Large Banks Disrupt the Financial Industry from the Inside with Banking Apps

Why banks are betting big on mobile to improve customer experience and grow their businesses.

If asked to guess the most-used type of mobile app, many people would probably correctly name social media. Tell them that weather apps rank second, and they’d probably say that makes sense. 

But many people might be surprised to learn that banking apps are the third most-used type of mobile apps. In fact, according to a 2018 study by Citi, more than 4 in 5 consumers use a bank’s mobile app an average of nine days a month. This fact really shouldn’t be all that shocking. After all, money is a daily part of everyone’s life. And now that people have the option to skip the teller’s line — or even a trip to the ATM — it stands to reason that they’re going to take advantage of it. 

Banks have taken notice of their customers’ desire for speed and convenience. And, unlike organizations (such as taxi services and movie rental stores) that found their industries completely upended by tech-fueled startups, incumbent financial institutions are embracing digital transformation and disrupting their industry from the inside. 

Still, different institutions are responding more quickly than others, and banks must continually fine-tune their offerings and innovate to keep up. 

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Millennials Are Driving the Shift to Online Options

It should come as little surprise that customers are increasingly looking to online options for banking. According to a BAI Banking Strategies report, more than half (57 percent) of customers would prefer to open a deposit account online, while 47 percent prefer an online option for loans

Between 2017 and 2018, millennials’ preference for online banking jumped from 18 percent to 28 percent, according to the BAI report. And 51 percent indicated that they would either consider keeping some of their money at online banks — or even go entirely online for their banking — if they could get better rates by doing so. 

Millennials are important to banks not only because of their preference for online tools — or their sheer numbers. BAI also notes that the generation is set to inherit an estimated $30 trillion in wealth from baby boomers, making them an extremely valuable cohort. 

Big Banks Are (Mostly) Responding to Demand

Large institutions, such as Bank of America, have been at the forefront of industry-led digital transformation efforts. Forbes notes that the institution has spent billions of dollars in recent years on efforts like its voice-activated digital assistant Erica and a new digital portal called Life Plan that will help customers plan for financial goals. In the first quarter of 2019, 27.1 million mobile banking customers regularly used Bank of America’s mobile app. 

Also, a group of established banks joined forces to develop Zelle, a payment service that is automatically included in the banks’ mobile apps. The tool is meant to compete with freestanding financial apps such as Venmo, and it had 5.4 million users during the first part of 2019. 

Still, banks could be doing more. Although most customers would prefer online options for opening deposit accounts, BAI notes, nearly half of financial institutions still don’t allow customers to open their first account online. 

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Established Banks Have a Big Advantage Online

For most people, switching banks is a bigger move than canceling their cable or buying a new car. It requires them to fill out paperwork, change their direct deposit instructions at work and set up their automatic bill payments all over again. As a result, established banks have the inside track for retaining their existing customer base — as long as they can offer tools (and rates) that keep pace with those of their online-only competitors. 

Additionally, even customers who prefer online options want to be able to occasionally visit a branch or speak to a live representative on the phone. Around half of millennials told BAI that they prefer to have access to bank branches, even if they rarely use them. 

Institutions May Have to Drive Digital Transformation

It’s not enough for banks to simply respond to customer demands. On the contrary, they may need to proactively nudge their customers toward mobile tools — an effort that will pay off in the future, when these tools are the “default” option for nearly all customers. 

BAI notes that, while nearly 4 in 5 Americans have a smartphone, only around 1 in 3 regularly uses a mobile banking app. By educating their customers, BAI writes, banks can improve their customers’ experiences while alleviating worries about usability and security.

“The opportunity is clear,” BAI writes in its report. “Carpe diem! Or, if you and you customers prefer: Carpe deposit!”

Getty Images / FG Trade
Oct 25 2019

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