The Impact of Mobile Card Apps On FI Customer Retention

The trend toward digitization in consumers’ lives isn’t new, but COVID-19 has accelerated it dramatically over the past several months. Community banks and credit unions are feeling the pressure to boost their digital card services or risk losing customers to megabanks and digital challengers, Ondot Systems’ Chief Strategy Officer Todd Lesher told PYMNTS in a recent discussion.

It’s a story told by the data itself, Lesher said. Deposits had already been trending away from community banks and credit unions anyway, but COVID-19 has accelerated that shift.

In fact, the majority of 2020’s new accounts have gone to megabanks and digital banks, not to community institutions. In the past 90 days, Lesher said, 51 percent of new accounts have been opened at megabanks, 18 percent at digital banks, 15 percent at regional banks and just 10 percent at credit unions and community banks.

FinTech players are also grabbing deposits. Square announced $1.3 billion deposits in April — a tripling over the company’s recent history. Meanwhile, Venmo added 8 million new users in Q2 to bring its total to 60 million.

On top of that, banks and credit unions are seeing their costs go up as branches close and customer calls have skyrocketed, Lesher said.

And lastly, COVID-19 has pushed the majority of commerce online, which can be bad news for smaller financial institutions (FIs). Lesher said that’s because consumers “are often putting their card on file at the merchant or leveraging their mobile wallet to make these payments. And once a top of wallet is set, the card becomes invisible and changes very infrequently.”

He said smaller banks and credit unions that fail to grab the top position will miss out on the chance to tap into more than $100 billion in credit spend that will likely transition to debit in the coming months.

All told, Lesher believes small financial institutions are at a crossroads when it comes to their card products. They can either modernize and be positioned to make the digital leap with their consumers, or they can hold back and run the risk of being left behind.

What Modernization Looks Like

Lesher said a few key features comprise a modern, digital-first offering.

First, when an FI issues or replaces a customer’s card online, it can do so instantly via the push of a digital card to the customer’s mobile wallet of choice while the person waits for a physical card’s delivery.

Second, a modern offering also allows customers to see and understand their transaction details because all merchant data is cleansed, appended and accurate. Customers can also set preferences for their cards in terms of spending or location limits. In addition, Lesher said modern cards are tied into a financial institution’s rewards programs such that users can easily engage in real time with their FIs’ offers.

“What we have seen is digital becoming the new [bank] lobby during this pandemic,” he said. “But there’s a broader trend at play. Payments are increasingly becoming the doorway to the world of connected commerce. Having a healthy, lasting customer and member relationship is increasingly becoming about institutions opening that door with modernized card offerings. [That’s] key to maintaining customer relationships and growing deposits.”

It’s also key to capturing the younger demographic segments where many small FIs currently lag. For instance, millennials and other younger consumers are increasingly drifting away from community banks and credit unions because they expect a high level of digital services. Lesher said that’s a “clear and present danger,” lest smaller FIs fail to connect with a demographic that’s entering its prime spending years.

In fact, he said financial services’ long-term path will increasingly be defined by consumer expectations around digital. Lesher said FIs that can’t meet those expectations won’t likely survive the coming evolution.

The Immediate Payoff

But digital commerce’s rapid acceleration due to COVID-19 has made the wisdom of investing in card monetization more than just a question of building for a financial institution’s long-term health. Instead, the return on investment (ROI) on card monetization has become immediately apparent.

For example, real-time fraud alerts and self-service fraud controls such as the ability to log into an app and turn a missing card off can cut the number of fraudulent transactions way down. Lesher said such tools can reduce scam transactions to just 1.3 on average before someone notices a card has been breached or stolen. By contrast, thieves usually get away with three or four transactions without such tools present.

Moreover, Lesher said issuers risk less customer attrition when card replacement happens digitally and instantly. There are also typically fewer chargeback disputes when consumers aren’t confused by opaque merchant data on a card statement.

Additionally, FIs often see greater consumer satisfaction when card management can be done in an app instead of via phone call. And firms reap revenue benefits when they capture top-of-wallet status in the increasingly relevant world of digital wallets.

The bottom line: small banks and credit unions are out of time when it comes to providing modern card offerings, Lesher said. When customers don’t find the digital services they want at one FI, they go to the provider that offers what they need.