Here are a couple of fascinating facts for retail bankers to chew over: First, nine out of ten — 90% — of Gen Z respondents would consider obtaining a banking account from a nonbank company, and more than half (53%) of consumers overall would do so.
Second, 85% of Gen Z consumers say that for certain types of financial accounts they would only apply for them in person. For consumers overall almost two-thirds (64%) say the same.
While it’s true these are attitudinal “would you” questions, not descriptions of actual behavior, the sheer size of the numbers on two sides of the digital banking question — coming from the same respondent base — is eye opening.
Veteran financial services researcher Bill McCracken, President of Phoenix Synergistics, which fielded the national research, has a couple of key takeaways from this pair of statistics:
- “People are complicated,” he observes. They defy being put in boxes as individuals or as generations even though analysts, and bankers love to do that because it makes their work simpler. Generalize at your own risk.
- Financial institutions should take a balanced approach to digital transformation. Right now, based on the survey data, a digital-only solution doesn’t work for a majority of consumers, McCracken maintains. So the physical and digital worlds need to coexist, although he points out that the physical world of banking can’t be the same as it’s been for the last ten or more years.
Two large retail banks that currently are getting this new digital/physical formula right are Bank of America and Capital One, says McCracken. Another, smaller, institution he singles out is Umpqua Bank with its signature Go-To banker program that enables every customer to have their own personal banker, reached digitally through its mobile app.
The Phoenix Synergistics survey, based on detailed online responses from 1,500 consumers collected in August 2020, focused on how the customer journey in banking has been changed by the rise of digital banking. In an interview with The Financial Brand, McCracken elaborated on several of the most significant findings.
Banking with Nonbanks Would Be Simpler
The research does not contradict the importance of digital transformation among financial institutions. If anything, the willingness of a majority (53%) of all consumers to obtain a banking account from a nonbank company affirms its importance.
More than that, the fact that nine out of ten Gen Z respondents are willing to turn to nonbank companies for banking accounts is more than eye-opening, it’s an “overwhelming” number, as the report states.
Amazon topped the list of specific nonbank companies consumers would be willing to do banking with, followed by PayPal and Walmart. Clearly youth reigns here as just under a quarter of Baby Boomers feel comfortable banking with big techs. As McCracken observes, even though older consumers use these digital platforms, Millennial and Gen Z users are much more comfortable with them. Younger consumers apply the same mindset for buying a new mobile phone case online in under five minutes to acquiring a checking account or a credit card or a mortgage, he states.
Baby Boomers, on the other hand, sometimes have difficulty online — knowing where to go next or what to click, says McCracken.
“They’re thinking, ‘A mortgage is a complicated product, do I want to do that on Amazon?’ It’s a whole different mindset between those two generations,” he observes.
Overall, the main reasons why so many consumers are willing to consider doing banking with big tech firms are more advanced technology and faster/easier processes, according to the survey.
“All this should be a message in neon to financial institutions,” McCracken states. He’s not sure how many have gotten the message, however. There are so far only a handful of what he calls technologically progressive financial institutions, including the ones named earlier. “Bank of America is trying to be very close to an Amazon type of experience,” the researcher states.
A telling statistic is that the average customer age at these institutions is much lower than the industry average: 38 at Capital One and 39 at BofA compared to the overall industry average of 44, according to McCracken. Credit unions as a group have an average customer age of 47, and some banks have an average age over 50, he says.
In-Person Account Opening Far from Dead
The other striking statistic from this study, as noted earlier, was that 64% of consumers overall say that for some type of banking accounts they would prefer to apply in person and would not consider any other method. And again, Gen Z respondents stood out here with 85% agreeing with that statement. McCracken believes consumers are saying: Don’t take away from us the ability to meet face-to-face or at least speak with a human by phone, video or live chat.
McCracken admits to being shocked by the fact that the type of account consumers most often prefer to open in person is the checking account. He and his team had expected it to be retirement accounts or mortgage-related accounts.
“The more we thought it through,” says McCracken, “the more we realized that banks have done a tremendous job in making the checking account sticky.” Today consumer checking accounts are tied into many products including direct deposit of payroll and ACH payments for mortgages, auto loans, credit cards and utilities.
“There’s a level of complexity and importance with checking accounts that goes beyond simply signing the application and making a $25 deposit to open the account,” McCracken points out.
By contrast, digital has become the preferred channel for opening credit card accounts and this is beginning to creep into lending products secured by homes.
Impact on Branch and Other Retail Banking Strategies
In a separate survey during the summer of 2020, Phoenix Synergistics found that while a majority of consumers don’t expect to change their branch or digital banking behavior post-pandemic, just over a quarter (27%) say they will use branches less. The figure is 40% among Gen Z respondents.
The results of the customer journey survey, however, indicate that consumers, and especially younger consumers, still do want to use every channel. To eliminate the branch channel altogether, McCracken believes, would be shortsighted for most institutions. “You would be telling individuals that need or want face-to-face interaction that that’s not an option,” he states.
That said, the researcher suggests that institutions can’t get by with the same branches of ten or 20 years ago. Self-service options and universal bankers who can knowledgeably handle a wide range of financial issues are examples of what is needed, McCracken believes.
“Younger consumers need branches for different reasons,” he states. “I don’t think Gen Zers go to a bank to deposit a check. They’ve got their phone for that.” But they’re also not going in to meet with Sally or John sitting behind a wooden desk. “That’s not their idea of a physical interaction,” McCracken maintains. Something closer to an Apple Store experience would be, he says.
Banks and credit unions may not need as many branches as they have, but rather than closing all or most of them, McCracken suggests they should ask “What do our branches need to be?” “What does our staff need to be?” And then look at the digital banking elements and ask “How should we integrate all of that?”
Traditional Advantages to Build On
If the competitive challenge seems daunting — and for many institutions it is —, consider that the research also found that incumbent primary providers of banking services have an edge in getting additional business from existing customers.
However, once again, age is a major factor. While a minority of older and middle-aged consumers (and even Millennials) comparison shop among multiple financial institutions when looking for a new product, more than half of Gen Z do this.