Consumers Prefer Digital Banking Capabilities Over Branch Proximity

The majority of shopping and buying is moving from physical to digital channels across industries. The impact on the banking industry can be found in the new definition of banking convenience, and in the increased preference for digital account opening capabilities. The question is ... how will banks respond.

By Jim Marous, Co-Publisher of The Financial Brand and Owner/Publisher of the Digital Banking Report

Banks have historically expanded branch networks to drive market exposure, increase customer acquisition and support deposit growth. With a bank on every corner, storefront signage drove consideration and influenced purchase decisions, with consumers going from branch to branch collecting product brochures and asking questions.

Today, the vast majority of shopping for financial services (or virtually any consumer product) is done using the keyboard on a computer or mobile device. As consumers in all age categories become more comfortable with digital technology, the shopping experience may even include voice commands. The question is – are financial institutions prepared for this shift in shopping and buying behavior?

The 2017 Omni-Channel Shopper Study, published by Novantas, found three major shifts in consumer behavior that will impact bank distribution and sales strategies in the future.

1. A significant shift from branch dependence to digital preference
2. A redefinition of the drivers of bank consideration and purchase
3. An increase in demand for digital account opening

A Shift in Dependence on Branches

According to the Novantas study, “The majority of U.S. shoppers are now in segments that either don’t use bank branches, don’t care much for branches … or both.” This seismic shift in preference will have profound implications for the way banks and credit unions acquire and service customers in the future.

”The majority of U.S. shoppers are now in segments that either don’t use bank branches, don’t care much for branches… or both.”

The research found that segments that placed the highest importance on branches for their checking relationship shrunk significantly in the past year, at the same time that those segments with the lowest branch attachment grew. The same was true for segments that were the most dependent on branches for ongoing transactions. These segments also shrunk significantly over the past year.

Bottom line, as transactions start to shift away from bank branches, the emotional attachment will follow. And as the emotion around branch banking changes, so will the criteria for selecting a financial institution. In fact, Novantas found that the correlation between a dense branch network and the propensity to acquire a higher share of deposits has weakened significantly. Of special note, the correlation weakened the most for older age segments and higher income segments.

The implication for financial institutions is that winning deposit and customer share will no longer be determined as much by number and location of branches, but by the ability to resonate with a prospect on a personalized level. Those organizations that can target micro-segments more effectively and create positive digital experiences will be more likely to win new business.

A New Definition of Convenience

The traditional definition of convenience in banking has revolved around the proximity of the branch. With the growth in digital technology and the increased acceptance of online and mobile banking, access to banking products and transactions is no longer tethered to a physical location, resulting in a redefinition of convenience. Today, while convenience is still the primary driver of initial consideration, the importance of branches in that definition has gone down.

Novantas found the correlation between ‘perceived convenience’ and ‘consideration’ to be slightly stronger than the correlations between ‘perceived convenience’ and ‘purchase’, with both being very strong. The biggest news is that the drivers of ‘perceived convenience’ start with an organization’s digital capabilities. In fact, the importance of branch-centric factors have dropped in each of the past three years of the study. This is especially true for consumers aged 18-54.

This ongoing shift in the definition of ‘perceived convenience’ benefits the larger financial institutions that have invested the most in digital capabilities. According to Novantas, “Banks lagging in digital innovation and product development risk losing out to those banks on the leading edge, but also to fintech providers positioning themselves as technology-first bank alternatives.”

Another significant trend of note is the increasing importance of being able to access cash without a fee, irrespective of primary bank proximity. The surge in importance of ‘no foreign ATM fees’ illustrates the desire for physical access to funds without penalty, which increases in importance as branches close.

The importance of increasing investment in digital capabilities is profound. There also needs to be significant marketing funds allocated to promote awareness of digital capabilities (with an emphasis on mobile).

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