Picking a Path to Digital Banking

Consumer transition to digital channels for everyday banking needs reached a tipping point in 2019. A recent ABA/Morning Consult survey found that 73% of Americans access their bank accounts most often via online (37%) and mobile (36%) channels. Consumers are also now embracing digital channels for a broader range of financial activities, from buying new financial products and services to securing financial advice.

Responding to this trend, and the march towards improved efficiency, many financial providers are “chasing digital” from the boardroom to the back office. Some take an incrementalist strategy, doggedly adding functionality or product sets to online and mobile platforms. Some have bought or built standalone digital brands, or layered digital over thin branch networks out of footprint. And, of course greenfield revolutionaries continue to dive in to the fray. We look at four models that are working, and what marketing mix and methods matters most for each.

All banking roads lead to digital these days–which path is right for you?

National Banks Double Down on the Human-Digital Model

Banks with a national or quasi-national branch footprint and strong brand equity – including JPMorgan Chase, Bank of America and Wells Fargo – are focused less on driving digital deposit growth and more on developing an integrated human-digital channel strategy to optimize customer relationships.  One good example of where these banks are going in terms of powerful and dynamic digital banking platforms comes from Bank of America, which launched Erica (an AI-based personal assistant) in June 2018. Over the past 18 months, Bank of America has incorporated new functionality into Erica, and the platform recently reached 10 million users.  JPMorgan Chase launched a standalone digital banking unit (Finn) in June 2018 to appeal to a younger demographic, but shut it down just one year later and now appears to be doubling down on both digital banking enhancements and selected branch expansions.

Marketing Priorities and Challenges:

  • These national banks can leverage their huge technology budgets to launch a stream of new digital banking capabilities, which they feel will increase customer satisfaction, win a greater share of wallet and reduce attrition. Bank of America characterized its approach as “moving from digital enrollment to digital engagement.” Banks look to drive usage of new digital banking tools through various channels, including broadcast advertising, in-branch demos, social media channels, financial education programs, as well as promotions within these digital banking platforms.
  • To pursue a successful human-digital channel model, the banks will need to build a channel-agnostic approach that emphasizes the individual strengths and features of both its physical and digital channels, encourages channel cross-promotion (e.g., digital demos in branches and the ability to make branch appointments via digital platforms), and offers clients a fully integrated user experience. 
  • The main challenges in achieving these objectives include legacy structures that often inhibit cooperation between business units, as well as the tendency of large banks to be slow moving and reluctant to respond to and embrace change.

Regional Banks Create Digital Banking Units to Expand Reach

Regional banks operate mainly within a multi-state branch footprint (although some offer specific products on a nationwide basis). Some of these regional banks see opportunities in building deposit bases in new geographic markets, and are doing so via standalone digital banks (in some cases supported by a very thin physical network).  These digital banks typically start with a high-yield savings account, then add other products (e.g., checking, lending) and digital tools. While many regional banks remain committed to a human-digital channel structure that mirrors the national banks, we expect that some will be testing and launching out-of-footprint digital banking operations in 2020.  

Regional banks leading the digital bank charge include:

  • Citizens Bank: Recognizing its low brand equity outside of its Northwest and Great Lakes footprint, launched Citizens Access as its “nationwide digital platform” in June 2018.  Citizens Access had attracted $5.6 billion in deposits through 3Q19 and is now considering adding new products, such as business savings and digital lending.
  • PNC: Launched the national expansion of its digital banking capabilities in October 2018, leading with a high-yield savings account. It supported this expansion with an out-of-footprint thin network of retail locations (solution centers), initially in Kansas City and Dallas, which the bank has emphasized as key in supporting the digital bank.
  • Union Bank: In 2017, introduced a “hybrid digital bank” under a separate digital brand, PurePoint Financial, which offers savings accounts and CDs and is supported by 22 Financial Centers in six metro areas. 
  • Santander Bank: Recently announced plans to introduce a digital bank in 2020.  The digital bank will be piloted in its Northeast footprint with a view to expansion into other markets.

Marketing Priorities and Challenges:

  • These banks need to raise brand awareness outside their footprint, in particular in adjacent markets (where there may be some brand equity) or in targeted markets where the bank has established a thin branch network.
  • Optimizing relationships with existing clients by upselling additional products and services and by maintaining a keen focus on providing a positive customer experience – whether as a standalone digital bank or a digital/physical hybrid – is key.

Specialized Lenders Generate Digital Deposits as a Funding Source and Means to Diversify

This category of financial firms includes dedicated credit card issuers with no branch presence (e.g., American Express, Discover), as well as banks with a strong heritage in card or other lending and who have a limited retail banking footprint (e.g., Capital One, Citi, Ally, CIT).

Marketing Priorities and Challenges:

  • These banks have national credit card franchises and strong brand equity. However, as their brands are often strongly associated with their credit card operations, a key marketing challenge will be to expand consumer awareness of the bank as a provider of other banking and financial solutions. 
  • They will need to focus on data analysis, targeting, offer development and messaging to effectively cross-sell deposits and other products to their existing card/other loan client bases. This approach will also involve significant cooperation among different business units. Citi has been at the forefront in marketing deposit accounts to its 28 million credit cardholders and generated $4.7 billion in digital deposits in the first 9 months of 2019: two thirds of the deposits came from outside its six core banking markets.

Challenger Banks Seek to Disrupt Traditional Bank Dominance of the Deposit Market

With relatively low barriers to entry and the widespread availability of private equity money willing to bet on which companies will break through in the digital deposit space, a spate of fintechs are entering the market, including Chime, N26, Radius Bank and Monzo.  These companies typically partner with a small bank in order to offer deposits, but some are now looking to get a bank charter.

Marketing Priorities and Challenges:

  • The digital bank upstarts tend to appeal to younger age segments who are both more accustomed to using technology to manage their financial needs and less loyal to traditional banks. These companies need to clearly understand how these younger segments consume media and make financial decisions and tailor their marketing investment and messaging accordingly.
  • As “new kids on the block,” fintechs will need to develop solutions and marketing to differentiate themselves from both traditional banks and other challenger banks.
  • The design and ongoing review of the digital user experience is critical, as this is the only platform consumers will have to interact with the bank. Some digital banks are not even offering phone-based customer service.
  • While challenger banks have a number of advantages over traditional banks (such as higher rates on deposits), there are other areas where these newcomers are seen as inferior (for example, a recent Kantar study found that 47% of consumers completely trust traditional banks, but this falls to 19% for challenger banks). Challenger banks need to develop messaging to directly address these areas of vulnerability, and communicate consistently through all consumer touchpoints.
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