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Interview: The future of banking is phygital

Traditional banks and neobanks have complementary strengths. Phygital banking services combine the best of both worlds and create new, exciting customer experiences.

The future of banking is phygital

Phygital services are considered “the next big thing” in the payment ecosystem.

Payments Cards & Mobile spoke with Gabrielle Bugat, Member of Group Management Team of G+D, heading the Card and Digital Payment Business at Giesecke+Devrient,  to explain what exactly this is, what opportunities it offers and what banks need to do to be part of it.

The term “phygital” has so far only been used by insiders.
What is behind it and what exactly does it mean in the context of payments?

With the ongoing digital transformation, the term “phygital” generally stands for the convergence of the physical and digital worlds.

The two are no longer seen as being in direct opposition, but analogue and digital processes are combined to create new, exciting experiences. In this sense, phygital is the combination of the best of both worlds.

What this means for banks and financial service providers, and what enormous innovation opportunities lie in it, we recently examined in the survey Opportunities in the phygital landscape.

The survey revealed the relevance of physical payment cards, which are and will remain being an important link between the bank and the customer in the years ahead.

Cards act as a unique brand element and can fit seamlessly into the phygital life of the cardholder by serving as the physical anchor for the digital services.

The banking world must take all this into account, adapt to these behavioural patterns and combine physical and digital services into new, phygital services in order to provide the best user experience.

Why is the phygital approach so important for banks and financial service providers?

Taking the example of branches, classical banks have the benefit of direct customer contact through a physical presence on site, while their weakness is the resulting costs. In the case of neobanks, it is exactly the opposite.

Due to the fact that they don’t have a personnel-intensive branch structure, they are weaker when it comes to customer contact, but very strong in digital tools and customer journeys.

In the survey, as many as 27% of neobank managers see a lack of trust on the part of their customers as a problem, compared to only a marginal 3% of branch banks.

So, what could be more obvious than to combine the strengths of both types of banks to stay competitive?

This combination must focus on customer centricity, the customers’ experiences and their desire for fast, uncomplicated and personalised contact and transaction options. This is the optimal approach for new services.

How can banks set up their phygital strategy?

Banks are embracing technological innovations to improve their banking and payment journeys. Important points are greater automation of processes and the use of flexible, scalable cloud platforms.

They are the technical prerequisites for a multichannel strategy that reaches customers via the many channels available to them. Individualised offers can then be provided for each customer at any time via these channels.

43% of the traditional banks and even 60% of the neobanks surveyed see a viable multichannel strategy as a major challenge.

However, in order to remain competitive, banks need to face this challenge by offering a comprehensive combination of physical and digital options and encouraging phygital experiences.

This can for example be with a physical card made of ocean plastic, that is digitally activated via smartphone, secured in the mobile wallet and finally connected to a CO2 tracking app.

What can phygital services look like in concrete terms?

The phygital approach is about combining the right physical and digital tools to improve the customer experience. This means for example virtual resources, such as tokenized cards or the digital activation of a physical card for fast and secure payments.

Or, using a “smart” card issuance letter with digital references for example enables banks to create more room for a physical presence and establish a digital direct interaction with their customers.

Of course, this results in an enormous wealth of data that must be used sensibly. That is why data handling, data analysis and data integration are paramount: 98% of all banks we surveyed see this as an opportunity for increased cross-selling and upselling, more personalised customer offers, as well as higher value creation in transactions.

Customer satisfaction is the benchmark and the goal of profitable phygital business models.


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