A few years ago, Mastercard removed the capital 'C' from its name to reflect its evolution from a physical card company to a payment technology company. Today, the term 'digital banking' is undergoing a similar evolution—in fact, we no longer need the modifier 'digital' because it has become an inherent attribute of banking. Although regulation once slowed the banking industry's transformation compared to other sectors, banking has ultimately integrated into the wave of online-offline convergence.

By 2020, people will no longer discuss whether a bank is digital enough, but rather whether its digitalization has a clear purpose or is merely digital for the sake of digital. Banking will emphasize meaningful digital presence: expanding digital capabilities to serve consumers more securely and with higher quality. Here are five changes expected to occur in 2020.

1. Financial services adopt the 'as-a-service' model

Banking is essentially a service industry. With the rise of Banking-as-a-Service (BaaS), 2020 will re-examine the true meaning of this service. BaaS is defined as banks sharing their technology platforms with fintech companies and other third parties. It complements open banking—which has enabled the sharing of consumer-authorized financial data. Open banking was initially mandatory in many regions, but in other parts of the world it has been promoted due to customer service needs.

Today, BaaS aims to transform the consumer experience by integrating multiple mobile-first financial solutions into a single platform. These platforms will allow consumers to access a range of services, including budgeting, loans, and stock trading. Banks adopting BaaS will no longer be single, end-to-end service providers, but open platforms that collaboratively build consumer financial service suites. However, effective implementation will depend on data-driven and enterprise-level BaaS strategies to ensure high return on investment. In an increasingly competitive market, BaaS success requires support from all levels of the organization and a commitment to internal and external change.

2. Businesses demand paperless payments

Despite the emergence of new payment technologies, many U.S. businesses still use paper checks. However, according to the Real-Time Payments Innovation Playbook, 55% of business professionals rank real-time payments as a top priority for B2B payments. In 2020, access to these technologies—real-time payments, contactless payments, and cryptocurrency—will be crucial for attracting and retaining commercial clients. Faster payments will improve liquidity management, accelerate supplier invoice settlement, enable instant insurance claims payments, and reduce fraud risk.

Improvements in commercial payment technology provide banks with opportunities to enhance customer experience and increase profits through higher transaction volumes and fees. But as more digital players enter the B2B payment space, incumbent banks need to act quickly to avoid being overtaken by more agile competitors.

3. Big tech companies become big banks

Fintech has profoundly changed how banks and consumers access financial services, but incumbent banks still hold advantages over most small players in terms of budget and brand. However, the situation is different when new entrants are equally mature or even more powerful—enter big tech companies. Google plans to launch a 'smart' checking account in 2020, and Amazon and Uber have also announced plans to enter banking. These companies combine agility, cutting-edge technology, scale, and brand recognition, making them formidable competitors to both fintechs and incumbent banks. Their Chinese counterparts Alibaba and WeChat have already proven that banking services can be layered on top of an existing customer base.

A huge threat can also present a huge opportunity, and financial institutions need to develop creative collaborations in an evolving environment. To avoid disruption, incumbents should carefully assess their market advantages and make data-driven decisions on whether to partner or compete directly.

4. Digital connectivity brings digital crime

As the economy digitizes, so do criminals. Therefore, according to the annual global banking risk management study by EY and the Institute of International Finance, more than 80% of risk managers rank cybersecurity as a top priority. One reason is the Internet of Things (IoT): the more IoT customer touchpoints a bank has, the more potential entry points for cybercriminals to steal financial data. Other digital innovations, such as BaaS and mobile wallets, also present similar challenges.

As risks increase, banks need to develop comprehensive cyber strategies to proactively protect consumer data. According to a recent study by the Ponemon Institute, the average cost of a single data breach in the U.S. is $8.19 million, and failure to act could cause long-term financial and reputational damage to banks. An efficient and effective cybersecurity strategy should be embedded at every level of the institution and considered at the outset of any new service launch. Banks need to continuously assess risks and take action to maximize the return on cybersecurity investment.

5. Cashless movement promotes financial inclusion

According to the World Bank, 2.5 billion adults worldwide transact only in cash. They are more vulnerable to financial crime and often struggle to build wealth or manage income. However, as some digital banks and fintech companies offer cheaper and faster services than incumbent banks, banking is becoming more accessible. For example, companies like WeChat and Ant Financial have enabled millions of underserved Chinese consumers and small business owners to access secure payment and credit services.

Financial inclusion can benefit consumers and banks by reducing poverty and expanding markets. But opening up banking through digital innovation can also bring risks: credit defaults could put heavy pressure on fintech companies' low-margin operations; financial regulations may raise data privacy concerns due to greater network integration. Careful testing and contextualized consumer strategies are key to managing these risks and ensuring sustainable financial inclusion.