Two Emerging Trends Signal Trouble for Both Fintechs & Regional Banks

New data reveals that the capabilities of mobile banking apps and online banking are diverging, challenging all but the biggest financial institutions to reconcile how they allocate resources. At the same time, transaction-focused fintechs face an existential threat as the leading banks catch or surpass them.

Few would dispute that the pandemic drove many people to digital banking channels, but that was just the prologue. The long tail of the trend underscores two challenges that must be addressed sooner rather than later by all banking providers, including fintechs, and especially by regional banks.

One is banking’s competition with fintechs and neobanks, which typically excel at digital customer experience but increasingly feel profit pressure to become more than a one-trick pony. The newcomers may start moving towards banking’s app turf to compete on a broader front.

The other is to solve the “creative tension” within each bank between mobile app development and online banking development, in terms of emphasis, style and resources.

J.D. Power analysts cross-compared multiple studies on banking and credit card mobile apps and online (web-based) services. In an interview with The Financial Brand, Jennifer White, Senior Consultant for Banking and Payment Intelligence, says that there will be no turning back on the digital front, and that usage patterns are in flux.

Transition Point:

This is the time to take a hard look at where digital offerings are and where they need to go.

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Banks and Fintechs Will Encroach on Each Other’s App Turf

“In our pulse research on financial health trends, we’ve learned that 39% of U.S. consumers have changed their behaviors after using different tools and functions within their mobile banking apps or online,” says White.

As people try out more digital money management tools, how they use digital services will evolve. This will drive fresh thinking not only on the part of traditional institutions offering digital channels but also on the part of tech competitors, according to White. In some cases, she suggests, there will be convergence of what each camp brings to the digital table.

Pre-pandemic, many banks chose the strategy of creating online and mobile offerings that included robust account management tools, alerts and financial literacy features. When Covid-19 arrived, says White, this put them at an advantage with some people: Those institutions had made it much easier for their consumers to make the transition to digital-only banking.

“Those banks were able to capitalize on people realizing that the content was already available from their primary bank,” says White.

Fintech and neobank players, on the other hand, “are typically transaction based and because of that they don’t generally have a large amount of educational content — some more than others. But that’s not been their purpose.”

Continuing, White explains that fintechs often offer low-cost, easy-to-use transactional options. “That attracts a certain consumer — some might say a younger consumer. But I don’t know that it’s exclusive to that — it could just be the consumer is looking for a simpler way to transact.”

Post-Pandemic Consumers are Digital Savants:

Both industries have to realize that during the pandemic consumers were exposed to online ways of transacting many kinds of business — think of the transition many people made to telemedicine. This will drive consumer expectations going forward.

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Tech Firms Face Decisions about ‘Leveling Up’

It’s not likely that fintechs and neobanks are going to start opening branches — though one expert predicts exactly that — but a logical step for them, to better compete with traditional institutions, would be to add advisor/agent interaction or similar services to their apps.

Their overall challenge, says White, is whether, and how, to “level up” with banking institutions, especially large national ones that have labored hard to replicate omnichannel experiences in digital form.

“Fintechs need to start thinking, ‘Wait a minute — our bread and butter was made on the ideas of simple, lightning fast, low-effort’,” says White. “‘So, as we decide to level up, we need to be careful about balance. We need to make sure we haven’t gone to a place where we have information or text overload or create difficulty in navigating’.”

Read More: What SoFi’s Rise From Niche Fintech to One-Stop-Shop Means for Banking

The Battle of Banks’ Apps Versus Their Own Online Service

A few years ago, says White, the typical advice was that mobile banking apps and online banking had to march, if not in lockstep, very nearly so. Usually the recommendation by experts to institutions was that mobile apps should mimic the bank’s online presence.

“If there was an online functionality that they could provide, the mobile app had to be able to do the same,” says White. The idea was to avoid confusion when people went from one channel to another.

But more recently the conventional wisdom has flipped.

“Mobile app innovation has taken over in many institutions,” says White. “So we aren’t seeing the same degree of online innovation as we are seeing in mobile.”

The firm’s research has found that banks and credit card firms have invested much more in the mobile app user experience than in the online experience in recent years. One factor is that standard-issue features on most mobile devices, like user-facing cameras, facilitate functions like facial identity that are not commonly considered for online banking.

As apps and online generally operate in banking now, there are some functions that consumers tend to use more often via app and others vice-versa. The chart, drawn from multiple J.D. Power satisfaction studies, gives a sampling of the differences.

Preferences for banking websites versus apps

National Banking
Online vs. App
Regional Banking
Online vs. App
Credit Card
Online vs. App
Higher Usage – App
Used spending analysis,
budgeting tool
0% pts. -3% pts. -3% pts.
Paid/transferred payment
-8% pts. -8% pts. NA
Found branch locations 0% pts. 0% pts. -1% pt.
Activated rewards NA NA -3% pts.
Redeemed a reward NA NA -1% pt.
Reviewed security settings,
questions, etc.
0% pts. 0% pts. -4% pts.
Disputed a transaction -1% pt. +1% pt. -1% pt.
Checked account balance +2% pts. +3% pts. -5% pts.
Higher Usage – Online
Transferred money between
your accounts
+2% pts. +3% pts. NA
Made a credit card payment NA NA +3% pts.
Paid a bill +9% pts. +7% pts. NA
Viewed reward points balance NA NA +3% pts.
Reviewed transactions +7% pts. +8% pts. +2% pts.

Source: J.D. Power

Going forward, according to White, the question is whether there should be a split in design thinking between apps and online, or if there should be a definite bigger push to mobile banking. The answer will vary among institutions depending on their customer bases and who they are trying to appeal to the most. One thing that appears clear, according to J.D. Power’s research, is that mobile app and online design will increasingly and naturally diverge as the mission of each evolves.

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Most Regional Banks Have Catching Up to Do

As a general rule, regional banks studied by J.D. Power have leaned towards a very clean and simple transactional design for their apps, offering less depth than national players that have developed banking apps with greater functionality. This has led to a widening gap, in favor of national institutions, over regional players. Users feel that tools such as alerts are lacking in regional players’ apps, for example.

Is Digital Going Two-Tier?

The time may have come for banking institutions to recognize that mobile users are pulling ahead of people who lean toward online.

Online banking customers are considered less tech-savvy, according to J.D. Power, and that observation supports splitting design efforts. In any event, a key conclusion is that some banks have become stuck in the “good enough” stage, and need to up their game if they wish to compete.

“The nation’s largest banks and credit card issuers have been continually innovating new digital solutions that support increasingly complex tasks, such as problem resolution, personalized alerts and profile management,” says White. “This is driving increased engagement and significantly higher levels of satisfaction as the world shifts to digital. That’s a challenge for regional banks that have traditionally taken a simpler design approach and are now starting to see customer satisfaction scores fall.”

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