The pandemic had a lasting impact on consumer behavior, and nowhere more so than in financial services. The financial landscape has shifted dramatically over the past four years, as the adoption of digital banking has accelerated across all generations. When the world shut down in March 2020, essential industries quickly pivoted to serve the needs […]
The pandemic had a lasting impact on consumer behavior, and nowhere more so than in financial services. The financial landscape has shifted dramatically over the past four years, as the adoption of digital banking has accelerated across all generations. When the world shut down in March 2020, essential industries quickly pivoted to serve the needs of individuals and households through remote, touchless means. People quickly acclimated to this new reality, embracing work-from-home and Zoom meetings, as well as telehealth to handle their medical needs. As the public grew more comfortable interacting within these virtual environments, that comfort bled into other areas of commerce and life, including banking. Today, financial consumers are embracing mobile banking, online account opening, and even the use of interactive teller machines (ITMs) to conduct remote transactions that could previously only be done in a branch. This doesn’t mean the traditional bank branch is going the way of the dodo. Far from it — but banks and credit unions must adapt to their customers’ and members’ desired modes of engagement. In this article, we explore the latest trends in hybrid banking.
Digital dominates the banking scene
The long-anticipated migration of consumer preferences toward the digital realm has finally achieved lift-off. According to a recent study by BAI, bank customers will use digital channels for 65 percent of their transactions by 2026 (up from 56 percent today). The remaining 35 percent of channel usage will be divided among the branch (20 percent), the drive-up (10 percent), and the contact center (5 percent). Within the digital channel, mobile, and online usage will show the biggest increases, while ATM usage will decline as demand for cash continues to soften. An October 2023 survey conducted by Morning Consult on behalf of the American Bankers Association (ABA) found that when it comes to managing their bank accounts, consumers are using mobile (48 percent) and online (23 percent) channels far more than the branch (9 percent) or ATM (8 percent). Although conventional wisdom assumes that younger generations are the most eager adopters of digital, the reality is a bit more nuanced. According to BAI’s channel usage projections for 2026, Boomers and older consumers will be both the highest users of the branch and the online channel, as compared with their Gen X, millennial, and Gen Z counterparts. But Gen Z and millennials will remain the highest users of mobile banking, employing the channel for about one-third of their total transactions.
Evolving preferences put pressure on community FIs
Traditional financial institutions (FIs) face an uphill battle to maintain strong, loyal primary financial relationships in an industry increasingly dominated by digital-first competitors. Yet, despite the pendulum swing toward digital engagement, consumers still prefer visiting their branch for more complex, higher-value financial interactions. According to Accenture’s 2023 Global Banking Consumer Study, in the past 12 months financial consumers used branches more than any other channel to open accounts, get advice, and acquire new products. In addition, 63 percent turn to branches to solve specific and complicated problems. To adapt to these new consumer preferences, community banks and credit unions must capitalize on their inherent strengths in physical proximity and outstanding service. They should focus on delivering a hybrid banking approach that offers the speed and convenience of the digital channel, supported by the friendly, “everyone knows your name” service culture of the brick-and-mortar branch. One way in which incumbent financial institutions are adapting is by offering more self-service capabilities in the branch. If your organization tested the waters a decade or more ago with the first generation of ITMs and decided it wasn’t quite ready for prime time, it may be time to revisit this technology. ITMs combine the capabilities of a traditional ATM with live videoconferencing. When they were first introduced in the early 2000s, ITMs were largely seen as a failure. One reason was that the video-conferencing technology had not sufficiently matured at that time. The other reason was that it was widely viewed as a solution looking for a problem, as the public had not yet fully embraced virtual banking as a viable alternative to live, in-person tellers. Enter the pandemic. Post-COVID, the public has grown much more comfortable engaging with service providers in the virtual realm through chatbots, live chats, text, email, and video calls with live representatives. The modern ITM blends the best of the digital and analog worlds, by introducing convenience to face-to-face interactions, while maintaining a personal, human touch. ITMs can perform all the functions of a standard ATM, like cash disbursement, transfers, and check or cash deposits, while also providing enhanced services that could previously only be performed at the teller line, such as cardless transactions, new-account openings and modifications, loan applications, cashier’s-check disbursements, and live, real-time support. ITMs, along with mobile and online-banking platforms, constitute the table-stakes technology that can help community financial institutions compete in a digital-first world through a hybrid distribution model. “Banks and credit unions must focus on building a distribution network that combines the qualities of human interaction with the power of new technologies,” Jim Marous said in a recent article in The Financial Brand. “The result will be new business models that can improve productivity, enhance customer experiences, and deliver new solutions at ‘digital speed.’ “
Steve Johnson is managing partner at Riger Marketing Communications in Binghamton. Contact him at sdjohnson@riger.com.