The digitalization of almost all modern consumer services is becoming increasingly necessary for industries across the globe to deliver relevant value to their users. This phenomenon has resulted in several emerging cross-industry trends that have led to a transformation in the expectations of how customers access goods and services.
These new expectations have forced companies of all sizes to adopt emerging technologies and modernize their businesses to remain relevant. Banking is one of the industries that has experienced these changes the most and has witnessed the whirlwind of digital initiatives that have completely disrupted the industry, especially since the COVID pandemic.
World Bank Group President David Malpass said, “The digital revolution has catalyzed increases in the access and use of financial services across the world, transforming ways in which people make and receive payments, borrow, and save.”
Banking users are now demanding digital solutions and are more aware of all they can now do using their computers and smartphones. Henceforth, it’s no surprise that traditional banks keep losing their appeal, and online banks have become the new belle of the ball.
The pandemic may have accelerated the adoption of digital banking solutions, but mobile banking platforms and Fin-techs have been around for a while. What COVID did was bring mobile banking’s benefits to the surface and drive its accelerated adoption. As a result, traditional banking methods are slowly but surely getting outgunned, and digital banking – especially mobile-only banks – is becoming the norm. This way, online banking is reshaping the landscape of the world’s financial services industry, a future where in-person interactions are no longer the status quo.
As many experts think that online banking is the future and has the potential to take over traditional banking, Professor Vincenzo Capizzi, SDA Professor of Banking and Insurance told International Finance that mobile banking cannot take over traditional banking as it fails to build customer relationships.
Professor Vincenzo Capizzi said, “Mobile banking is certainly an important value driver in terms of competitive strategy, particularly in demand by the younger generations. But worldwide evidence indicates that the physical banker-customer relationship is essential. On the contrary, mobile banking helps to give added value to the physical relationship, which can thus be focused on a greater advisory content.”
However, vital questions remain: How are mobile banks impacting traditional physical banks? Will users drop their existing traditional banks altogether and switch to all-digital banking services? What are the benefits of mobile banks? What makes them superior to conventional banking solutions?
What is mobile banking?
The banks that don’t have a physical branch are referred to as mobile or online banks. These are full-fledged financial institutions without a physical branch, meaning they operate exclusively online. To access their services, one needs an internet connection and a smartphone, tablet, or computer.
Mobile banks typically offer the same services you would find at a traditional bank without having to physically go to a branch, stand in line, and deal with tellers, other clients, parking, traffic, etc. With mobile banks, an individual can easily open an account, make payments, transfer funds, and withdraw cash, all of these by using an app or website on the device.
Additionally, most online banks offer debit and credit cards with no monthly fees, easy cash withdrawals from various ATMs worldwide, and simple currency conversions. These features, and many more, are the reasons why mobile banking keeps gaining traction and surpassing traditional banks, which are struggling to keep up with the new normal.
Technology helping banks go digital
Thanks to technologies such as mobile internet networks, cloud computing, artificial intelligence, Big Data, and blockchain, the banking industry has taken the plunge into becoming a predominantly digital industry. This has forced traditional banks to transform and upgrade or perish. Also, due to these technologies evolving at unbelievable speeds, mobile-only banks are popping up left and right with new features and more services added continuously, broadening the scope of what we can accomplish through digital banking. This phenomenon has skyrocketed the popularity of digital banks, and their usage has increased significantly in the past decade.
In the UK alone, the number of mobile banking users rose from 30% in 2007 to 76% in 2020. This rise in the adoption of digital banking means that most customers are either no longer visiting physical branch locations or have dropped their traditional banks altogether to switch to a mobile-only bank. Consequently, traditional banks are starting to see digital banks as a genuine threat.
Aside from the evident benefits of digital banks, one of the root causes for online banking becoming a disruptive force and changing the face of modern banking is the millennial population. Millennials are very tech-savvy and grew up during the boom of the digital world, so they are more demanding, less loyal, and usually expect their products and services to be digitized, accessible, personalized, and efficient. Henceforth, for millennials, traditional banking is useless and obsolete. Actually, a survey from The Millennial Disruption Index found that 71% of millennials would prefer to go to the dentist than physically talk to their traditional banks.
Furthermore, 73% would be more excited about online financial offerings from Google, Amazon, Apple, PayPal, or Square than from their traditional bank. And, if we consider that millennials are the largest generation group on the planet, we can easily conclude that adoption rates for mobile banking are only going to keep climbing. For traditional banks, this means updating their archaic banking models or being doomed to slowly but surely disappear.
Are traditional banks going to disappear?
A recent study conducted by N26, a German online bank, shows a steady decline in the number of open bank branches in the US of 7% since 2012. This figure is expected to fall to 16,000 by 2030, and the decreasing trend suggests that all branches will close by 2034. Furthermore, the study also shows that 46% of Americans believe that the current banking system needs to change, and 16% say they don’t trust banks.
From these figures, we can easily conclude that traditional banking is on its way to oblivion. The current banking system is flawed, and most conventional financial institutions aren’t keeping up with shifting consumer habits. In addition to the pandemic, which was a fantastic driver of this shift in habits, younger generations aren’t exactly branch-friendly. They are digital natives, which mean that mobile banking wasn’t a pandemic-driven transition for them; it was the norm. These larger generational groups drive online bank adoption through the roof and bring to the surface evident flaws in the current banking system.
Added to this is that many traditional banks are taking too long to abandon their obsolete legacy systems and aren’t leveraging new emerging technologies to effectively challenge their digital counterparts and meet the needs of younger customers. FinTechs and online banks have taken advantage of these unmet needs. They have created a mobile ecosystem with a broader scope of features that gives their users power over their financial lives and redefines what they can do with just a swipe of their finger.
Nonetheless, however pervasive mobile technologies have become in our lives, the truth is the basic need for banking services remains unchanged. People will always need to make deposits, open new accounts, get new debit and credit cards, apply for loans, and purchase goods. And even though you can perform all of these tasks using online banks, there will always be customers who value human-to-human connections when it comes to something as personal as money.
In fact, according to a recent study, 73% of surveyed customers still prefer in-person interactions when dealing with the financial aspects of their lives. The N26 research we touched on earlier also shows that 89.2% of Americans prefer to stick to a bank with physical branches. They rank access to cash (53.7%) and in-person advice (50.4%) as two of the top benefits of physical branches over online banks. Furthermore, they found that security was a considerable concern when switching to online-only banks, followed by the lack of human interaction.
While witnessed a considerable rise in the adoption of online banking, we can’t confidently conclude that physical branches will disappear at any point soon. There might be less dependence on physical branches moving forward, but in-person banking will likely remain an integral part of the modern financial industry. People will probably see physical branch locations embracing hybrid strategies that marry the benefits of the online universe with the in-person needs of their customers. This way, traditional banks will supplement their branches with digital tellers, chatbots, virtual assistants, and remote appointments, among others.
On that same token, having the best of both worlds is exceptionally beneficial for the industry, especially when considering that digital-only solutions aren’t the answer for every customer. Some people don’t have constant access to a smartphone, Wi-Fi, or mobile internet. And even if they do have access to said elements, some customers aren’t capable or savvy enough to conduct their banking digitally, some distrust the online system, and some simply don’t want to. For this reason, it’s essential to keep the physical, in-person solutions while implementing and improving access to online services.
According to Marie Kemplay, head of Americans Credit, a financial institution, said, “There might be less dependence on physical branches moving forward, but in-person banking will likely remain an integral part of the modern financial industry. We will probably see physical branch locations embracing hybrid strategies that marry the benefits of the online universe with the in-person needs of their customers.”