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The events of the past year have accelerated the adoption of digital channels in banking. Today, even the most branch-loving bank customers have begun to embrace online and mobile options. Many of these customers have discovered that they actually prefer using digital channels for many transactions—and plan to continue doing so in the future. In fact, 42 percent of people surveyed by Simon-Kucher reported that they expect to visit branches less frequently once the COVID-19 pandemic is over.
Consumers express a strong interest in continuing to conduct routine tasks online, such as disputing fees, paying bills, or opening a new savings account. However, for more complex transactions, many people still want to visit branches. For instance, Simon-Kucher reported that 69 percent of those surveyed would rather apply for a mortgage in-person, versus online.
This suggests that there is room for digital channels and brick-and-mortar branches to exist in harmony. Some of the fastest-growing financial institutions are embracing this “omnichannel” approach, investing in digital and physical channels alike to meet users’ evolving needs. Particularly for community banks looking to connect with more customers in-footprint, an effective strategy may be to invest in digital operations now while continuing to optimize established branch networks.
Digital banking enables less-dense branch networks
How exactly do digital and brick-and-mortar services work together to bring in new customers?
First, branches are the best in-footprint advertising for your institution. Your branches and ATMs keep your brand top-of-mind for customers and drive traffic to your website. Meanwhile, customers who sign up for a new account via digital channels are likely to visit local ATMs or branches in the future, creating a virtuous cycle of user satisfaction and brand loyalty.
Digital channels also allow more transactions to be carried out remotely via a customer’s PC or mobile device, in effect extending the geographic footprint of your bank. The research from Simon-Kucher has indicated that every branch of a bank has a specific “gravity field” around it, which indicates how far customers are willing to travel to the branch (measured by walking distance for urban areas, and driving distance for suburban and rural regions).
The research found that offering best-in-class digital banking services resulted, roughly, in a 37-minute gravity field for urbanites, and a 27-minute gravity field for suburban and rural customers. These figures represent a 31 percent and 72 percent increase, respectively, over institutions offering “status quo” digital capabilities.
The first conclusion to draw is that digital channels enable banks to reach new customers by expanding the reach of every branch. The second, perhaps less obvious conclusion is that strong digital channels support less-dense branch networks. Simon-Kucher estimated that banks that use best-in-class digital tools can expect the same branch performance while actually reducing branch density by 15 percent.
Digitally-acquired customers can be highly profitable
More new bank accounts are being opened digitally than ever before, with online and mobile comfortably outstripping in-branch for both primary and secondary checking accounts, industry-wide. But banks may be wondering: What’s the demographic mix of all the new customers being acquired digitally? And more importantly: What are the profitability implications of that mix?
The reality is that digitally-acquired customers are vital for banks—especially when their lifetime value is taken into account.
Consider that the millennial age group (born 1981-1995) is slated to enter “peak profitability” as early as 2022. Over the 30 years that follow, the profitability of this cohort will only increase. As millennials age, banks will have the opportunity to offer them access to diverse products such as loans, wealth management, and business banking. Initiating a relationship with these individuals now may pave the way for such opportunities in the future. (And yes, many of these opportunities will benefit from having a local branch presence.)
But while online account opening is popular with a younger audience, it also works well for older individuals and existing customers. The popular industry benchmark for opening new accounts online is three minutes or less, but best-in-class solutions allow existing customers to open new accounts in 30 seconds or less—making it significantly easier to deepen existing relationships.
Digital banking builds brand loyalty and cross-sell potential
When an institution offers high-quality digital services, it also improves cross-sell potential. In fact, a report by McKinsey found that “highly satisfied” customers are 2.5 times more likely to open new accounts or sign up for new products with their existing financial institutions, compared to those who are simply “satisfied.” For community banks that value their current demographic mix, great digital services ensure that all involved parties get the most out of the relationship.
Despite the ubiquity of digital banking, branches still have a strong outlook moving forward, though their purpose and day-to-day operations may change. Ultimately, the most effective strategies won’t set digital banking and in-person banking at odds with one another.
Instead, digital and brick-and-mortar channels will work together to provide the greatest possible convenience and flexibility, with customers able to initiate a process via one channel and complete it via another, with little time or effort required to manage the hand-off. This is the true meaning of omnichannel, and embracing this approach will result in customers who are happier, more loyal, and more willing to deepen their relationship with your institution.
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