For many Americans, the concept of digital banking isn’t new. Even if most people aren’t tipping waitresses with Bitcoin or managing their stocks on Robinhood, the average consumer at least has a banking app or uses some online money management resource. From comparing loan options via an online lending marketplace to checking your bank account from your phone, the world of banking isn’t what it was just a decade ago.
Consumer adoption of digital banking is continuously rising, and recent trends only fuel that growth. Let’s take a deeper look at these trends and how they affect the future of digital banking and financial institutions as a whole.
Digital banking was already on the rise before the COVID-19 pandemic, but as Americans were told to stay home and any interaction seemed dangerous, online tools became essential for people of all walks of life. Industry leaders noticed a surge in online banking use as customers downloaded apps and accessed websites for information and tools instead of visiting a physical location.
Fidelity National Information Services (FIS), which works with 50 of the world’s largest banks, reported that mobile banking registration jumped 200% in April 2020. Mobile traffic to banking websites also rose 85% that month.
While many laggards would have at least tried mobile banking in the coming years, the pandemic drove people who wouldn’t necessarily try this option to change their behavior in droves. Furthermore, this change is expected to be permanent, with few people expected to delete their apps or resume in-person banking exclusively once the pandemic ends.
“Once people begin favoring mobile-based account access, there’s no going back,” Maria Schuld, division executive at FIS, tells CNBC. “After the current crisis abates and lockdown orders are relaxed, we expect more US consumers than ever before will be using their mobile devices to handle a wide range of their banking and payments needs.”
While 40% of customers say they plan to return to bank branches once the pandemic ends, this customer behavior will likely reflect a hybrid use: logging in via mobile at times while seeking in-person help other times, rather than limiting use to 1 or the other.
There’s a new set of competitors fighting for the business of financial giants like Bank of America and Wells Fargo: neobanks. A neobank is a mobile-only or digital-only banking platform and serves as an alternative for users who don’t want to visit physical locations.
Neobanks are increasingly favored by younger generations and digital natives who have grown up with virtual customer service and don’t see the need to enter a brick-and-mortar bank or deal with physical currency.
Neobanks can also serve as alternative opportunities for unbanked households and individuals—people who don’t have a savings or checking account. The number of unbanked households has dropped over the years, from 8.2 million in 2011 to 5.4 million in 2019, according to the FDIC. (To date, 94.6% of American households are considered “banked” or have at least 1 checking or savings account.)
Unbanked households often turn to neobanks because they don’t have as many fees as traditional banks and can be less intimidating to work with. Many neobanks also have built-in digital tools for budgeting or financial planning, meaning they provide more value and assistance to those who need help managing their money.
Along with moving toward digital banking, more customers are using mobile payment apps like Venmo and PayPal, often syncing these apps to their bank accounts instead of using credit card payments.
The team at Apptunix reports that mobile payment use will grow exponentially in the coming years, with an industry value of $4.69 trillion by 2025. This is an increase from $189.64 billion in 2017 and $1.14 trillion in 2019. Mobile payment use is expected to surpass other methods like credit card charges or cash payments by 2022, with only debit cards remaining popular as alternative payment options.
This data correlates to banking in a major way. Customers are going to expect their banks to work closely with mobile payment firms and have existing APIs set up to connect to them. In April 2020, Venmo even created a guide to help people receive their stimulus payments via the app. The companies that don’t embrace mobile payments and work with the largest payment providers are going to disappoint and frustrate customers.
Customers turn to online banking and financial service for a variety of reasons. Some don’t want to visit physical locations because of the pandemic, while others want a purely digital experience from the get-go. Some appreciate the flexibility and options of online financial marketplaces and seamless tools.
It’s up to banks to embrace trends in customer behavior and keep up with user demands. Teams that get bogged down in maintaining legacy systems or push back new tech projects for a few more years risk falling behind the digital ball and losing customers as a result.