Customers Cite Trust and Security as Restraining Factors in Adopting Digital-Only Banking Service

Banking customers have made it evident in a PYMNTS study that convenience and ease of use provided by technology-based services are of utmost value to their experience, which is a deciding factor in making a banking choice. This preference is driving the digital-only bank to develop new products and services catering to the interest of its customers.

Understanding Customer Preference

Modern consumers expect digital access to be part of their banking experiences. Digital Banking, a recent PYMNTS and Optherium collaboration, that lays out customer perspectives of the landscape. The study reports that although online banking services are in demand, 18% of the 2,225 consumers surveyed still shy away from connecting to their bank accounts via some digital method. And 11% of consumers still interact with their accounts mainly at a physical branch.

Although the interest in digital banking services is high among customers, with 60% banking primarily via a mobile app, a staggeringly low 7 out of 100 consumers bank primarily at a digital-only bank. PYMNTS has found that this unmet demand presents new opportunities for digitization.

Furthermore, this exposes traditional banks to more competition from non-bank firms. The research revealed that banks and non-bank providers have many opportunities to meet consumers’ growing demands. Data shows that 49% of consumers are highly interested in receiving online banking services from large companies. An additional 41% of employed consumers are interested in receiving online banking services from their employers.

The market is a long way from the complete adoption of digital-only banking services, leaving substantial growth opportunities for traditional and new providers, especially large companies including the primary banks with which consumers now have their banking relationship.

The high expectations for smooth experiences from trustworthy brands justify why consumers would seek digital-only banking services. Customers value well-known and trusted companies with track records of providing excellent digital experiences and delivering reliable and secured products.

More interestingly, the generational transition and existing trends in the financial services market suggest that younger generations will look to digital financial services to help them manage their growing financial assets as they increase their earning power. A far larger share of Generation X (56%), bridge millennial (66%), millennial (66%) and Generation Z (64%) consumers are interested in shifting their primary accounts to digital-only bank accounts than baby boomers and seniors, suggesting an opportunity for digital-only and nonbanks to aggressively compete for a share of banking assets.

Digital-only banks have a significant opportunity to increase their share in the banking market by providing a convenient financial service that protects customers’ privacy and data — but their work cut out for them in proving that they can offer both.

The study found 22% of customers interested in digital-only banking services cited trust as the most important factor for making a digital-only bank their primary bank. Another 24% valued greater convenience. Ease of use, data security, mobile capabilities, fraud prevention and online capabilities are other factors that the customers value while choosing a digital-only banking service.

See also: How Banks and Payments Providers Can Protect Customers, Merchants From Fraud Threats

Focus on Data Security

The low adoption rate offsets the strong interest in digital-only banking. PYMNTS discovered that security concerns tend to depress consumer interest in obtaining digital-only banking services from non-bank providers: 47% of consumers not interested in digital-only banking services rated data security as the most important reason for not shifting to digital-only banks. Fraud was also an important concern as 41% of uninterested consumers identified fraud risk as a reason for their disinterest. Among the exiting users, a sizable portion reported important issues with digital-only banking such as trust (22%), ease of use (19%) and data security (11%).

The low adoption rate highlights an opportunity for banks and non-banks focused on digitization to promote their ability to provide convenient, reliable and secure services to meet market demand. They need to prioritize the security of customers because clients often neglect the privacy of their data by putting their sole trust in their banks.

“Consumers expect companies to protect their personal information from fraudsters, but they don’t want that protection to come at the expense of convenience. Balancing experience and risk is a massive challenge for us,” Anand Talwar, deposits and consumer strategy executive for digital-only bank Ally, told PYMNTS.

Technology has already provided simple ways to achieve this goal when executed at the right time. Passwords have served consumers for a long time but are no longer fully reliable against the threats of sophisticated fraudsters. New identity verification methods, such as biometrics and multifactor authentication, can better protect consumers and financial institutions from data threats. Consumers’ willingness to try advanced identity verification options skyrocketed during the pandemic, suggesting a ripe time for digital-only banks to offer these options to their customers.

“The world moves really fast in this space,” said Talwar. “We’ve invested already in a number of authentication capabilities and machine learning-based models, and we’re going to continue to introduce as many new capabilities as we can. We want to continue to evolve and make sure we’re moving to our goal of giving customers a convenient, frictionless experience while also making sure [they are] protected.”

As financial services continue to evolve, the need to understand consumer demands and expectations becomes more critical. Traditional banks are integrating technology-driven services into their operation to maintain the trust of their customers. Digital-only banks must step up and lead the digitization efforts by catering to the needs and concerns of the customers if they want to make a significant impact in the banking and finance markets.