The Rise of the Digital-Only Banking Customer

Are banks and credit unions keeping up with consumer demands when it comes to digital banking offerings? With 46% of consumers using only digital channels for their banking, expectations are outpacing experiences at most organizations.

By Jim Marous, Co-Publisher of The Financial Brand and Owner/Publisher of the Digital Banking Report

The financial services industry has been working hard to deliver a better experience on digital channels. Building on an early foundation that focused more on cost savings than customer experiences, most banking institutions now realize they must improve delivery of financial services on digital channels to keep pace with tech organizations like Google, Amazon, Facebook and Apple (GAFA).

PwC’s 2017 Digital Banking Consumer Survey provides insights into the rapidly changing behavior of the digital banking customer. The most significant finding was the rise of a very specific group that PwC referred to as “omni-digital.” This segment uses only digital channels such as mobile phones, PCs and tablets to conduct their banking, avoiding traditional physical channels and call centers altogether.

The research found that 46% of consumers use only digital channels today. This is an amazing increase from the 27% share that was seen only four years ago. Other highlights from the research include:

• Millennials bank by phone, period – 82% of 18 to 24-year-old smartphone owners say they use mobile banking. This should be a wake-up call to organizations who are building branches ‘to reach Millennials”.
• Smartphone banking has gone mainstream – 60% of smartphone users report using mobile banking in some way, up from 36% four years ago.
• The branch is not dead – 62% of survey respondents felt it was important for their bank to have local branches. In the future, however, “branches” could refer to sophisticated ATMs or a small office providing virtual capabilities since the frequency of visits have dropped from “a few times a month” to “a few times a year.”

The Rise of the ‘Omni-Digital’ Segment

For the past several years, the financial services industry has talked a great deal about the “omni-channel” segment. These customers use a variety of channels (both digital and physical), with the goal of most financial organizations being to provide similar experiences across channels, and to allow for travel between channels to be seamless.

PwC found that this segment of omni-channel customers has been significantly shrinking over the past four years, being replaced by the “omni-digital” customer who only uses digital channels. The size of this segment is massive (46%), with implications for branching strategies, investment prioritization, staffing models, etc.

If the access to banking will be through phones, computers and tablets for the majority of customers, how does this shift impact product development, product sales, customer service, design of mobile banking applications, etc. Should branches be closed, moved or resized? If an organization has differentiated itself on personal customer service, how does this translate to a digital platform?

Digging deeper into the digital channel usage, in 2012, only 1% of consumers were ‘mobile dominant’, interacting with their banks primarily by a mobile device. In 2017, this has increased to to 7% according to PwC. And the ‘digital hybrids’ (customers who switch between laptop and smartphone) have grown from 4% to 16% during the same period. The result? … the ‘omni-channel’ segment has shifted from almost 60% of customers in 2012 to less than 50% today.

The Impact of Demographics

As would be expected, consumers in the 18- to 24-year-old bracket are the heaviest users of mobile banking, with 82% of smartphone owners in this demographic segment using mobile banking. As reinforced by many channel use studies, the penetration of mobile banking decreases as age increases. In fact, only 29% of smartphone owners in the 65+ age group reported that they use mobile banking. While income level is positively correlated to digital banking use, affluence doesn’t have as much of an impact on the behavior of the youngest and oldest consumers.

What this means is that determining channel preference goes beyond simple demographics (age and income), requiring deeper analysis of consumer behavior, product use and life stage. For many consumers, the use of channels is even based on the type of transaction and geographic location. According to the research report, “For a bank to deliver against its customers’ needs, it now needs very sophisticated analytics and personalization capabilities.”

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