How to Ride the Digital Wave

The digitally savvy consumer base is rising fast. Banks can surf that wave—or drown in it.

Over the past 12 months, many bank clients have become much more at ease with digital interactions, which has resulted in decreased branch visits. What would happen to retail banks if they never returned?

Investing in mobile banking is hard to evaluate in terms of return on investment. Although most retail banks recognize that digital and mobile banking services are an essential expense of doing business, the value these technologies offer is hazy, and challenging to quantify.

Regardless, consumers continue demanding digital banking services, and it’s very unlikely this trend will stop soon.

There’s a sizable and expanding client sector that’s not at all interested in physical bank branches. These are digital-native consumers who prefer to skip branches entirely and instead be actively engaged online. According to PriceWaterhouseCoopers’ study on digital banking, these consumers now make up more than 32% of total banking users. This is a significant increase from 26% at the beginning of 2020.

The proportion of consumers who are mostly engaged digitally—but like having the option of visiting a local branch— underwent a significant and counterbalancing reduction. Many of these customers stopped visiting physical branches altogether this year. Or, to a lesser extent, they do the majority of their banking operations online and visit branches only when there’s something they don’t know how to do online.

PWC, in its study, defined two types of consumers. Consumers who are “phygital” are active customers who use digital apps but also visit physical branches. The second type embraces those who are branch-dependent and prefer to visit physical stores. In the United States, 25% of customers now identify as “phygital,” up from 17% a year ago due to this expanding digital comfort and accessibility.

As more consumers have gotten accustomed to using the Web and mobile apps, this shift neatly reflects the decline in branch-dependent users. This group now accounts for 35% of the total user base, down from 42% before the pandemic.

Of course, another category of people prefers to bank only digitally, but these are mainly innovators who use neobanks and challenger banks.

Don’t Lose Customers

Did you know that, on average, bank clients who use digital banking spend more and adopt more bank products? That’s not to mention that digital users enroll in far more product holdings such as loans, refinancing, and credit cards.

Bank of the West partnered with Fiserv to study an audience of 6,000 clients and determine how digital banking affected the behavior of users. In the study, the researchers found that:

• The average holdings of clients increased by 58% after having enrolled digitally. The growth of the holdings of non-digital users for the same period
  was negligible;
• The revenue generated per client increased by more than 10%. Monthly revenue per client grew 10.7% after signing up for digital banking versus a 4.5% growth for non-digital customers over the same time period. Greater engagement resulted in greater value. After digital enrollment, average monthly revenue increased by 13% among highly engaged clients. The study defined highly engaged consumers
  as those who stay with a company the longest, conduct the most business, and bring in the most money.
• Digital users had increased transaction activity. After digital registration, the study observed a 12% rise in credit transaction volume and a 12% growth in transaction frequency, compared to barely detectable increases for non-digital users. Similar outcomes were seen for debit activity:
  a 14.6% rise in volume and a 9.3% debit transaction increase.
• Compared to non-digital users, digital banking customers were 35% less inclined to leave the bank for good.

With the constantly growing percentage of digital and “phygital” banking users, Statista estimated that only in the United States will digital banking users reach 217 million by 2025. As a bank, you’re most likely to lose customers if you cannot serve one-third of the country’s population.

Fresh Potential

The easiest way for brick-and-mortar banks to transition into the digital world is by partnering with third-party neobank-as-a-service providers that offer turnkey solutions which can, in the span of a couple of months, digitize processes and offer them a working digital-banking application, on par with modern neobanks.

The banking environment has never been so dynamic and quick-paced. Neobanks have disrupted clients’ expectations, and now they want to be able to digitally bank comfortably from the palm of
their hands.

If you’re willing to reconsider geographic restrictions and are prepared to expand upon the skills and specialties you already possess, there’s still time to adapt. In fact, PWC’s study indicates fresh potential for organic development.

Customers have already settled into new purchasing habits in the wake of the pandemic, which will have long-term effects. This can be a great opportunity for both banks and neobanks alike.

—Serge Beck is chief executive and founder of Optherium Labs