features, pricing and benefits, can drive higher market share from underbanked and banked customers around the globe.
For unbanked customers, digital-first prepaid cards coupled with stored value accounts are key enablers for wallet and eMoney players to increase financial inclusion.
Customer spend
Digital-first cards can increase spend for small and large purchases, with contactless providing a more seamless experience. Customers are beginning to prefer and expect contactless payment options. According to a forecast by Juniper Research, total contactless payment transactions are expected to exceed $10 trillion by 2027.
With cards being provisioned to in-app wallets, digital-first cards are well-positioned to become top-of-wallet even for low-ticket transactions.
At the same time, advanced token-based security technologies and greater consumer confidence in shopping online help drive spend for large-ticket transactions with digital-first cards. Banks with digital-first converted portfolios have seen growth in value and transaction volume and e-commerce and cross-border transactions.
Customer loyalty
Digital-first cards substantially improve the quality and depth of digital interactions, which helps meet the needs and expectations of a wide range of consumers. A fully digital, self-service and real-time experience can help banks stay competitive and decrease customer attrition rates while improving the net promoter score for the channel experience.
Well-done digital-first experiences allow banks to engage with customers in new, personalized ways. Many organizations are tapping into contextual marketing to provide relevant digital offers and messages and one-click redemption of loyalty points. This approach makes customer loyalty more prominent, driving a stronger, long-term customer relationship.
Cost efficiency
Digital first is continuing to revolutionize cost-to-acquire new customers and cost-to-service existing customers, even beyond the significant savings from eliminating plastic cards.
Most customer-facing costs occur during customer acquisition. Bank overhead and time can be cut through automation and integration with technologies like eKYC, consent gathering that doesn’t require a wet signature, automated risk scoring for card limits, API-led background checks and instant issuance of the cards, minus delivery costs.
Even after sales, various workflows like card replacement, controls on specific transaction categories, card disputes and customer service chatbots significantly cut the workload for call centers.
Common digital-first approaches
Banks can choose different approaches based on their strategic vision and ambitions and the wide range of customer engagement benefits they’re hoping to deliver. Here’s how banks are using digital first in four scenarios:
Digital first for financial inclusion
Financial inclusion, especially in markets with few consumers with cards or bank relationships, is a key priority for financial institutions that rely on prepaid cards and stored value accounts to grow their footprint rapidly.
In the Middle East and North Africa, for example, where financial inclusion is a priority, an incumbent bank designed prepaid cards for underbanked consumers so they could send money to their home countries.
In another example, a regional telco revamped its digital wallet as a person-to-person (P2P) money transfer tool for younger, digitally native consumers.
In both cases, the prepaid cards, coupled with stored value accounts, provided quick customer onboarding with eKYC and no credit risk underwriting. In addition, the organizations offered advanced functionality that allows users to pay each other and make in-store and online purchases.
Digital first for cardholder conversion
Banks emphasize the safety and security of digital-first payments for first-time digital-first consumers while also serving the needs of more digitally savvy consumers.
Two banks in Europe, for example, have launched digital-first versions of their most-successful credit cards, emphasizing advanced security features through tokenization and integrated 3DS secure e-commerce payments. They’ve also touted features that allow consumers to track their spending with personal finance management (PFM) compared to their card statements.
The approach led to increased in-app tokenized payments at the point of sale through mobile wallets and more frequent storing of credentials-on-file with online merchants. In addition, the number of monthly active mobile banking customers is growing, contributing to higher engagement for the total customer interaction for all of their banking products.
Digital first for disruptive card propositions
Digital-first products can be differentiated through partnerships with larger digital-only banks or neobanks by combining a unique digital-first experience with a unique card value proposition (CVP) through rewards and benefits.
Neobanks in South America, Europe and Asia Pacific, for example, are bundling their digital-first cards with other products and offering different loyalty schemes that offer higher points for online purchases, as well as campaigns with digital merchants to offer complimentary subscriptions to digital services.
In another example, a US-based issuer saw many of its cardholders enroll in its new program that offered automatic cashback when they paid for a qualifying subscription with their debit card. The program also saw higher cross-sell for deposit products and lower attrition.
Some banks are also using gamification to encourage more digital purchases across more merchant categories, with chances to earn digital trophies and statuses.
Digital first for leveraging benefits and rewards
Digital first enhances the bank’s existing benefits and rewards network by making mobile the primary interaction channel.
For example, an incumbent bank in the Middle East launched a digital- first card for an international event taking place in their country for residents and visitors. As a first of its kind in the region, the product was an open loop, reloadable prepaid card launched for non-residents as well.
The bank also introduced a dedicated mobile app to embed its rewards and merchant offers network and Mastercard’s Priceless Cities network, which offered unique experiences during the event.
The app also provided location-based offers and curated “offers for you” to help consumers wade through all of the merchant choices based on their preferences.
Once a bank decides on the best digital-first approach based on their goals, they’re ready to start building their digital-first roadmap.
4 digital first lessons
Banks could choose different approaches based on their strategic vision and ambitions and the wide range of customer engagement benefits they’re hoping to deliver. Here’s how banks are using digital first in four scenarios:
Define a specific role for digital first in the bank’s overall strategy
In some markets, digital first has already become a consumer expectation, as people continue to enjoy the convenience of mobile banking with a variety of options to meet their needs.
Digital first can impact growth and revenue targets, including supercharging customer acquisition, lowering card operations costs and enhancing brand position. To launch the most effective digital-first experience, banks need to first clarify how it will fit with their overall market strategy. Key questions include:
- Which consumers are we trying to reach and what are the biggest challenges a digital-first experience can solve for them?
- Is the best approach to launch a new product to capture a new segment, refresh an existing proposition, or improve the experience across the portfolio?
- How will digital-first products benefit teams within the bank to support their goals, such as improving marketing ROI or the overall digital-banking experience?
- What are the expected benefits and which of those benefits can be captured first in a minimum viable product (MVP) and which ones should wait?
Banks have approached their digital first product launch in different ways. For example:
- A European neobank launched its digital-first experience to engage with a small group of loyal, high spenders. The bank wanted to use digital first to give these tech-savvy customers the ability to use the card as soon as they signed up. This was especially true in the context of the pandemic as the bank saw faster activation and early usage from these reliable spenders.
- A traditional European bank launched a digital-first experience as part of a broader offering refresh for their existing customers. Rather than focusing on a subset of digitally savvy customers, it focused on developing a digital experience for its entire customer base. The bank reported that customers adopting its digital products increased their spending by double-digit percentages compared to customers using the bank’s traditional card products.
Ensure the CVP and digital-first experience are complementary
Once a financial institution has developed their digital-first strategy and selected the consumers it is hoping to reach, it needs to understand their consumers’ needs and preferences. Given digital first is expected by consumers in many markets, launching digital-first products alone may not be enough of a differentiator and engagement tool.
The consumer value proposition (CVP) and the digital-first experience work together to elevate payments from being simply about a transaction to a broader story that is part of the consumer’s life. Banks have taken different approaches to digital-first CVPs in the market. Here’s an example of one that worked well and one that fell flat:
- One financial institution analyzed their end-to-end customer journeys from awareness and acquisition through usage by different consumer groups and their digital adoption readiness. It then designed a CVP that tied back to the needs of each segment across those journeys, developing a relevant product and narrative. Upon launch, this attracted a broad audience allowing the bank to quickly become a market leader for digital spend.
- One neobank in a heavily digital market designed a CVP on very rich rewards for one high-ticket category with infrequent spend, but it was limited in terms of traditional everyday benefits. As such, it was not a very attractive product and uptake was low, even for consumers who may have been interested in the category.
Design the digital-first product launch around a data-driven acquisition strategy, investments that go beyond awareness and the nuances of a digital product
The launch of a digital-first experience allows organizations to take advantage of the brand and acquisition benefits it can bring. Even a digital refresh of an existing card will benefit from a well-considered launch strategy. As with any payment product launch, there are several best practices to consider:
- Focus on solving the target audience’s pain points, rather than just highlighting new features
- Use data and analytics to better understand and identify consumers who may be interested in the new product
- Design marketing campaigns all the way through to ‘early month on book’ (EMOB), not just awareness and acquisition
- Deliver a more personalized and relevant experience for consumers with the help of Dynamic Yield
Digital-first products are unique. The following nuances need to be carefully considered when planning a launch:
- Digital channels allow for greater outreach and data-driven acquisition that can be incorporated into a smooth onboarding experience
- Different consumers have different levels of comfort with digital and will need education to understand digital’s benefits over physical
- Consumers expect digital experiences to improve over time, and become more personalized towards their specific needs, plus the launch needs to meet high market standards. Also, consider how enhancements to the digital experience are communicated.
Financial institutions have focused on different parts of their digital-first launches with different results. For example:
- A European bank made a significant investment in its digital-first launch, including an awareness marketing campaign and an activation offer with a large discount for first-time online transactions. The campaign and offer were successful in getting customers to sign up, but many were only attracted to the initial offer and new experience but did not continue to spend. Fortunately, the product CVP met key needs for consumers, so the product benefits communicated in the launch eventually attracted the right customers. The program had success after more time and investment.
- Before launching a new product, one neobank began to roll out certain elements of their digital first experience with existing customers. Their digital wallet was not up to market standards, requiring too many steps to make a contactless transaction and limiting customer engagement. With this insight, it was able to address this friction point so that the new product could be launched as a truly unique product in the market.
Make the digital channel part of a holistic, business-as-usual engagement strategy from the start
The communications to consumers during launch are important, but they are just the start, and too many organizations only think about the onboarding experience. With so many financial institutions launching digital experiences, leading banks will look for ways to elevate the experience across the entire customer lifecycle to drive continuous engagement.
The best communications strategies consider the entire customer journey and the engagement tools that will be most effective throughout. Contextual marketing and personalization are key components. This should be considered when the CVP is being developed so that any technical resource planning can happen at the same time and well before launch. That way it’s clear how this will go beyond the digital product to fit into a holistic omnichannel engagement strategy across the consumer lifecycle.
Some banks are designing their digital-first offerings with a holistic approach to customer engagement. For example:
- One bank first looked at their end-to-end customer journeys, from acquisition through to retention. It designed a 360-degree digital experience to address consumer pain points at every step, including friction during the application process or using the card for online transactions. By keeping customers engaged after acquisition, especially when the pandemic shifted spending online, it was able to capture market share much faster than competitors in the market who treated digital first only as an onboarding tool.
Conclusion
Digital first will continue to be the future of many card programs around the world, and for good reason given how effectively it meets consumer expectations and helps banks to reduce costs and drive acquisition. However, true market leaders will be able to use their digital-first experiences to connect and engage with their customers, bringing them value in new ways, every day.
Mastercard Services has helped numerous financial institutions launch successful digital-first programs. Mastercard Services also brings global experience, payments strategy expertise, end-to-end support from strategy to implementation to go-to- market, and best-in-class assets and capabilities.
Contact us to learn more about Mastercard Services and Mastercard Digital First.
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