The COVID-19 pandemic has ushered in immediate, large-scale operational changes for financial institutions (FIs) in the EU, U.K. and U.S.
Brick-and-mortar branches shuttered as social distancing measures were enforced, and customers subsequently turned to mobile apps or websites to fulfill their banking needs rather than risking in-person visits. Online account openings have increased 14.5 percent for community FIs in the U.S. during the past two months, for example, and mobile banking app downloads saw a 60 percent jump.
The virus’s impact has not been solely responsible for this rush to digital, but it has given the trend a push. Eighty percent of Americans noted in February that they would rather use online banking platforms than visit branches, meaning consumers have been using such options long before stay-at-home orders required them to do so.
The COVID-19 pandemic has removed the choice and forced FIs and customers to interact via digital platforms, though, and brick-and-mortar branches have become auxiliary services with limited use for more complicated financial tasks for those who remain branch-dependent. The resulting shifts could have profound impacts on digital financial tools’ growth in markets around the world.
FIs must therefore prepare for a future in which banking preferences and strategies depart from tradition and customer interactions must be re-imagined from a digital perspective. Many have been carefully coordinating their digital offerings to move away from outdated core banking infrastructures, but they must pick up the pace on their innovations. Digital technologies that can be quickly developed and integrated into banks’ platforms, particularly those that enable faster payments, will therefore be critical.
The following Deep Dive examines how digital banking preferences are evolving as well as the ways FIs and FinTechs are responding — and partnering — to stay competitive.
Confronting Digital Banking Reality
Innovating for the future requires FIs to confront lingering assumptions about digital banking and what users expect from the industry. Seventy-three percent of banking customers access online accounts at least once per month, according to a 2018 study, and a growing number are checking their finances on mobile more often. Customers worldwide clicked to open their banking, Fin-Tech or mobile wallet apps more than 1 trillion times in 2019, another report noted, and the appetite for such services is growing in markets like Japan and India as well. Finance app interactions jumped 95 percent in the latter country between 2018 and 2019, while the former saw a 30 percent rise in consumers accessing these applications during the same time frame. These customers have become accustomed to digital banking tools, however, meaning their banks and FinTechs must develop creative ways to retain them.
Banking customers are searching for personalized solutions rather than general tools, and offering such solutions is one way to incentivize customers to stick with one provider instead of seeking another. This includes being able to easily switch between bank accounts, access data-driven insights into their finances, swiftly receive refunds and disbursements and, perhaps most importantly, the ability to quickly and conveniently make payments.
Digital financial tools have become staples for customers over the past few decades, meaning banks that provide only basic digital support will fall noticeably behind on innovation. Forty-five percent of U.S. consumers noted in one recent study that they have used some kind of mobile wallet since the outbreak began, and they are also reporting more interest in contactless payment solutions.
Consumers’ familiarity with online and mobile tools indicates they are thinking differently about banking than they did in past decades. Adoption is set to continue, too, with users largely expecting more personalization as these products grow in popularity. Reliance on digital banking and payment tools also means FIs must seamlessly support an increasing number of digital consumers, a task that has become even more critical in light of recent events.
The financial industry largely anticipated a boost in consumers using online and mobile banking tools during the COVID-19 pandemic, but the sheer volume of digital requests and transactions still caught banks by surprise. Quickly and seamlessly responding to these shifts was critical for FIs and necessitated more scrutiny and support for their online and mobile payment solutions.
FIs and their FinTech partners have responded to the pandemic by revamping how they think about payments and examining the methods that have become more important to customers since it began. Consumers are eschewing cash following reports that it could transmit the virus, with those in Germany turning to contactless and online transactions instead, for example.
The nation’s banks have worked to keep up with this trend. More than half of all transactions in Germany are now contactless, compared to 35 percent prior to COVID-19. Local FIs Raiffeisenbank and Volksbank have teamed up with technology provider Apple to accommodate this volume by allowing customers to make payments with Apple Pay. U.S. consumers have also developed greater interest in such payments, with one recent study finding that 51 percent now use contactless payments of some kind.
The pandemic also appears to be enhancing mobile wallets’ and other online payment methods’ roles. Digital payment service and wallet provider PayPal saw its overall payment volume grow to $68 billion for the first quarter of 2020, for example — a 22 percent increase from Q1 2019. This shows that many consumers are already thinking of payments as primarily mobile or online activities. The rush of those who are downloading finance, food delivery and grocery apps they can link to their debit cards also shows mobile has become a robust channel for eCommerce and finance in consumers’ minds.
Banks and FinTechs must be aware of this shift and consider how best to interact with consumers who want the convenience of mobile as well as personalization from these familiar apps. Those looking to master the digital transformation accelerated by the COVID-19 pandemic must carefully follow these trends and support robust mobile apps, particularly those that enable quick payments or meet more complex banking needs. Partnering with FinTechs and other third-party providers may be the best way for these entities to do so quickly and efficiently.