Shaky economy drives digital banking, but 'cash is not dead'
Staying abreast of customer preferences is challenging in the best of times, but when consumers are beset by a shaky economy, the challenge becomes especially rigorous.
A gathering of financial services providers recently brainstormed how fluctuating economic trends are affecting what motivates consumers in their banking habits. The session, "Moving Beyond the Pandemic and Implications for Self-Service and Cash," was part of the three-day Diebold Nixdorf Intersect Las Vegas Fintech Conference at Caesars Palace.
Simon Powley and Scott Anderson delve deep into economic factors impacting consumer banking habits.
"We're certainly seeing a slowdown in the market and the economy," said presenter Simon Powley, senior director of advisory services at Diebold Nixdorf. "This is causing consumer confidence to change a little bit."
Powley led the presentation along with Scott Anderson, Diebold Nixdsorf's vice president of banking software, product management and small and medium businesses.
Recession, workplace hybridization
Most economists (72%) expect a recession by mid 2023, Powley said, citing a National Association of Business Economists survey. He said 19% of economists believe the U.S. is already in a recession.
Workplace hybridization was cited as another factor impacting consumer behavior. The Google Mobility Index, which tracks where people are spending their time, indicates people are spending more time in leisure activities.
"We're certainly not back to where we were before," Powley said regarding the return to traditional offices, especially in the U.S. and Europe. "In workplace visitation, only 37% of the ones saying they're back are back [and are] there one day a week."
Such changes in consumer behavior influence where banks are locating branches and ATMs.
"What's the traffic pattern of your customers now?" Powley asked. "What is the placement of your billboards now? What is the placement of your branches? What is the placement of your ATMs to be able to drive that engagement?"
Supply chain, labor challenges
Supply chain issues are also playing into bank asset deployment strategies, Powley said, even though the issue is less concerning than it was during the pandemic.
"We're seeing some good indicators overall from a trend perspective in [the] supply chain," he said, noting that deliveries have improved while labor remains a supply chain challenge.
Labor challenges are especially pressing for traditional financial institutions as fintechs compete for financial talent.
According to a Bloomberg report Powley cited, the number of staff leaving banks for fintechs worldwide reached its highest level in 2022 in more than a decade. This trend was confirmed by a Diebold Nixdorf survey of financial institution executives.
"There's no question they [fintechs] are definitely picking up the skill sets and the acumen as well as the analytics capability of employees to be able to push this forward," Powley said.
Digital banking rises
One of the overriding themes throughout the conference was the growing consumer preference for digital banking. Financial institutions are doing 85% of their transaction volume digitally, of which 50% is ATM and 10% is mobile.
"We all know that consumers want to transact digitally, both in the retail space and in the ATM space, in the banking space, and may want to interact with some human beings around financial advice and so forth," Powley said.
Digital channels experienced a 4% increase in bank account originations in 2021 over the prior year, Powley said, while in-branch originations declined 15%. In addition, 40% of retail banking sales originated digitally compared to 60% in-branch.
A key economic factor driving digital transformation from the banks' perspective is cost to serve, Powley said. The cost to handle a check deposit at a teller is $4.25, compared to roughly 60 cents at an ATM and 10 cents via mobile.
An audience poll during the presentation confirmed that digital transformation ranks as the area of greatest focus, with 49% of attendees citing it as the leading concern, followed by:
The customer privacy factor
On a regional basis, Asia leads the global transition to cashless transactions which are expected to double by 2030, Powley said. This is because Chinese people are less concerned than Americans or Europeans about privacy.
The privacy front, however, is one where traditional banks have an advantage over fintechs. "They trust their bank with their information," Powley said.
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A Nielsen consumer study commissioned by Diebold Nixdorf found that 57% of consumers agreed that banks protect their personal data, while 44% said they are open to sharing more personal data with a bank.
The sustainability factor
Powley also drew a connection between digital banking and a growing concern among younger consumers — sustainability. Nearly half of Gen Z views sustainability as important while 63% of Millennials say it strengthens their loyalty to a financial institution.
"Does it [commitment to sustainability] become an educational process with consumers?" Powley asked. "Maybe that's exactly what it is. It could very well be optics and marketing and communication."
The cash factor
And while cashless transactions are growing, cash is not dead.
Since the Federal Reserve began tracking cash usage in 2016, usage rose for the first time in 2021, Powley said. The result has been a 35% increase in cash deposits, where check deposits fell by 68%.
Speaking of cash, those who associate banking technology exclusively with cashless are mistaken.
"People are holding a lot more cash coming out of the pandemic, and that trend has continued," Powley said. "As people begin to use ATMs more for deposits and withdrawals both, we're beginning to see this… We expect this to continue overall."
"We believe this will continue to make the case for [cash] recycling," he added.
Anderson agreed, pointing out that even as cashless continues to account for more transactions, the actual volume of cash usage has not changed, pointing to the need for cash recycling machines.
Customer demographics and beyond
In the interest of more fully understanding customer needs, the Nielsen study went beyond traditional demographic segmentation. The company studied 13,000 respondents in 11 countries on what motivates consumers while banking and how they respond to technology.
Consumers within any single demographic group can have different motivations in their approach to banking, Anderson said.
The study identified five different consumer motivations with regards to banking technology:
These are different personal "tech types" that banks need to consider in their consumer segmentation strategies in addition to traditional demographics.
"By and large, simplicity seekers [are] the lion's share," Anderson said, adding that these consumers like to manage financial needs themselves through technology.
And if understanding the different tech types while marketing to them accordingly isn't challenging enough, the mix of these different tech types does not remain static.
2022 brought a migration from the "simplicity" camp to the "guarded explorers" who are motivated by human reassurance. This group embraces multi-channel options, voice assistants and personal relationships that can be remote as well as in person.
This was also the first year that "ATM location" was a top consumer criterion for selecting a new financial services provider. During the pandemic, consumers were willing to travel further to a full service branch.
And while the data presents a complex consumer landscape, the good news is that technology enabled branch formats appeal to all five of these tech types.
Nearly 90% show interest in humanized technology and will not shy away from a digital engagement providing someone is there when needed, whether remotely or via chat.
The Nielsen study also found rising interest in advanced functionality and self service among Gen Zers and Millennials. The majority said they would embrace video teller usage more if:
"We are seeing a lot of movement around getting away from a single point of contact," Powley said.
Photo: Networld Media Group.