Branches in Decline and Subpar Digital CX Frustrate Banking Consumers

Bank branches are closing and consumers increasingly conducting their transactions using online and mobile banking tools. Unfortunately, digital banking options are not satisfying users, opening the door for fintech and big tech products and services that simplify the banking experience.

A Wall Street Journal analysis found that 1,700 U.S. bank branches have been closed in the 12 months ending in June 2017, the biggest decline on record. With the continued fall in branch numbers through the second half of 2017, we are facing the longest stretch of closures since the Great Depression. In fact, banks began the current run of closures after the financial crisis and continued the trend in the name of efficiency and to compensate for higher regulatory costs.

Because of this decline in branches, it would be easy to assume that there’s been an overwhelming adoption of, and satisfaction with, banks’ digital offerings. Unfortunately, that is not the case.

According to a survey, commissioned by D3 Banking Technology and conducted online by Harris Poll, only about half of Americans (54%) used online banking once a week or more over the past twelve months, and a mere three out of ten (30%) used mobile banking as frequently. The survey also found that 68% of digital banking users (defined as those who have used online and/or mobile banking in the past 12 months), have been frustrated with their digital banking experiences.

The number of choices consumers have for when and how they bank is shrinking due to the steady decline of branches and possible digital frustrations. This represents a point of significant concern for banks, especially considering the ongoing threat of large tech companies and the increase in digital-only banks.

Better Banking Experiences Required

”Those institutions that do provide basic digital banking don’t always meet the expectations of the increasingly demanding digital consumer.”

So, what can be done? The decline of bank branches is unlikely to be reversed. The cost of brick and mortar, coupled with consumers’ increasing inclination toward digital, makes maintaining the past volume of bank branches impractical.

Instead, banks and credit unions will redefine the scope and purpose of remaining branches, incorporating more technology and self-service capabilities. The intention is to make branches more open and responsive to consumers’ relationships and their full range of financial needs.

To improve digital engagement and satisfaction, financial institutions must elevate the user experience and expand functionality. The survey found that more than half of digital banking users feel it is important for financial institutions to provide mobile deposit (70%), P2P services (66%) and mobile account opening (51%) as part of their digital banking offerings.

These are basic services that consumers must access to pay bills, move money and start business with banks, yet too few institutions provide this full spectrum of capabilities to their clients. And those institutions that do provide the basics don’t always meet the expectations of the increasingly demanding digital consumer.

It’s also important to cater to different segments. Gen Y (Millennials) are entering some of the most important financial years of their lives. They’re in the midst of large investments and purchases, such as buying homes and cars and starting families. Another group of young people – Gen Z – are starting to graduate college, presenting an ideal opportunity for banks to build relationships and loyalty with a new demographic.

Prioritize Digital Enhancements Based on Consumer Needs

“The desire for simplified biometric login and voice banking is increasing.”

There are areas where financial institutions can step up to better meet the preferences of digital consumers. The survey revealed that 73% of digital banking users ages 18-34 indicated it is important for financial institutions to provide a report on spending trends and habits as part of their digital banking offerings.

By giving consumers a snapshot of their financial health and behaviors, banks can strengthen the relationship with these younger consumers and leverage the data collected to further personalize offers that anticipate their needs, which will prove valuable to banks as these customers age and become more financially stable. This is just one example of how banks can expand their digital offerings to give customers what they want.

The survey also revealed some common frustrations consumers have experienced with their digital banking in the last 12 months. For example, 23% of digital banking users have struggled with remembering passwords when logging onto mobile or online banking accounts. This presents an opportunity for banks to ease this pain point and introduce new technologies, such as voice or face recognition and fingerprint ID.

More than 3 in 10 digital banking users identified voice alerts (39%) and voice activated app use (33%) as important for financial institutions to include in digital offerings. Consumers are already using these biometric authentication techniques in other areas of their lives, such as unlocking their smartphones, and expect to leverage them for banking as well. With the exponential growth of digital assistants such as Alexa, Apple Home Pod, Google Home, etc., the desire for voice banking will only increase.

The Risk of Complacency

About one-third of digital banking users (32%) stated that they would switch financial institutions if another institution offered easier to use digital banking services. Banks and credit unions that fail to increase the quality and quantity of digital functionality available to consumers risk decreases in new customer acquisition and even attrition of digitally active consumers.

We already see early signs of this disintermediation. Consumers trust Venmo for their person-to-person payments, and PayPal to make purchases. Retailers are increasingly offering new digital payment and loyalty alternatives, with Starbucks and Apple offering contactless payments. Failing to provide simplified, frictionless solutions will put organizations at risk of further loss of engagement.

The Digital Opportunity

There is good news. Consumers want to have relationships with their banks because they trust them. However, this critical differentiator isn’t going to always be enough as large tech firms are gaining the trust and confidence of the digital consumer.

Banks and credit unions have a long list of priorities that demand attention, such as compliance and security, but building better digital solutions need to increase in priority. Financial institutions that proactively find ways to widen the scope and boost the quality of their digital offerings can still leverage consumer trust to successfully compete – even in an environment with fewer branches.

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