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Strategy

Going Digital: Establish a digital branch or launch a new digital bank?

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Consumers have come to expect the ability to do banking—and a wide range of other activities—online. With the COVID-19 pandemic, these expectations are only likely to grow. Some banks have already been offering online services for some time. Many may be rethinking their strategy as they consider options that might help them grow market share beyond their traditional, geographically limited, service areas.

Digital banking, after all, has the potential to draw deposits and service loans from a broader pool of potential customers. As banks of all sizes deal with margin compression and increased competition, one of the easiest—and most expeditious—ways to cut costs is through the use of technology.

Two digital banking strategies

As banks work to increase deposits in an increasingly digital world, they have the opportunity to take different, sometimes divergent, approaches to connecting with audiences and compelling them to become customers. Two key strategies are:

  • Establishing a digital branch—a digital version of an existing branch
  • Launching an entirely new digital bank with an entirely different look and feel from the existing brand

There is no “right way” to approach these opportunities. Each bank is likely to pursue a different approach based on their brand, their core strategies and their target audiences.

Pros and cons of extending the brand name

Many community banks have longstanding positive relationships, and strong brand awareness and loyalty that are firmly established within the communities they serve. There’s great value in that type of brand loyalty. When doubling down on offering online services, leveraging the existing brand name can help establish immediate awareness and preference for services offered.

In addition, using the existing brand name can be a less costly undertaking as new logos, branding platforms, key messages and marketing collateral don’t need to be established.

The potential downside? When reaching into new markets an existing brand name may not have enough awareness to compete against the large, national, online brands.

Fortunately, the online landscape offers the opportunity for even very small community banks to build a very large footprint. To do that some are launching new brands designed to reach an entirely new target audience.

Pros and cons of launching a new digital brand

Reaching a new audience is one of the biggest benefits of launching a new online brand. Doing so also represents the opportunity to change the bank’s image in cases where the brand has not been strong or where current branding may not convey the modern, nimble image that tends to appeal to younger audiences.

The drawbacks, though, include the costs of creating a new brand both in terms of time and money with no certainty or guarantee that the new brand will gain traction in the market. In addition, launching a new brand basically relinquishes any opportunity to leverage any of the brand equity already established with the existing bank brand.

Operational planning and related costs are also higher with the likelihood that many positions and services will be duplicated between physical and online branches.

Still, community banks should carefully consider both options in light of their unique positioning, strategies and goals. While both represent some level of risk, they also provide specific benefits that can be capitalized on to grow market share and revenue.

Some banks have already considered these options and moved forward with an approach they feel is right for them. Our recently released white paper tells a tale of two banks: one that decided to open an “online branch” under its existing brand name and another that decided to launch a new brand. Both realized incredible growth and gained operational efficiencies well beyond their goals.

When it comes to digital banking, whether you’re looking to leverage an existing brand or expand your footprint through a new brand, it’s imperative to have clear objectives, executive buy-in from all stakeholders and focused resources to make it happen, as well as vendors that can provide guidance and best-practices along the way.