Digital banking is the new normal in 2021 after increasing popularity in 2020 as a result of Covid-19. Though it was already slowly rising in popularity, it wasn’t until the need for contactless payments that the popularity of digital banking accelerated amongst all age groups. Continue reading below to learn more about what to expect from banks and what this shift toward digital banking means for consumers.
It’s undisputed that 2020 delivered unexpected changes and challenges for banks, as many Americans were forced to become part of the digital banking ecosystem—whether or not that had been a goal in the past. While an increased emphasis on digital was already underway, the coronavirus pandemic expedited the process in ways that will continue to change the way you interact with your financial institutions this coming year. From banks limiting their branch access and hours, to the fear of coronavirus contaminating paper bills and coins, the Covid-19 pandemic has fast-tracked the changing relationship between consumers and their banks or credit unions. Trends that arose in 2020 are setting the stage for a digitally focused banking future that’s arriving somewhat earlier than imagined.
Accelerating the Existing Trend Toward Digital
Although digital banking had been moving mainstream, particularly for younger Americans, consumers of all ages have now hopped on board. “What we’re seeing is the greatest acceleration of digital banking in history,” Wells Fargo Securities analyst Mike Mayo told American Banker in June. “What’s taken place over the last few months may have taken place over two to 10 years” if the pandemic had not come along. During a September online event, Dino Trevisani, general manager, financial services market, IBM North America, spoke of consumers’ increasing comfort levels with both video and artificial intelligence. He further suggested that banks and credit unions will be making 10 years’ progress in more like five to seven years. Consumers have had to adjust to their bank’s digital offerings in lieu of patronizing their local bank branch. And, in addition to the required changes in bank branch use, ongoing health concerns have contributed to the rise of contactless payments. Add to this the pandemic economy’s low interest rate environment, in which consumers must seek far and wide—which means (or at least includes) online—for decent annual percentage yields, or APYs, on their money, starting with their banking relationship.
Making Larger Investments in Enhanced Cybersecurity Tools
While the increase in digital banking among consumers isn’t exactly a new phenomenon, the significant uptick in consumers’ use of mobile apps and websites for their banking transactions in 2020 creates a prime target for hackers. Because of this, banks and credit unions are pouring resources into digital security to protect consumers’ information and proprietary information. According to the Deloitte Center for Financial Services Global Outlook Survey 2020, 71% of bank leaders expect their organizations to increase cybersecurity spending, with cloud computing/storage and data privacy rounding out the top three areas of needed improvement to combat the risk of data breaches. Although the number of data breaches are down in 2020 from the year prior, 2019 saw 1,506 separate incidents resulting in consumers’ data being compromised. Because 61% of these incidents included banks or credit unions, the cybersecurity infrastructure within financial institutions needs to be as robust as possible. In 2020, Bank of America, Fifth Third Bank and U.S. Bank all experienced data breaches that led to consumers’ data becoming compromised. Now that digital banking is here to stay, cybersecurity is vital to customer acquisition, retention and satisfaction.
Creating Long-Term Customer Relationships Through Seamless Digital Tools
In a year that involved, for many, plenty of downtime with stay-at-home orders imposed across the country—mixed in with the reality of growing financial insecurity faced by millions—Americans had to take a closer look at their financial circumstances. Because of this, consumers leaving and selecting a new bank is an expected trend post pandemic. Foresight Research published a survey in October, involving nearly 11,000 bank and credit union members in 44 markets, suggesting that large multi-location banks (like Chase and Bank of America) will experience significant customer churn over the next two years. In the two years prior to the pandemic, the number of customers leaving their financial institution for another was around 12%—whereas this survey suggests it will jump to 27% for large banks between 2020 and 2022. Of those who indicated they intend to leave their financial institution, almost three fourths are Millennials or Generation-Z consumers. This is a considerable concern for banks, as it signals the need for further long-term resources and relationship building between the institutions and consumers. In an industry built on having human connection at branches, banks and credit unions are now faced with the challenge of keeping consumers engaged in an age of digital banking and social distancing. Part of retaining consumers in this changed environment is providing excellent tools, resources and services as part of the customer experience.
Chase recently released the results of its Digital Banking Attitudes Study, conducted with 1,500 consumers, including Chase and non-Chase customers ages 18 to 65. The study revealed Americans have largely adjusted to—and are ready for—a primarily digital banking environment:
- Four in five customers prefer to manage their finances digitally rather than in person.
- Roughly eight in 10 use a smartphone and/or desktop/laptop to complete banking activities.
- The vast majority of Chase (89%) and non-Chase (85%) customers feel they save time by managing their finances digitally.
- Nearly 70% of Chase customers, and 60% of non-Chase customers, completely or somewhat agree that they feel confident about the safety and security of making payments through digital apps or sending money through peer-to-peer apps.
- Only 10% of Chase customers and 14% of non-Chase customers completely or somewhat agree they do not typically manage their finances digitally because technology overwhelms them.
- Mobile wallets and peer-to-peer payment apps have also seen a significant increase in users and engagement since the start of the pandemic. And about three fourths of Chase and non-Chase customers say they’ll likely continue or begin using digital payment options even after the Covid-19 threat subsides.
Now that consumers have widely adopted digital platforms, banks—both traditional brick-and-mortar and online-focused—will battle for digital superiority.
Balancing In-Person and Digital Banking
Digital resources and tools are now a large focus for financial institutions and will be for the foreseeable future. But where does personal interaction come into play in this traditionally in-person business? Whether it is conducted in person at a branch, online through a chat bot or a combination of the two, the banking relationship—built on some form of loyalty to a financial institution—isn’t simply linked to chasing the highest interest rate or sign-up bonus. This important relationship is an interpersonal one, based in part on believing your financial assets are secure and feeling your needs are met. Without a human touch to the customer experience, consumers may begin to feel disconnected from their financial institution, potentially leading to ongoing customer churn. Allison Beer, head of digital for Chase, acknowledges there are and will be customers who have banking style preferences: “We already have a segment of our customers who bank exclusively digitally with Chase. That said, branches are still important to our customers and many visit their local branch to interact with their bankers and advisors. When consumers choose to bank with us, they do so because we give them options to bank where and how they want,” she says. Until the pandemic, financial institutions heavily relied on face-to-face relationships. Now that the world is rapidly changing, and will continue to do so post-Covid, you can expect your financial institution of choice to make a bigger investment in digital interaction and the cybersecurity that supports it. You can also expect your bank or credit union to develop more seamless digital tools and focus on the hybrid customer experience model—knowing consumers will likely be visiting their local branches less and increasing their use of digital banking for convenience purposes. According to Chase’s study, 85% of Chase customers and 81% of non-Chase customers feel that digital banking makes managing finances easier.
What These Changes Mean for Consumers
The so-called 21/90 rule is reflective of making significant, and eventually permanent, lifestyle changes, based on research that says it takes 21 days to make a habit and 90 days to stamp it as a permanent lifestyle change. We have far surpassed these date markers during the Covid-19 pandemic and, now that we are rounding the corner to 2021, the banking industry isn’t going back to what it once was. The movement to, and now emphasis on, digital banking was already happening prior to the pandemic. But once the world entered the reality of extended periods of social distancing, stay-at-home orders and all that goes with them, digital banking was no longer a nicety but a necessity. In the recent Informa Financial Intelligence’s FBX 2021 Banking Outlook roundtable, discussions about interactive teller machines, hybrid loan application processes and enhanced digital support and self-service suggested the next wave of banking innovations as the future of digital banking takes a clearer shape. The movement to online banking is now our reality and—while preceded by a slower ramp-up of changes to bank branches and moves toward a cashless society—it appears there is no turning back.