‘Normal for Now’: The Future of Digital Banking and Payments

Even before the pandemic, shifting consumer preferences were becoming apparent in the digital space and COVID-19 has fast-tracked these changes. Take a deeper look at how the financial services industry can capitalize on consumers’ shifts to digital and what leaders should consider for the future.

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As we are now into a new year with many of the same challenges, concerns and anxieties about what the future will hold as the COVID-19 pandemic continues to evolve, one thing remains the same: Consumers want to stay safe and healthy.

While we do not yet know what the “new normal” will look like, we have reached a place of “normal for now.” As we look toward the remainder of 2021, how much of our “normal for now” financial behavior will change and how much will remain long after COVID is behind us?

Even before the pandemic, shifting consumer preferences were becoming apparent in the digital space, with more consumers adopting online banking, downloading payments apps and changing the ways in which they interact with their financial institutions.

COVID-19 has fast-tracked these changing preferences, with digital banking gaining traction and contactless forms of payments rapidly gaining momentum, as seen in PSCU’s 2020 Eye on Payments study. Now is the time to strategize on a digital-first approach to meet consumer needs.

Let’s take a deeper look at how the financial services industry can capitalize on the momentum we saw in 2020 with consumer shifts to digital and what leaders should consider for the future:

Use Artificial Intelligence, Data and Analytics for Personalization

The idea of being presented with personalized and contextual offers when you walk into a store or a branch might have seemed like an invasion of privacy – or even “creepy” – a few years ago.

But times have changed, and consumers now expect more personalization in all different areas of their lives, including with their financial institutions.

Financial institutions should harness the data they have gathered about their customers to understand how they interact with their institution – including how, when and through which channel they transact – in order to proactively connect with them through multiple channels.

Financial institutions have a number of avenues to consider when it comes to personalization. For example, setting up personalized, automatic emails based on rules can successfully target a segment of consumers who need additional financial assistance or reminders to maintain their financial health.

Proactive and meaningful connections like this can reduce anxiety, strengthen engagement and increase loyalty through the entire lifecycle of the relationship.

Serving and Engaging Digital Natives

According to population estimates from the U.S. Census, Millennials overtook Baby Boomers as America’s largest generation in 2019, meaning financial services providers must have a strategic focus on this generation of digital natives, as well as future generations for whom digital is already the norm.

The New Reality:

Digital natives’ expectations are high. If your financial institution is not ready to meet their needs, there is likely an eager fintech that is.

As institutions consider their branch strategy for the current “normal for now,” it is an optimal time to also examine all touchpoints throughout the entire consumer lifecycle for attracting generational markets.

We know digital natives require flexibility. They want to engage when and how they want through a variety of channels, including the convenience and immediacy of social media. They lack patience and do not expect to have to wait to speak to someone, giving chat and AI an opportunity to play a prominent role.

Their consumption of media is fragmented. They choose streaming services and social media over television, for example. As such, marketing plans should evolve to include these alternative touchpoints for reaching this market.

Ads in newspapers or magazines will no longer be enough – video and other forms of media and communication will become major players.

Adoption of Contactless and Mobile Wallets Growing

As financial institutions execute on their contactless strategies, it is anticipated that more consumers will begin using this method of transacting as they realize its safety and security benefits, both from fraud prevention and health perspectives as “touchless” options are largely viewed as more sanitary.

Contactless adoption is expected to further drive mobile wallet usage as consumers learn the ease of use and gain confidence in tapping to pay. Mobile wallet adoption was originally stifled by merchants without the proper terminals, which reinforced the traditional swiping behavior, but this is no longer as much of a barrier as it once was.

What’s Different:

Many barriers to digital payments have disappeared as restaurants and other merchants were forced by COVID to change their practices.

In fact, data from PSCU shows that mobile wallet (i.e., “Pays”) transactions and purchases for both credit and debit cards continued to show strong growth with card present activity during the eight-week 2020 holiday season. Debit mobile wallet purchases were up 62% and credit mobile wallet purchases were up 46% year over year.

As consumers embraced takeout over in-restaurant dining during the pandemic, restaurants adapted to deploy wireless terminals, also known as mobile point-of-sale (mPOS), which servers carry while delivering food. These new terminals also accept contactless payments, thus increasing the opportunity for usage in a category that was once restricted to traditional methods and further cementing the new behavior.

To continue encouraging and promoting the permanent change in consumer behavior, financial institutions should implement digital issuance and push provisioning to increase ease of adoption and keep cards top of the wallet.

Buy Now, Pay Later (BNPL) Solutions Increasing

In 2020, online shoppers saw an increase in installment payment options at checkout. According to Accenture data from Afterpay, Gen Zs’ spending through Buy Now, Pay Later has increased by 201%  since last year and that of Millennials has grown by 86%. While enticing to consumers during the checkout process, financial institutions have a tremendous opportunity to build loyalty by offering the same capability.

Offering a variety of options – post purchase, during purchases made online and at the point of sale (POS) – will offer consumers value-added services for managing their spend. If not integrated with their financial institutions’ cards, consumers could find themselves with a very fragmented view of their overall financial health.

Institutions should have a strategic marketing plan to ensure consumers are well educated and reminded often so they choose their financial institution’s card versus the third-party offer they see during the checkout process. User experience and ease of use will be key to adoption.

More Opportunities for Business Banking

Credit unions have yet to fully tap into the potential of expanding existing member relationships to form more profitable business relationships, traditionally a strength in the banking market. As consumers grapple with the uncertainty of the economy, they may look to non-traditional forms of work or even take the leap to chase their dream of becoming an entrepreneur.

The economy is opening a door that presents an opportunity for credit unions to form business banking relationships.

These relationships will need to meet the same expectations for digital engagement as consumer accounts – and more. The complicated hierarchy of business accounts can create challenges, but along with those challenges comes the opportunity for an expanded client base.

Contactless, mobile capabilities, document capture and “bank anywhere” remain consistent themes with business banking. In addition, the business employee who is offered a debit or credit card may become a new member for life through this new relationship.

The Impact of Frictionless Giving

The toll the pandemic has had on our emotional well-being has encouraged many consumers to seek out ways to remain positive and bring joy. One way to generate positivity is through the giving of time, resources and money.

With the uncertainty of the COVID-19 pandemic still a concern for many, it may feel burdensome or inadequate to give a one-time gift. Financial institutions can make it easy to give back to local and national organizations through the functionality of “rounding up” transactions.

The “change” is automatically given to a charitable organization, making it turnkey for consumers to give through every transaction. Institutions can offer a selection of partners to give consumers the choice of where they want their donation to go.

It is exciting to think of the possibilities that lie ahead for helping consumers feel connected and loyal to their credit union or bank through existing and new digital financial services.

As we seek to navigate our “normal for now,” financial institutions are encouraged to keep an eyes-wide-open approach as they consider the needs of their customers and members, ultimately driving to a “new normal” for the future.

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