The shift toward digital banking: How “sticky” are new customer behaviors?

Author
Ruby Walia
Publication Date
14 September 2021

The shift toward digital banking: How “sticky” are new customer behaviors?

The impact of COVID-19 has been far-reaching, impacting a wide swath of industries. Businesses have had to adapt to unfamiliar operating conditions and a difficult macroeconomic environment. They’ve been forced to rethink models and strategies amid shifts in customer preferences and circumstances. But how much of this change is “sticky” and how much should we expect to eventually return to pre-COVID behavior patterns?

This is certainly a primary concern in the banking sector, which has traditionally been slow to change and is now grappling with decisions around how much and how quickly it needs to alter the way in which it acquires and serves customers. While the industry has had its fair share of missteps, banks are broadly trusted and considered secure - depositors generally believe their money is safe. Maintaining the business practices necessary to remain trusted and secure while adopting the agile experimental nature of a digital venture can be quite a balancing act.

Despite these challenges, banks were quick to realize that their branch network models were out of step with the COVID induced “remote economy” and have been steadily strengthening their digital capabilities in response to this shift. They’ve increasingly moved away from paper-based transactions and physical interactions toward those that better leverage technology and electronic connectivity—digital banking.

It started with the iPhone

This reorientation has not just allowed banks to respond to fast-changing customer preferences. It has also served to drive increased adoption of digital banking among an expanding demographic. While the younger generation has been at the forefront when it comes to embracing the digital model, the realities of the pandemic have encouraged others to do the same.

That said, it would be wrong to assume that recent events are solely responsible for the shift. As my fellow panelists and I noted at the July 2021 Mobiquity-FinTech Finance webinar on digital banking, increasing consumer usage of online and app-based financial products and services is not just a recent phenomenon. Rather, it reflects a trend that has been underway for some time, driven largely by three key catalysts:

  • Advances in technology and connectivity. Smartphones have become ubiquitous since Apple launched the first iPhone in 2007, with more than 4 billion people now connected around the world. Along with step-change improvements in cellular and broadband network speeds, this has served as the impetus for financial institutions to rethink how they engage with customers.
  • Changing consumer preferences and lifestyles. Rapid innovation, the shift away from 9-to-5 routines, burgeoning on-demand businesses and models, and an uncertain economic backdrop have fostered a growing interest in financial products and services that are readily available and accessible.
  • Competition from “neobanks” and fintech start-ups. In established industries dominated by large players—such as banking—the efforts of scrappy upstarts are often dismissed at first. However, when the new entrants start grabbing a meaningful share of the market, the new ways of doing business can become highly contagious.

A one-off shift…

This doesn’t mean that COVID-19 hasn’t played a critical role in accelerating digital banking adoption. Amid lockdowns, work-from-home mandates, and other measures aimed at keeping COVID-19 at bay, many consumers who might otherwise have carried on managing their personal finances as before had little choice but to consider new approaches.

As a result, we’ve seen a dramatic increase in usage of different digital capabilities, including mobile check deposits, instant account transfers, electronic bill payments, and other so-called killer features—not to mention remote account opening and banking by appointment. The result: five years of growth packed into roughly 6-9 months.  So the key question, of course, is whether the recent acceleration, or even the longer-term uptrend, will maintain its momentum.

…or the new normal?

For my fellow webinar panelists, including Jorge Camargo of Bank of America and Matthew Williamson of Mobiquity, and me, there are reasons to believe it’s still early in the game as far as digital banking is concerned and that there’s much more to come. Aside from the structural elements that drove things to where they were up until 2020, the trend that banks like Bank of America are observing suggest that digital banking adoption will in fact remain “sticky,” and part of the new normal for customers from all walks of life.

History suggests that people tend not to change deeply ingrained behavior unless they are forced to do so for some period. After more than 18 months of having to think and act differently, many have developed new habits, which have been in effect long enough to replace some that existed before. That may well be one reason, for instance, why many employees are reportedly reluctant to give up working from home and return to the office.

Lending further weight, many bankers increasingly see digital banking as an important and fast growing part of their omni-channel customer experience strategy. Among other things, it offers a way to migrate cumbersome and costly processes, such as depositing a paper check, away from traditional high-cost channels to more efficient digital channels.

In addition, digital banking helps create additional touchpoints for customers, allows banks to offer a broader spectrum of financial products and services than their branch footprint might allow, and enables them to create and reinforce cradle-to-grave relationships. Indeed, as the survey results featured in the January 2021 Mobiquity Digital Banking Report—and countless research studies—make clear, digital tools have the potential to drive sustainable customer loyalty.

A future of delightful experiences

That said, while it’s a good bet that digital banking will become more ubiquitous, especially given the resources that banks have at their disposal, it’s not a lay-up, as my fellow panelists and I alluded to at the Mobiquity webinar. For one thing, there’s a learning curve involved, and some institutions will invariably experience mistakes and missteps along the way.

Success will also require a strong commitment from the top. Key performance indicators, or KPIs, must be customer-centric, focused on creating genuinely satisfying experiences. Employees across the organization—from operations to front-line sales—will need to adopt a digital culture mindset and think well beyond branches and traditional interactions.

In recent years, the Banking industry has become earnest about innovation. There is broad acceptance that banks must introduce new products and services, enabled by new technologies, that better fit contemporary customer needs and lifestyles. Customers now expect to have frictionless omni-channel access to these always-on products and services. New AI and Machine Learning technologies are also making it possible to deliver personalized spending related insights and guidance in scale. While some banks and fintechs have started to do this, the industry has a lot more opportunity in this space. Assuming the industry gets it right, we can look forward to a world where innovative digital capabilities enable banks to deliver “delightful experiences,” engendering loyal — and profitable — customer relationships.

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